Starbucks' exclusive deals with music houses unfair to independent music stores- American Independent Business Alliance AMIBA

8/21/2005

Give me a latte and Bob Dylan
Starbucks' exclusive marketing of albums irks record retailers

By ANDY LANGER / Special Contributor to The Dallas Morning News

For music fans, knowing when to look for a new CD is easy; new albums are released on Tuesdays. But now, knowing where to look may be getting harder.

Since July, there's been just once place to find a set of new songs from John Mayer, Maroon 5 and the Roots. Each of these artists pays tribute to Sly and the Family Stone on a new compilation that is available only at Starbucks. For the next six weeks, the chain's 47,000 stores in the United States and Canada have exclusive rights to sell Different Strokes By Different Folks – a tribute album that also features new recordings from Moby, Buddy Guy and Aerosmith's Steven Tyler. As part of Starbuck's agreement with the album's producers, Sony Legacy, traditional retail outlets won't get the album to sell in their stores until Oct. 11. (That version will include two songs not available on the Starbucks version, a fact not mentioned on the album now being sold.)

Soon, Bob Dylan enters the fray. On Aug. 30, Starbucks will begin selling a previously unreleased 1962 Bob Dylan recording, Live at the Gaslight. The coffee shop is the only place you'll be able to buy the disc for 18 months.

And earlier this summer, Starbucks had a six-week exclusive on Jagged Little Pill Acoustic – Alanis Morissette's stripped-down re-recording of her 1995 blockbuster, Jagged Little Pill.

Now some traditional music retailers are crying foul. In response to the Morissette exclusive, Don VanCleave, the president of the Coalition of Independent Music Stores, fired off an open letter to Starbucks warning that exclusives were making the coffee chain a "moving target."

Mike Dreese, CEO of Newbury Comics, a Boston-based chain of 27 music stores, was one of several traditional retailers who refused to stock Jagged Little Pill Acoustic when it was eventually made available to him.

Online sales are threatening the traditional music store, and artists already release downloadable singles for sale exclusively through sites such as iTunes or AOL. So many retailers appreciate Starbucks and the 33 million potential CD-buying customers it serves each week. But they're worried that Starbucks is simply setting the stage for more aggressive "exclusive" releases from big-box retailers such as Wal-Mart or Best-Buy. Target has already begun to experiment with the idea, offering an exclusive Rob Thomas EP last spring.

"If Wal-Mart gets exclusive access to Coldplay or U2 material, it's going to be a real brouhaha," Mr. Dreese said. "Taken to an extreme it's going to be real trouble.

"Wal-Mart sales account for something like 50 percent of the country music market. What if they said, 'We want exclusives, too, or we won't stock your records.' What do you do then if you're Shania Twain?"

It's not so much the loss of sales on any one album.

"Anytime that any retailer – Starbucks or anybody else – gets the exclusive to sell an album, we don't think it's fair," said Bob Feterl, who oversees Tower Record's Dallas store as the chain's Southwest regional director. "Whether it's a day or a month, it makes us look bad."

Starbucks exclusives were a hot topic at the meeting of National Association of Recording Merchandisers earlier this month. That a huge chain could negotiate a period where they'll be the only game in town was disturbing to some.

"Bob Dylan is an iconic artist, and for 18 months, we're going to be forced to direct consumers to a competitor," says Mr. Dreese. "And it's a price-fixed product. If these records were released through normal channels, there would be a lot more price competition. That's where I think there's a significant public interest at stake – there's nobody to compete and drive the price down."

In an e-mailed statement prepared for The Dallas Morning News, Ken Lombard, president of Starbucks Entertainment, pointed out that Starbucks is simply leveraging its unique marketing and distribution opportunities to the benefit of its customers.

"As the music industry seeks to reinvent itself, Starbucks will continue to explore and develop a variety of innovative CD release models to ultimately transform the way customers discover and acquire music," Mr. Lombard wrote.

Starbucks began selling music in its stores in 1995. Four years later, it bought Hear Music and focused on producing compilations and new albums geared toward thirtysomething Starbucks customers.

The company believed radio, television and traditional music retailers weren't meeting that group's needs.

The Seattle-based chain's most successful disc was released last year: Ray Charles' Genius Loves Company.

The posthumous duet album, co-produced by the Hear Music division, sold more than 775,000 copies in Starbucks locations and went on to earn eight Grammy awards.

In comparison, the company reported selling 170,000 copies of Jagged Little Pill Acoustic during its exclusive period. Tribute albums are traditionally slower sellers; Starbucks has sold 20,800 copies of Different Strokes since July 13.

At the heart of any discussion about exclusive deals, record sales or new marketing techniques is the fate of the traditional record store.

Mike Schoder, who owns two CD World locations in Dallas, says he believes the bulk of his customers ultimately will remain loyal to his stores even if the occasional exclusive leaves him a few weeks behind the curve.

"Our customers want somebody to really talk music with them," Mr. Schoder says. "They might not consider themselves music geeks, but they want to bond with someone that sleeps, eats and drinks music. And it can be hard to find that kind of personnel at a larger chain store. Or a coffee shop."

Mr. Feterl, from Tower Records, is more cynical. He says it's harder to blame Starbucks for taking advantage of exclusives than it is to blame the major labels that are making the offers.

"For the labels, it's shortsighted," Mr. Feterl said. "The last thing the labels want is stand-alone music realtors to go away. We break their young acts, start the buzz and sell the catalog. They can't keep ignoring us.

"But what in the music business is long-term anymore? It's all about first-day and -week numbers. Not long-term thinking."

Ultimately, though, even he understands why record labels might find Starbucks so alluring.

"They're looking at the Ray Charles CD and saying, 'Wow, that's a pot of gold.' How could they not?"

Online at: http://www.wfaa.com/sharedcontent/dws/fea/entertainment/stories/DN-starbucks_0821art.ART.Dallas.Edition1.230d2111.html

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