The recent news that Wal-Mart is demanding a CD price cut from record labels sent ripples throughout the music industry. Wal-Mart is the nation’s largest music retailer, and they are threatening to pull out entirely from selling CD’s to make room for more profitable product lines (such as iPods, video games, DVD’s). The chain’s recent success selling the Eagles CD exclusively (bypassing traditional labels and music distribution) gives them even more leverage in a rapidly changing music retailing landscape.
Other music retailers watching from the sidelines will await the outcome of this latest skirmish and will also demand concessions of their own to remain competitive. With the costs of doing business at the labels (including finding, launching and developing new artists) on the increase the pressures mount on several fronts. Labels and artists are being pressured to perform like never before.
If Wal-Mart decides to stop selling CD’s it will not have a significant impact on their sales, as they maintain music only accounts for about 1% of their sales volume. Unfortunately the labels (especially certain genres like country) rely on Wal-Mart to the tune of about 40% or more of their sales base on every release. Imagine the quantum shift Wal-Mart’s exodus would create for the music industry. Labels are struggling as-is to not only break new artists but maintain sales bases for their established acts at retail.
Digital sales, while on the upswing do not offset the losses on the physical side at retail. Another trend is the consumer’s desire to pick and choose only the hits, or the songs they like and not the entire album. The next generation of music consumers will not be tied to the prior generation’s album-mentality when it comes to their buying habits. Labels and artists have to develop new sales models to maintain revenue streams and incentivize consumers to step up for their product. Many are experimenting with product exclusives, such as bonus tracks and video content. Some are attempting to drive customers to their web sites for bonus material or opportunities for fans to obtain early access to concert tickets.
The emergence of Live Nation (who recently inked several high-profile deals with the likes of Madonna and U2) as a powerhouse in the music industry indicates the savvy artist is taking more control over key aspects of their careers. The labels are seeking new models and partnerships with retail and radio, along with Internet vehicles to expose artists to consumers. The competition for the entertainment dollar is fierce in the marketplace, as today’s buyer has many more choices than their predecessors.
MySpace, Facebook and other web-based environments are finding their foothold as launching pads for new artists to grow and cultivate fan bases. The marketing gurus in this new arena are seeking and finding alternatives to traditional radio and TV outlets to expose their art. Consumer-driven and designed content is the new conduit. The music and entertainment customer wants to make their choices and have their individual stamp on the finished product, whether it’s picking their own songs to burn to CD or designing their blog pages.
Another challenge this creates for the labels is the artist development process. How long can a company stick with a new artist until they see payoff? What costs should be shared by the artist in this plan? Look at the development of classic artists like Bruce Springsteen, Billy Joel, et al (neither of which had early commercial or radio success) and wonder if they would have stood a chance in today’s environment. Where is the next generation, and who is passing the baton? The future of the industry will evolve at its own pace, but hopefully the “gatekeepers” will make the right decisions and there will continue to be viable artists.
Meantime, the retail landscape will continue to be a challenge for the labels and the artists, regardless of who is in charge or picking up the checks…
David Sanders is Nashville Label Manager for Koch Entertainment Distribution