At Open we identify and examine customer issues. At DNA we deliver on that thinking.

"We cannot solve our problems with the same thinking we used when we created them." - Albert Einstein

Convergence

Who’s driving this thing?

Aaron Carson February 2010
music

Has online killed the music retail star?

Six years ago I went to lunch with two local record company representatives. In those days they still went out for lunch. Very, very long lunches…

While discussing a potential project (I wanted to do it and they had no interest), I was startled but also entertained when one of them reached into his bag and tossed something onto the clean white Prego table cloth and announced “see that – it’s HISTORY!” 

What did he mean? It wasn’t a dusty fossil cast out in front of us, it wasn’t an ancient arrow-head, it wasn’t an old book. It was a compact disc. Events from later in the afternoon are foggy, but I do remember the conversation immediately after the tossing incident, and if you had been a record retailer walking past and happened to catch any of this discussion, you’d probably have slipped off to a quiet corner for a bit of wrist slashing.

The online music revolution was already in full swing and the only thing that was certain, was that no one was certain what was going to happen next. Questions swirling around the boardrooms, bedrooms and practice rooms of this previously (seemingly) cash rich and impregnable industry included “if music is free then how does anyone make any money from it?”, “are record companies as we know them finished?”, and “if I’ve got a computer, why would I need a record store?”. 

A lot’s happened since those confusing days, and while this situation is still a moving feast, a lot has also come out in the wash. Technology is more user-friendly and internet speeds have caught up. The major record companies who were criticised for reacting too slowly to what seemed like a car crash in slow motion have consolidated and downsized. Artist contracts now often include a cut of live performance income for the record company - they didn’t need to bother with this income stream in the past. While artists have to tour much more to make a dollar – many big bands didn’t have to in the 80s and 90s.

Meantime, ‘indie’ record companies have flourished, artists have become much better at marketing themselves and iTunes is now a part of our lives. On the flip side, we’ve seen some record retailers disappear, some tread water, and others continue with business as usual.

Many high profile brands are also building ever stronger links with music and there are more genres and sub genres of music than ever. And you only have to walk out your front door and look around to see that there are more ears with speakers in them than without. As of now, there are more artists making music, and more people who want to hear it, than at any other time in history.

So what does this all mean for the humble record store? Is there life left in music retail – or is it a victim of the online music revolution and in terminal decline? I asked some prominent figures in the local music industry what they think.

Paul McKessar - CRS Music Management (Artist Management, Big Day Out, former Flying Nun Business Manager)

Sometimes the heartbeat of music retail looks terminally close to flat lining but there is always a saviour around the corner. At one end of the market, you only need look at the unlikely visage of Susan Boyle on a CD jewel case to see the latest and greatest piece of product to fly to music retail’s rescue and off the shelves at the Warehouse in its hundreds of thousands. And at the other, you can see specialist music stores who have weathered the storm by doing the right thing of offering a range of music tailored to customers they know well and also serving solid niche markets like vinyl (a small but steadily growing market segment for the right kinds of music).

Ultimately, as long as baby boomers still walk the earth, they will need somewhere to go buy a CD at Christmas, Mother's Day or that odd weekend when they see a Boz Scaggs album for ten bucks, while they are supposed to be out buying cheap garden furniture or plastic shoes for their kids. Sure digital is the future for generations beyond ours, but music retail has contracted in survival mode and the truth of the long tail is that there are many more albums uploaded and selling zero copies on iTunes, emusic or wherever than there are making it onto the shelves of music retail.

Paul Roper – The Mint Chicks (Artist Perspective)

I think there is still life left, but only a tiny amount, and music retail will become a highly specialised, boutique field, with only a few stores. I still like to buy records and cds, but I acquire the bulk of my listening material digitally, because it's cheaper. Music retail will have to compete with this if they want a slice... but since I still like to own a physical copy of a record, I sometimes treat myself.

Phil Howling – Warner Music (Major Record Company Perspective)

I personally think that co-habitation of a variety of consumer options will be the end result. Strong retail brands such as JB HIFI, Marbecks and the Warehouse will help ensure a physical music option for the consumer has a considerable way to go yet.

Dean Godward - owner of Bounce Records (Independent Label)

Speaking from the point of view of someone that has labelled one of the most successful groups in our local music history (Nesian Mystik), I can say that it is now too financially risky to invest in emerging NZ talent to produce full length albums. Even with the support of our local funding bodies.

