Amy Macy

To try and distinguish between special products and special markets can be difficult. It would be similar to asking the age-old question, “What came first … the chicken or the egg?” Are there special markets because the industry has created special products, or are there now special products because special markets now exist? Many would say “YES!”

Lifestyle

With the emergence of lifestyle and specialty product retailers, a new outlet for music has evolved. When grabbing a cup of coffee from Starbucks, it’s hard to ignore the “cool” music playing and the CD display that’s right under your nose. A visit to Pottery Barn or Restoration Hardware elicits more than just home décor, but an ambience that is enhanced by the music playing, which you can replicate in your own home via the purchase of the “branded” CD.

More and more retailers are creating “branded” CDs as product extensions of their retail offerings. Between 1995 and 2003, Pottery Barn sold over 3 million units of music, all of which are an “easy way to put lifestyle in a home,” according to Patricia Sellman, marketing vice-president at Williams-Sonoma (Strasburg, J., 2003). Starbucks promotes music at another level. Not only does the retailer sell music CDs on-site, but also through the website www.hearmusic.com; Starbucks logs the playlists of songs being aired in its stores nationwide. If a consumer hears a song he likes, he can go the website and find out the title and performer, with additional links to the performer’s catalog and online sales site (Finn, T., 2002).

In an unprecedented event, Starbucks has continued its evolution as a significant music retailer. Coinciding with the national movie release of “Ray,” Ray Charles’; final recording “Genius Loves Company” debuted on the Billboard Top 200 charts at number two. Starbuck’s sold more than 44,000 units, which was approximately 22% of total album sales. This percentage outsold both traditional music retailers and mass merchants—making Starbucks the number one seller during the CD’s first week of sales. “Starbucks continues to be thoughtful and strategic as we extend our reach into the music and entertainment arena,” said Ken Lombard, president, Starbucks Entertainment. “Our expertise in music through the Hear Music brand, coupled with our unparalleled distribution and consumer reach, created what we hope to be the first of many successful music collaborations. It is truly gratifying to see our customers embracing the fabulous CD and purchasing it in our stores” (Business Wire, 2004).

So what is going on here? Why are music consumers purchasing their CDs from the most unlikely brick-and-mortar stores? Starbucks looked at the tumultuous music-retailing environment as “the perfect storm.” As retailers began their pricing wars with the $9.99 CD, music became devalued, and the actual purchasing experience less than sexy. Coupled with the consolidation of radio, which diminished the importance of disc jockeys and their abilities to educate listeners to new music, Starbucks has capitalized on these forces that “have fractured the traditional music industry and diminished the sense of discovery many consumers used to feel about music, giving nontraditional retailers an ‘in’ to capture those consumers” (Yerak, B., 2004).

  Figure 18.1 Starbucks and Hear Music (Source: Starbucks press release, Sep 9, 2004)

The benefits

Why, then, are artists aligning themselves with retailers? What is the benefit to them and their existing record label partners? Initial response would be money. The licensing of existing recordings from labels can be very lucrative. Because labels never know the value of their recordings long term, record companies find it hard to calculate the forecast of licensed product. Often, the licensing of music is considered “gravy”—monies generated beyond the “meat and potatoes” of the business. But to address the burgeoning market, many conglomerates have created “special markets” departments devoted to mining the catalog of their holdings and finding new, innovative homes beyond traditional music channels. Additionally, private marketing entities have emerged as potent messengers for products including an innovative organization called Rock River, a leader in branded CD production.

Artists also win in the exchange of private label products that carry their music and image. Hallmark Gold Crown stores have partnered with several artists, with one being James Taylor. His “A Christmas Album” sold over 1 million units during the 2004 holiday season. Taylor’s last release “October Road,” released in 2002, was the final recording for his Columbia Records contract and he had not re-signed with any other label. “Mr. Taylor is thrilled that so many people are getting to hear the music and that he had an opportunity to record this album,” said Gary Borman, who manages Mr. Taylor and stars like Faith Hill for Borman Entertainment. “There were no financial-incentive issues to worry about, and no artistic issues, either. It was a very fair sharing of the pie. It made it simple” (Ogunnaike, L, 2004). With the purchase of three Hallmark cards, consumers could purchase James Taylor’s “A Christmas Album” for $6.95, or could buy it direct for $10.95.

