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Should Music Labels Be Offering Retail As Part of the 360 Degree Deal? Part 1

In the world of 360 deals, should music labels also offer the bands they sign at retail along with all of their other services.

I worked in the music industry for over 20 years it’s true I remember when vinyl was our key format and we sold up to 25% of albums on cassette or whatever they were called in Spain, K7 (Ka Siete).

Throughout this time, our key partner, or opponent in many cases, has been retail with a capital R. We had to work hard to get our releases released in enough numbers to see in stores, we had to give discounts to get any kind of their help to get our catalog out there, all kinds of campaigns had to and need to be cobbled together to maximize sales. Our only route to market was through brick-and-mortar retail, and at the time, the only way consumers could buy our product was through those same retailers.

As we all know, things have changed. First of all, a huge amount of physical sales go through what are called multiples, stores such as Carrefour, Tescos, Walmart. These merchants rightly want to offer their buyers the most demanded products at the most competitive prices. This has led to a lack of in-store space for a less commercially viable catalog and new artists, both of which are essential to the survival of music labels.

But what about the specialty stores I hear you ask, Fnac, HMV etc… well first they go bankrupt, Virgin, Zavvi, Tower Records are all gone. Second, their focus has shifted from music to game DVDs, BluRay t-shirts, and whatever else they can think of. There is some hope though, the rise of Amazon and in the UK, Play.com, offers the ability to manufacture just about any physical product available, regardless of shape, size, their price and quantity. But even these mega online stores have their limits.

I strongly believe that now is the time for music labels to create their own retail route to market, the benefits to this are many, they all have expensive distribution warehouses or agreements with them, most of these distribution operations are willing and able to satisfy customers. Most important margins can be increased by removing the retailer from the pricing equation, and the extra labor involved and cost of distribution can be easily recouped through more efficient inventory control and lack of returns.

The process has actually started, Universal has Hippo and Warner Music Rhino in the US, in the UK Universal has created a fantastic digital store called Lost Tunes (www.losttunes.com) and Warners has Rhino UK (www.rhino .co. UK). These are just a few examples. What these retail operations don’t do is take advantage of the real strength of the internet and for this reason the business managers sitting at major record labels are not yet convinced that they should be in this sector.

What can be done? How sales can be improved I will cover in my next article.

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