There is a lot of evidence pointing to the demise of the "album" whether it be in digital or physical format. Reasons given are the prohibitively big costs associated with producing full length albums in today’s shrinking music market, driven by the devastating financial impacts of on-line music piracy and file sharing. Of course the iPod and like devises have shaped the way we listen to music in the new music world, where buyers mostly want to choose individual tracks or singles.

Some say that in the popular music market ep's may largely replace the full length album due to lower producing costs, plus the fact they will mostly consist of singles and that they will probably be offered only as a digital download. We are already seeing this happening. Future releases may be a rolled out as a digital single. If that works another digital single will follow. If that works do another digital single and EP. If that succeeds then possibly an album could follow.

To quote the Black Eyed Peas – “our current album will be our last physical album, our next album will only be available as a digital download”. My opinion is that although physical product still factors in our music sales, the physical music retail store will continue to become less of a factor in popular music sales and in the near future may be relegated to a niche shopping experience.

I also spoke to the owner of an iconic local music retail outlet who didn’t want to be quoted. For a brand with such equity and respect he painted a picture that was both a bit desperate and potentially exciting - if they can join the dots and really answer the challenge. But the issues for this operator are many and won’t be answered easily. They include:

  • The cost of presenting a large quantity of product online, verses the unit return is high – grading, image, details etc.
  • The rarer items they have on offer require a mass market which is best served by international auction sites rather than their own website.
  • They will have to invest a substantial amount in CRM to improve their loyalty program, yet one of the few advantages to customers over choosing iTunes is the stores loyalty program discount.
  • Introducing large quantities of second hand product into inventory is not cost effective – it’s numbers not detail based – but it’s core to their business.
  • Smart, strategic/tactical marketing is required as they have maintained a strong loyalty program base but struggled to grow customer numbers in recent years – and obviously, if you’re succeeding in business you must grow your customer base.
  • All of this on the back of a challenging 2009 retail trade – across all sectors.

If music retail is to survive the convergence revolution the way forward seems to be a mix of smart ‘new world’ marketing. That means really understanding your markets and building communities/partnerships that serve sub-groups and deliver on their unique need for personalisation, and self service. In this context, the thing traditional music retail really has to offer is the experience. The touching, feeling, smelling, hearing and tasting the product stuff. The cover art and the story, the physicality of the ‘design quotient’ and the sales person who knows a lot about the artist you love on the other side of the counter.

This is all part of the mix of the ‘old world’ music purchase and ownership experience. I remember the first Husker Du record I bought from Truetone records in Newmarket. The person who served me (thanks Miles) took me on a journey through each of the band's albums and suggested New Day Rising as a great entry point. It’s still my favourite Husker Du album.

The thing to remember is that the music retail market of years gone by was not international – it was local. It’s easy to say the online music revolution is to blame for the demise of several local chains and great independent music stores. But perhaps it’s closer to the truth to suggest that the reason these players didn’t survive is because they weren’t as good as the competition.

So what would happen if an existing and struggling retailer with huge brand equity and loyalty implemented a plan to combine what they currently have with a really smart online resource utilising a broad knowledge base, specialist blogs, a smart CRM tool, message boards, streaming video/audio, tiered loyalty program, member interactivity, tickets to niche live gigs, links to relevant auction sites, association with live gigs and other relevant players in the scene, and savvy social media activity?

This starts to look like a pretty killer offer for any music fan interested in digging just a little deeper. In this mix online wouldn’t just be about the sell, it could be the connection point and platform for real customer interaction. Radio, blogs, reviews, live music and attitude etc could be delivered cost effectively through partnerships with existing entities, and created via relatively inexpensive technology platforms. Mixed with a bit of passion this would seem a heady brew that could potentially attract a lot of punters.

Profit sharing with these partners is where it starts to get really exciting and bloody powerful.  What’s also interesting are the parallels between this idea and what T.White Bikes (featured here in Open #1) has achieved in a different sector. By personalisation and specialisation T. Whites Bikes has gone from a brand new start up shop to winning Metro’s best bike store in Auckland 2009 – in one year. Core to this happening is the fact that the proprietor knows his business and market intimately.

So there you have it. The music market is big, diverse and still full of opportunity...some punters want cheap songs that are of the moment or fads, some want to relive live gig memories, some want complete obsessed fan immersion experiences, and some will always want the tangible and tactile aspects offered by the full service music retail experience.

Comments

No one has commented on this page yet.

What do you think?