Hallmark released a Valentine’s Day-themed CD for 2005. Using market research, “We went to our core consumers and asked what artists they’re connected with. Martina [McBride] was on the top of the list. It’s to drive new consumers in; Martina McBride fans that may not currently shop in the store,” says Ann Herrick, integrated marketing manager for Hallmark (Ebenkamp, B. Wasserman, T., 2004).

In the case of James Taylor, Hallmark offered an after-burn market for the artist and his music, capitalizing on name value and music, as well as tapping older consumers familiar with his work who are no longer active music purchasers. Martina McBride may find new fans, since consumers with similar buying practices to current fans already frequent Hallmark, making the alignment a win-win for all three parties: Hallmark, Martina McBride, and her record label, RCA.

Enhancing careers

“Matching music to a vehicle’s image is essential to developing a consistent and credible message,” says Rich Stoddart, Ford Division’s marketing communications manager. In recent years, car advertisers have paired Led Zeppelin with the new generation of Cadillac, Aerosmith’s “Dream On” with Buick LaCrosse, and Jimi Hendrix’s rendition of the “Star-Spangled Banner” with the 2005 Ford Mustang. While music “won’t sell the car,” says Gordan Wangers, president of AMCI Inc., an automotive consulting firm in Marina Del Rey, Calif. “… it is capable of grabbing the attention of the right audience to say, ‘Here’s my new car and here’s my message’” (LaReau, J, 2004).

Ford uses country music to market its F-series pickups. The theme song, “Ford Truck Man,” was written and performed by country superstar Toby Keith. Clearly, the attention of the right audience has been grabbed. Research validates that pickup truck owners are country music listeners, and Ford is trying to reach this broad audience where it taps its foot … and gas pedal. Aggressive advertising, including radio, television and print, prominently display the artist’s image along with the pickup, ensuring a connection between message and messenger to the consumer.

But in the case of Mitsubishi, the music can get in the way of the automaker’s marketing message. Their TV advertising campaign featured a band called Dirty Vegas, showing young people dancing in their cars to the group’s techno-music. “Mitsubishi sold a ton of records for Dirty Vegas but not a lot of cars. It was a marketing debacle,” stated market analyst Gordan Wangers. The 2002 release by Dirty Vegas has scanned over 550,000 units, with the bulk of those sales during the Mitsubishi advertising push. Since then, Dirty Vegas has released several more albums, with none of them scanning over 10,000 units.

Product extensions

Under the description of “special products,” many labels are attempting to capture more of their current consumers’ dollars by creating product extensions of a specific artist’s release. The concept is to cover the losses being generated by file-swapping and burning by creating “super-size” versions of the bigger releases, and targeting hard-core fans that are willing to dig deeper into their pockets in order to have the “special” release. According to research done by the Handleman Company, which provides music for both Wal-Mart and Kmart, “23% of music buyers account for an estimated 62% of album sales, buying an average of a CD every month” (Leeds, J., 2004). Though sales vary, a deluxe edition commonly accounts for 10–20% of an album’s overall volume; and they usually carry a much higher profit margin, executives say.

“In this climate, where everyone is bemoaning the death of the CD, and we’re all talking about price pressure, there is a growing market, which record companies are hoping to develop, of people that are happy to pay more money for value,” said Steve Gottlieb, chairman of the independent powerhouse TVT Records. They released two versions of Lil Jon & The Eastside Boyz’ rap hit “Crunk Juice,” one with a single CD, and one with two CDs and a DVD. Joining the “special” release crowd is Interscope’s release of U2’s “How to Dismantle an Atomic Bomb.” This release has three versions: The 11-track, $10 basic version; or for $32, a fan can purchase the “collector’s edition,” including a DVD and 50-page hardcover book. The mid-priced version has the DVD but no book. But if a consumer buys a new “U2” Apple iPod, they get a pre-loaded version of “How to Dismantle an Atomic Bomb” for free.

