Direct to Consumer
Jun 8, 03:14 PM
As many of you know, I work for one of the four major record labels which have a well documented struggle in a declining industry. Many people have asked me how things are faring. In a nutshell: not so great but not horrible either. Physical sales are declining faster than digital is making up for it, customers are buying less full albums and more singles, and raising prices have the potential to drive customers toward piracy. But it’s not like sales have driven off a cliff either. Sales through iTunes are still growing even thought that growth is slowing down.
So it’s not the best situation. The labels are largely facing this dilemma because they outsourced their core-competencies to Apple. To make matters worse, many of the advantages they could offer to musicians have withered away. Cash advances on music recording are less valuable now that bedroom studios are good enough for most musicians. Even big stars would rather build their own studio where they have full control than use the label’s studio. Global distribution is rapidly being taken over by Apple’s iTunes Music Store.
The marketing muscle behind the labels used to be a sure way to success as a musician. The labels could place whatever album they wanted to push in prominent store displays in hundreds of record shops all over the country. Radio stations across the country would follow in lock-step. This gave them immense control and power in the industry. With the rise of myspace, Apple, small indie labels and the loss of physical sales, their control over the market place is now largely gone.
This isn’t to say that it was unreasonable for the labels to plot this course. They were following the money, but it lead them into a dead-end. I think the label’s push into direct-to-consumer is a huge recognition of the market place reality. There are, however several bumps on that road as well.
Customer Trust
One of the reasons the labels weren’t as successful at building an online store as Apple was is that their motivations are wrong. Customers want to trust their store to recommend music based on how much they will enjoy it, not how badly the label wants to sell it. As an example, right now Radiohead’s two-disc “best of” album has two stars on iTunes because many fans are mad that it wasn’t put together and sanctioned by the band.
This will happen in the music market because the customers are loyal to the band, not the label. For the labels to be successful with their own music store, they would have to sit on their hands while the album they are trying to recoup losses from gets panned by listeners. Customers need to see some albums with one star in order to trust that the albums with four actually earned it. A music store is not kindergarten. They can’t all be winners.
Here, the label’s motivations simply conflict with their customers’. As the person who has control over the comment delete button, you would have to decide between getting this sale today, and building customer trust over the long-term. The major labels don’t have that much self-control. Apple doesn’t have this problem. They don’t care if you buy the latest hit from Warner or something from Sony’s deep catalog. Either way, they get paid the same amount.
The second issue with the direct-to-consumer model is that you may have to re-price your product. It’s easy to make a cool website when you have a pile of free content people want to hear ready to stream out. This is exactly the situation the labels are in but sending out the content for next-to-free may bite into their download sales. The low cost of steaming content may lower the perceived value of downloadable content. When small streaming start-ups like muxtape, Last.fm, or imeem launch, they typically value the music at “free” without worrying what that means to download sales. Going from a low volume/high profit margin model to a high volume/low profit margin model is exactly the kind of move that a large corporation gets hung up on.
Talk to your customers
The biggest advantage of the direct-to-consumer model is that as you start getting closer to your customers, you better understand what they want. Apple has a better understanding that a variety of content makes their store more compelling, more hip and more trustworthy because they are closer to the customers. It drives the labels crazy that Apple keeps picking unknown artists like Yael Naim for their commercials because they are unprepared to really push those artists. Yeal doesn’t even have a US release yet. Apple knows that these deep-catalog cuts are what make digital downloads compelling and don’t really care that volume shipments of a physical product is not ready yet. Picking these tracks to promote gives them a free exclusive and a serious advantage in the marketplace.
While a label run a download store does not make a lot of sense, the labels still get paid by sales on third party sites like the iTunes Music Store. And by dropping DRM for downloads they increase their leverage with Apple. The next big push for the labels will be towards a variety of strategies for streamed content. Ad-supported, subscription, etc…
I am encouraged to see the labels stop smashing themselves against the digital store rocks over and over. By dropping DRM-for-downloads and beginning the conversation directly with customers, the labels can start to identify new directions in music faster, and sign deals that will be lucrative in the future. Over time, they will be able to get the music out there faster and create their own exclusives. They will also be able to provide a better service to their other customers: the musicians.
The halls of the major labels are walked by some of the biggest music fans in the world. We can hope that with more bottom-up communication, and a better understanding of their customers, people will come to trust them as editors, preservationists, and shapers of musical taste.
(read more..)Kristin's New Album Available
Oct 8, 03:38 PM
Some of you may know my good friend Kristin Hoffmann who was recently signed to Interscope records. Her newest album is now available from various sources including iTunes.
Kristin is one of those people who would be making music even if nobody was listening to her. We’re all lucky she enjoys performing and sharing it with us. If you like singer/songwriters then give her a listen or better yet, check out one of her shows. Stand out tracks include Falling and Silhouette.
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