Sunday, June 29, 2008

32 Flavors, but More is Less

News from Seattle last week has Starbucks drastically cutting back on the number of CD titles it sells in its 6,500 locations. And my reaction is, "Thank you and what took you so long?"

Back in the good old days, the Starbucks music initiative was an outgrowth of two small brick and mortar music retail outlets (remember what those were?) called Hear Music. Dealing with them from the label side was always challenging because Hear didn't take everything. They wouldn't even take your money as a bribe to order units which were 100% returnable. But the good part of this relationship was that when they accepted a title, it really meant something. They were going to join you in evangelizing to the unwashed masses for whatever the release was. Customers going to the store were well aware of this dynamic and came to trust the taste of these gatekeepers.

It's like the Seinfeld episode when Elaine completely trusts Vincent's picks and is undone when she strays, at Kramer's urging, to one of Gene's picks ("Weekend at Bernies II," fittingly enough).

So when Starbucks started carrying CDs, we all sang, "Huzzah" at the prospect of the Hear concept being scaled up on a massive level. And it worked, at first, but the powers that be became less discriminating, and the idea got diluted to the point of rendering the whole thing ineffective beyond the blockbusters like the Ray Charles disc. Someone in Seattle thought they could be a major player in the entertainment world. Remember how they were going to start promoting movies and books? Even though one of their executives once told me that he knew that they were a coffee company and no matter what success they may have in selling CDs, they would ALWAYS be a coffee company, their behavior was the height of cognitive dissonance.

From a practical viewpoint, they also had a massive shrinkage problem with thousands of CDs walking out the door under raincoats or in the scone bag. And as far as being able to coordinate company wide promotions, having so many titles made it close to impossible. Do you have any idea how hard it is to ensure store compliance on one title when you're dealing with a chain of only 400 stores? And you want to do that with 20 titles across 6,500 in 50 states? Not so much.

Ironically, many acts who sold well at Starbucks earned a Pyrrhic victory in regards to long term artist development.I remember talking to the manager of a Starbucks featured band and she was relatively unimpressed by the sales story. When I gave her a quizzical look, she invited me to do the math. If there's an 8 week promotion and the CD sells 3 copies per week in every store, then you have 156,000 sales which in these times is an enviable total. But because the sales are so spread out, it's not as if the act is gaining any type of critical mass which one would expect in a regional breakout story.

In a neat piece of corporate symmetry, since I started writing this post, Starbucks has also announced the closing of 600 stores, including 1 out of 5 U.S. company operated stores which were opened in the past two years. Get the message? There's a point at which having too many offerings starts collapsing the model.

So let's hope that this new focus will enable Starbucks to have a hand in artist development for worthy projects, although we assume that the four slots for CDs will be taken up by releases on Concord Records which markets and distributes Starbucks' Hear label. And for all the other marketers out there, please remember that there's no shame in doing a few things VERY well.

Friday, June 6, 2008

Can We Call for a Do-Over?

A friend of mine who's an ardent Yankee fan ( I do make exceptions on occasion) just sent me the seat pricing schedule for the 2009 season, the inaugural of the new Yankee Stadium. In a word--INSANE. A ticket in the first section from the field will now cost $850 and one out in Section 11, way out towards the right field corner is $500. When I asked him if they're actually going to be able to sell all those seats, he immediately replied, "Every single one of them, but not to me."

One can only guess that the reason for charging the high prices is "because they can." Sure, you'll get all the hedge fund geniuses to buy in, but what about the bread and butter fan? Screw 'em, and let's not even concern ourselves about how this is ultimately guaranteeing the continued decline of our National Pastime. Even if you bring your own peanuts, there's no way the average family can make going to the ballpark a regular habit. Facing this economic reality and the contempt that the Yankee organization is showing to its customers, it wouldn't be far fetched to think that fans are already daydreaming of a way to beat the system. Maybe they can but a bleacher seat and schmear one of the ushers in the good sections. Maybe they can get in on a scalping scheme so they can sell enough tickets at a markup to afford one good one.

Sound familiar? Roll back the clock to the first ten years of the CD age. Record companies and retailers charged as much as they could (with one retailer actually selling CDs for $19.98 or $1.00 MORE than list price). Why? Because they could. They figured that the demand was there; the consumer was an early adopter who had more disposable income. Instead of looking to keep customers for the long term, the idea was to cash in while they could. And look what happened. The average consumer got so pissed off that they were just waiting for the day when they could stick it to the Man, even if the artist was getting hurt as a result. And when the Big Boxes treated CDs as a loss leader and started pricing them impossibly low, it only supported the suspicion that the consumer had been being ripped off the whole time.

As soon as the technology became available a gigantic sleeper cell of bitter and betrayed consumers was aroused and put into action in a file trading, CD-burning, hard drive swapping frenzy. Payback is a bitch. When people feel aggrieved and taking advantage of, they have no problem rationalizing sociopathic behavior.

It seems fairly reasonable then, that part of iTunes' success has been its pricing model. "99 cents per song, for every song? That seems reasonable and fair. I'm in. " It's the same tact that Southwest Airlines is taking in the face of every other airline charging fuel surcharges, charging for checked bags, charging $150 change fee, etc, etc, etc, Southwest is running full page ads touting the transparency of their fares and the respect that they show their customers.

I wonder if the record industry would be in this pickle had they shown their consumers the same level of customer-centric behavior from the very beginning. Lacking a WABAC machine, we'll never know. But one thing we do know is that if we don't figure out a way to let music fans buy product at a price which is fair and which makes them feel good about the process. then we're destined to go the way of the railroads in the jet age.

Monday, June 2, 2008

We Don't Need Help Self-Destructing, Thank You

I just read an article on how Staples is going to start selling DVD movies that will self-destruct after 48 hours. Now being a good capitalist, I don't have a problem with the company, Flexplay, trying to make a buck flogging a technology that seems like a sure business loser. And if Staples needs something else to clog their shelves, mazel tov. What I do wonder is what movie studios are stupid enough or desperate enough for a little more money in the quarterly forecast to go along with this scheme.

So, let me get this straight, let's take something that has established itself as a superior product that has huge consumer appeal, largely on the basis of its archival potential (admit it, you still have at least 20 DVDs in your collection with the shrinkwrap still on them, but at least you HAVE them) and make your customers think of them as disposable junk.

The same can be said for the music industry. Has anyone ever had a legitimate complaint about audio CDs, beyond an issue with the quality of the source material? The CD is a product that everyone loves, even if it's being used to burn pirated material. So while the record labels and distribution companies are placing most of their eggs in the digital and mobile baskets, the CD is being treated like a bastard stepchild. I'm no Luddite and certainly digital will be the heavy half in the near future, but it's puzzling as to why everyone is so happy to run away from a product that has been so successful and has achieved such ubiquity.

How about focusing on how to make the CD offering not just cheaper, but better with clever packaging, and bonus materials (and I'm not talking about ringtones)? Let's stop perpetuating the idea that CDs are relatively worthless and use our imaginations to make them a more compelling consumer offering.

Market, people, market!