Other examples include Green Day’s “American Idiot,” whose deluxe version sells for $25 and includes a 52-page hardcover book. Eminem’s “Encore” CD collector’s edition sells for $27, and includes 25 photos of the rapper along with a bonus disc granting access via the Internet to Eminem cell phone ringtones.

“The concept of holding on to a fan was eroding for a lot of reasons—other interests in the digital world,” said Tom Whalley, chairman of Warner Brothers Records. “We’ve sold the CD as if there’s one type of buyer for 15 years. There are different kinds of buyers.” Warner Brothers Records released three versions of last year’s Josh Groban album “Closer,” including a “fan edition” that was sold only through the singer’s website and fan club. The basic CD included thirteen songs, the limited edition included two extra songs and a DVD, and the fan version, listed for $29.98, included two more songs and the DVD. Sales ranged from more than 4.1 million copies for the regular CD to about 15,000 of the top-of-the-line version (Leeds, J., 2004).

Labels have continued to expand the limit of their CD offerings, and they “found that there’s not a ceiling,” said Jennifer Schaidler, vice president of music for Best Buy, the electronics retailer based in Richfield, Minnesota. “If you put the right value to the consumer, you can charge more.”

Compilations

Since moving pictures became “talkies,” music has been an integral element to the success of the movie business. Early in the evolution of movies, the industry would hire actual singers to play a part, integrating music and story on-screen. Often, the music from these movies would become nationwide hits and the popularity of the singing stars would explode, making many of them classic voices of the genre. Movie soundtracks have continued to evolve, with the 1960s delivering Sergeant Pepper’s Lonely Hearts Club Band, and The Graduate with its hits “Mrs. Robinson” and “Scarborough Fair.” The 70s included Urban Cowboy, Grease, and Saturday Night Fever, all containing a common thread of one very hot actor, John Travolta. The 80s brought about Footloose, Dirty Dancing, and Roy Orbison-famed Pretty Woman. The 90s elevated Whitney Houston to a new level of superstardom with her film debut in The Bodyguard. And Celine Dion reached new heights with her mega-hit “My Heart Will Go On” from the epic Titanic. All of these soundtracks contained songs that would eventually become huge pop hits, selling millions of units and igniting a new kind of consumer to purchase music.

Soundtracks have learned the lessons of the past, while keeping up with the purchasing practices of today’s music consumers. With file-sharing, many music purchasers have become their own disc-jockeys, collecting and burning their “personal soundtracks” containing the individual songs that they want to hear. By compiling songs that capture this spirit while representing the theme of a movie, soundtrack managers have fashioned a “genre” of music that has produced sales.

But sales for the genre have slipped in recent years. In the last two years, 2003 produced four soundtracks that sold more than 1 million units, including Chicago, Bad Boys II, The Lizzie McGuire Movie, and 8 Mile. For the same year, soundtracks comprised about 5.1% of total album sales. For 2004, soundtrack sales sold 4.2% of total album sales, with no single title passing the 1 million unit sales mark.

Movie popularity can carry soundtrack sales, even without radio airplay. In 2004, The Lord of the Rings: The Return of the King, and The Passion of the Christ were two best-selling soundtracks that clearly illustrate sales power without radio. Sony Music Soundtrax president Glen Brunman says consumers believe a great soundtrack is “not only a souvenir of the movie but also something that you can experience as a good collection” (Hay, C., 2004). Other soundtracks released in late 2004 that had substantial sales without radio airplay include Ray, Shall We Dance?, The Polar Express, Mile, Dora the Explorer, The O.C.: Music From the O.C.: Mix 2, Garden State, and Team America: World Police.

