Apparently, not everybody thinks that the recording industry is dying. Starbucks is launching a record label here in LA, and Ryan Knoll over at LAVoice isn’t convinced that it’s a great idea.
The rest of the world is getting away from the bricks and mortar store model in favor of e-commerce platforms, but Starbucks sells one of the few products that can’t be outsourced or sold online, beverages, so it has guaranteed foot traffic in a primo retail locations. So Starbucks could sell anything, but why cd’s?
CD’s are a dying a medium. Eventually they will go the way of 8 Tracks and vinyl, so why invest in them now? (read the rest)
I think Ryan might have missed the point on this one. I don’t think Starbucks is trying to compete with online distribution like iTunes. They’re making a play for a different market, one with enormous potential, and I think they’ll succeed.
You know who the number one music retailer is? It’s not iTunes, or Tower Records (may they rest in peace). The number one music retailer is Wal-Mart. In fact, the top 3 are Wal-Mart, Best-Buy, and Target, none of whom are music-specific outlets. Wal-Mart sales are something of a quiet frustration to the music industry, and not just because they have the retail muscle to affect CD prices industry wide. You know who Wal-Mart sells CD’s to? People who don’t buy music.
They sell to your aunt, who hasn’t bought a CD in years, but will pick up a Clay Aiken CD in the checkout line while she buys 9 pairs of summer shorts for her kids. They’re not interested in courting music fans. Nobody walks into a Wal-Mart and browses the racks looking to discover new artists. Instead, Wal-Mart uses their traffic and product positioning to turn CD sales into an impulse purchase.
Starbucks has done the same thing with their in-store placement of CDs. They convert traffic and product placement into sales. You walk into their stores, spend 8 minutes in line perusing the menu board while you listen to a continuously running background promo of whatever CD is being sold at the counter, and if you hear a hooky melody or a nice jangely guitar, you decide to pick up the CD. How many people walk through that line in an hour? 50? 100? All with enough expendable income that they’re willing to pay a premium for non-essential luxury goods (you’re telling me that carmel macchiatto isn’t a luxury purchase?). It’s like a record executives naughty dream.
So why get into the production side of the industry? It makes financial sense. Making records is cheap, especially the kind of folk-pop band-jam records that seem to populate Starbucks’ counter space. For $30,000 and a bottle of good scotch, anyone here on this site could knock out one a week.
The real expenses are in marketing and distribution. It’s expensive to get your record noticed, and into retail outlets in a prominent way. Clearly, Starbucks has a lock on providing those two essential elements to their artist roster.
In a typical retail sale of a CD, about half of the sales price goes to the retailer, and about half to the record company. The record company then recoups the marketing budget and the production costs from that half. The artist gets paid a percentage of whatever is left over after that (HA!).
In this new scenario for Starbucks, they now keep not only the retail half of the sales price, but the lion’s share of the remaining profit on the album as well.
What do you think? Does this make sense? Would you sign with the new Starbucks “Hear” label if you had the chance?