Music groups tune into new channels

Music distributors are finally beginning to tap into new delivery channels, threatening traditional music stores in a declining market.

Cautious, confused and lumbering are surprising words to describe a media industry which prides itself on being in tune with its consumers’ lives.

But as the music business struggles to carve out and control new distribution channels these words are cropping up only too often.

The major music companies are experts at marketing artists and labels as brands, and controlling their distribution through record shops.

But as new means of delivering music develop – through the Internet, mobile phones and partnerships with third-party brands – the major labels are beginning to act like traditional marketers to take advantage of new opportunities.

Record companies have begun to sign up classically-trained marketers, cutting deals with packaged goods brands to promote music and buying shares in music-related Net companies.

To exploit the Net as a new distribution channel, music companies are moving from marketing artists to marketing a “lifestyle” brand in the hope of leading consumers from one artist within their stable to another.

This will eventually allow revenue to be made from digital downloads through their own secure versions of MP3 technology.

Stephen Mulholland, managing director at independent radio production company Wise Buddah, says: “Opportunities are opening up for music brands to position themselves as lifestyle portals.

“Some of the more clever labels, which have always been better at niche marketing than the lumbering majors, are beginning to realise the Web’s power in bringing together entire communities of interest, encompassing fashion, music and travel.”

Because “music defines community”, according to Mulholland, it has a lead in creating online communities. He says: “The music companies are concerned with getting the traffic through a single address, and then fanning consumers out across a range of labels or genres.”

Universal is moving in this direction. It has set up a Website, Jimmy and Doug’s Farmclub, to act as a portal for a wide range of its music.

The alternative is many separate and expensive sites with their own address, identity and community, operated by the same record company, a thankless task.

The Time Warner-America Online-EMI deal shows the scale of possibility for exploitation across content and distribution channels.

But Mulholland thinks the sheer size of the new organisation may hinder its development, leaving it “flat-footed in a market where the speed of new developments is breathtaking.”

EMI has struck Net deals, such as its partnership with US software house Supertracks, to make its recordings available online. EMI has already put its catalogue on musicmaker.com to enable customers to create CDs online.

Tony Ragan, co-founder of custom-CD company Razorcuts, an ex-BMG man and former UDV marketer, believes the EMI/Musicmaker deal was a breakthrough giving momentum for the other labels to follow suit.

Ragan says: “There is a certain amount of “me too” among the labels and not many people have stuck their necks out. There is a lack of understanding within record companies about how to proceed and who is driving the changes. No one knows who makes the decisions and the buck gets passed.”

He continues: “They are good at building brands in the form of bands, not brands for Websites or other e-tailing opportunities. They just haven’t got the expertise.”

Record companies are being asked to back another new distribution channel, the Virtual Music Store (VMS), which is being pioneered by radio group GWR, owner of Classic FM and technology company Cerberus.

Small VMS terminals can be installed in music and non-music outlets and allow customers to choose from a digitally updated range of music to compile personalised CDs.

Sir Peter Michael, chairman of Classic FM and champion of VMS, believes VMS has the potential to increase music sales by ten per cent a year within two years. He intends to have VMS in 1,000 stores by the end of 2001.

Michael says: “We have to be collaborative, VMS involves radio and music companies, retailers and brands. It is difficult for some organisations which want total control. We need a change in mindset, especially as we are facing a declining music market.”

But as channels of distribution increase, will there be less emphasis on the traditional channel, the record store, which is already fighting for customers? According to Universal Music, supermarkets have an 18 per cent share of total record sales from a standing start four years ago.

HMV is closing its 80-year-old store at 363 Oxford Street and opening a new one opposite with interactive and entertainment attractions to give customers an added reason for visiting.

HMV spokesman Gennaro Castaldo says: “There are increasing opportunities for music companies to use their content: the music. They are jockeying for the best position to exploit the Net and new media in an increasingly global environment. Engaging with third-party brands to make the most of the content is understandable.”

He believes retailing and new methods of distribution are not mutually exclusive. And, as the majority of sales are generated through traditional retailers, Castaldo is confident of a continuing commitment from the record companies.

“There is nothing to show that the music market will not grow because of the impact of new technology. It might build the market by reaching more people,” says Castaldo.

Mike Levine, marketing director at Peoplesound.com, the online record label for unsigned bands, says: “The standard form of marketing, producing and distributing music has changed. There is a shift in the record companies to acknowledge this, but they are slow to change and must be careful of upsetting retailers.”

The major record labels have been slow to tap the potential of emerging media channels to deliver their product and music in new ways. But strategies are emerging. Decisions made over the next two years will probably be crucial.

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