There was a time when soundtracks needed superstar performers and top hits to drive sales. But a new consumer is recognizing the value of lesser-known, mid-level acts. “You don’t need a star act,” Universal Pictures president of film music Kathy Nelson says. “So if that means [retaining] an artist who is relatively unknown but people see the movie and say, ‘Wow, that’s fantastic,’ that’s great.” Targeting an audience and cross-promoting seems to be a powerful combination in connecting soundtracks with consumers. Disney continues its bond with a younger audience by synergistically focusing its marketing strategies where its consumers exist—the Disney Channel and Radio Disney. “The Cheetah Girls,” a movie and soundtrack, has scanned over 750,000 units due to its repeat airings on TV and promotional activities on radio. Plus, the ongoing web presence of Disney-branded products validates to power of targeting an audience (Hay, C., 2004).

Record label A&R reps, along with music publishers, mine film and television opportunities aggressively. Placing a recording and/or song on a movie soundtrack or television score can only positively affect the bottom line of a company. Developing relationships with music supervisors for film and television is the key to securing these coveted positions. The Hollywood Reporter, along with Variety magazine, keeps industry watchers in the know about upcoming productions, cueing label and publishing reps to the opportunity to place a song in a soundtrack. In addition to in-house representation, both labels and publishers are using the knowledge and connection of specialty brokers. Similar to that of independent radio promoters, these brokers will represent a catalog in the marketplace and are rewarded in the success of the movie or television placement by receiving a percentage of the royalties.

There is a new concept in which movie makers are contracting prominent musicians and artists to conceive the music and create an original score. In this case, the movie production company has created a “work for hire” scenario, where the film company then owns the music. And of course, if the movie and/or soundtrack gain popularity, it’s the movie production company that reaps all the benefits (David Haley, Compass Records, personal interview).

Taking a page out of the soundtrack playbook, non-movie compilations have emerged as powerful sales items, as well as marketing tools. The Now! Series music soundtrack is considered the most successful compilation collection in the history of music sales. The U.S. participating collaborators include EMI Recorded Music, Universal Music Group, Sony Music Entertainment, and the Zomba Group, with the albums rotating among Sony, Universal, and EMI for marketing and distribution. The U.S. series has generated about $325 million in billing since its inception in 1998. The key to its success has been the hits, since the brand relies on the top singles to drive sales.

Intangible is the impact on sales of participating artists. Someone purchasing a Now! CD might know three or four of the artists on the package, but the consumer most likely is introduced to a new act that they might also enjoy. The residual purchase of the full-length product of that new act is the result of this cross-promotional item.

Products in the music

Busta Rhymes single “Pass the Courvoisier” was a hit at both radio and with the consumers of Allied Domecq brand of cognac. Although the rapper was not paid to write the top-shelf liquor into his song, the artist wrote the hit after trying the drink, compliments of hip-hop entrepreneur Russell Simmons, who instigated the relationship between the brand and the artist. Simmons continues to brand extensions, including a clothing line he started called Phat Farm. Motorola has partnered with the attire division to position its phones as a fashion accessory. Rappers 8Ball and MJG’s song about Grey Goose vodka increased the sales of the liquor by 600%, prompting a relationship that included a two-year Grey Goose Music Tour featuring these artists, plus Bone Thugs-n-Harmony, L’il Jon & The East Side Boyz, Musiq Soulchild, and other artists.

Maven Strategies, a marketing agency that specializes in placing corporate brands into songs, believes that more artists will consider product placement deals since hip-hop specifically sells product. To minimize risk for the corporate partners, Maven Strategies created compensation programs that reward the hits that receive heavy airplay, while songs that do not do well on the radio, receive less. “We value what the hip-hop community brings to the table, but we deal in an environment of unknowns. It’s important to structure agreements that fairly compensate the artists for their capabilities while minimizing the investment risk for our clients,” says Tony Rome, president of Maven Strategies (Banerjee, S., 2004).

Retail exclusives

To lure consumers into a specific store, many music retailers are negotiating exclusive product for their customers. This “value-added” product is called by the industry “superior” versions of an album, and according to the Coalition of Independent Music Stores (CIMS), creates an unleveled playing field. For the 2004 holiday selling season, Best Buy secured “superior” albums for Atreyu and Queen, and scored the exclusive rights to a four-disc DVD set from Elton John. Mass-merchant store Target arranged for an extra cut on the new “Simple Plan” album from Lava, and negotiated three extra tracks on Twista’s “Kamikaze” release. Who wins but the consumer that chooses the “right” store in which to purchase their new music? But CIMS looks at the “superior” product practice to be anti-competitive and hostile, and has decided to apply sanctions within their store environments. Pricing and positioning advertising along with awareness programs will not be enforced, and the stores will refuse to report sales or chart positions for any artist and product released by the affected label. Although these stores can be instrumental in launching the careers of developing acts, the overriding power of the larger merchants usually undermines these types of policies, and the practice continues.

Nontraditional music retailers are getting into the act as well. Through the 2003 holiday season, Amazon.com offered daily exclusives as a promotion to drive holiday sales, while increasing pre-orders of upcoming releases. Concert footage from a fall Springsteen concert at Fenway Park was given to those ordering the upcoming release, “The Essential Bruce Springsteen.” Other exclusives included a full-length Counting Crows concert, filmed exclusively for Amazon, and video footage of R.E.M. at a spring 2003 rehearsal in Vancouver (Garrity, B., 2003).

The trade-off for giving away exclusive tracks is gaining valuable marketing real estate and promotional efforts put forth by the retailer. Specifically in the holiday season, marketing programs such as front window displays, product dumps, and in-store positioning can double in price. But at any time of the year, co-op advertising and marketing efforts with national retailers is expensive, so leveraging the assets of the record company, the addition of a single track of music, which may have never otherwise seen the light of day, can be smart business and a profitable venture.

Tour sponsorship and more …

Not to be confused with label-funded tour support, tour sponsorships are considered those ever-important financial relationships between product and service providers with artists who can emote their message. Beyond tour sponsorship and sync licensing, many record labels wanting to tap the deeper pockets of consumer brands, have positioned their acts for lucrative partnerships. Activities such as product placement, DVD underwriting, and digital tie-ins are being explored at the L.A. Office RoadShow’s Music Day. BMG scored a label-wide deal with Boost Mobile and Motorola. Boost and Motorola will sponsor R&B artist Mario’s promotional tour in 30 major markets where the Boost service is launching. The companies will also sponsor Mario’s release parties with their logos placed prominently on his new CD release.

Traditionally, tour sponsorship was monopolized by “sin” products, since there were so many restrictions of ad placement and targeted audiences. But new entries in the tour sponsorship business reflect star power and the need to sell … anything and everything. In the summer of 2004, Jessica Simpson’s 41-stop tour was sponsored by Proactiv® Solution for $225,000. The skin care brand wanted to build awareness using the positive association with her celebrity status. In exchange for the sponsorship, Proactiv received on-site branding, placement in programs, radio station ticket promotions, and a behind-the-scenes look at Jessica’s skin care regiment.

The Destiny’s Child tour for 2005 included a U.S. sweep, plus a nine-country international tour and McDonald’s sponsored these concerts for $5 million dollars. Building on the pop music relationship of the past, including Justin Timberlake and Alejah Fernandez, Destiny’s Child will help brand McDonald’s internationally by appearing in TV ads and in-store marketing elements. They will also serve as worldwide ambassadors for World Children’s Day at McDonalds, funding Ronald McDonald House and other children’s causes.

Not just artists, but venues are catching some of the action as well. Clear Channel Communications secured a $750,000 deal where 16 of its venues will be sponsored by True, an online dating company. Many of the venues’ second stages carry the True logo, live dating games occurred between acts, and radio promotions through Clear Channel’s website were offered.

These deals are secured in various ways. Sometimes the record label and its conglomerate will help broker the agreement by being the intermediary of the artist and product manager. Additionally, artist managers can be approached directly by product representatives. And, on occasion, a third-party music marketing company will help with a hook-up between a product and an artist, assisting in the navigation of very different corporate cultures and agendas.

As the discretionary income of consumers continues to fragment to the many entertainment choices, music makers are becoming very creative in connecting with buyers. As the “perfect storm” continues to rage, with file-sharing, price wars, radio consolidation, and conglomerate mergers, record labels and their artists will need to continually mine the marketplace for willing partners and entertainment synergy. No longer are “special” markets and products considered incremental business to the bottom line, but this evolving revenue source is essential to the survival of the industry.

Glossary

Branded CDs – A CD sponsored by and sporting the brand of a company not normally associated with the release of recorded music. Examples include product designed for and sold at Pottery Barn, Pier 1 Imports and Victoria’s Secret.

Brick-and-mortar stores – Businesses that have physical (rather than virtual or online) presences, in other words, stores (built of physical material such as bricks and mortar) that you can drive to and enter physically to see, touch, and purchase merchandise.

CIMS – The Coalition of Independent Music Stores.

Compilations – A collection of previously released songs sold as a one album unit, or a collection of new material, either by single or multiple performers, sold as a collaborative effort on one musical recording.

Cross-promotion – Using one product to sell another product, or to reach the market of the other product.

Exclusives – Retail exclusive marketing programs that are not offered to other retailers, but arranged specifically through one retail chain.

Private label – A label unique to a specific retailer.

Tour Sponsorship – A brand or company “sponsors” a concert tour by providing some of the tour expenses in exchange for product exposure at the events.

Superior products – A value-added version of a product that is sold in the “regular” version elsewhere.

Value-adds – To lure consumers into a specific store, music retailers offer exclusive product for their customers.

Bibliography

Brandweek, Sept 20, 2004 v45 i33 p10; Martina McBride, Hallmark, Fall in Love This Valentine’s Day With My Heart; Grammy Award®-winner’s CD to be available exclusively through Hallmark.

Business Wire (August 31, 2004). Starbucks Coffee Company and Concord Records Release Landmark Recording.

Ebenkamp, B. Wasserman, T. (2004). http://pressroom.hallmark.com/music_val_martina.html.

Finn, T. (September 3, 2002). Stores from Starbucks to Pottery Barn are marketing recordings, The Kansas City Star.

LaReau, J. (Dec 20, 2004). Music is key to carmakers’ marketing. Automotive News, http://goliath.ecnext.com/coms2/summary__0199–3523938__ITM&referid=2090. v79 i6126 p22

Ogunnaike, L. (December 17, 2004). James Taylor’s Got a Friend at Hallmark Cards, New York Times, http://www.nytimes.com/2004/12/17/business/media/17adco.html.

Strasburg, J. (July 25, 2003). Bands to fit the brand; SF company’s CDs sell for likes of Pottery Barn, The San Francisco Chronicle.

Yerak, B. (Nov 11, 2004). Retailers branch out for holiday, Chicago Tribune.

Leeds, J. (2004). New York Times, Dec 27, 2004; $10 for a Plain CD or $32 with the Extras.

Hay, C. (2004). Movies & Music: Director Hackford on the Genius of ‘Ray’, Billboard, 116, (47), pp. 10. Nov 20, 2004.

Banerjee, S. (2004). Digital Entertainment: New Ideas, New Outlets, Billboard, 116, (45), pp. 47. Nov 6, 2004.

Garrity, B. (2003). Amazon offering exclusives through holidays. Billboard Bulletin, Nov 4, 2003.

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ⁱBusiness Wire, Sept 9, 2004