Who's Afraid Of Direct-To-Consumer, Digital Downloads?

Let's pretend we have a virtual product to sell. It has no traditional packaging, there'll be no shipping costs and no dollars will be needed for in-store placement or visibility. Actually, it turns out we've got hundreds of thousand of similar items to sell, and all that would be required to take them to market would be an online webstore in which the inventory can be displayed. We'll need to employ a website designer, a consultant for site maintenance and product uploads, and someone to oversee what gets monetized and prioritized. Fulfillment of an order is merely a download following a consumer's click of the mouse.

Our product is music, let's say, older catalog, which will need a budget for analog-to-digital conversion for recordings not yet on CD or previously digitized. And obviously, there will be additional costs such as royalties, publishing, administrative and business affairs, as well as web-centric marketing dollars.

Now, admittedly, this is a somewhat simplified example of what's involved in setting up our direct-to-consumer, digital label. Interestingly, the music industry chose not to implement such a model, or any at all. Perhaps it was too entrenched in the old school way of having a separate business act as distributor for a continued separation of church and state. Or maybe it squandered its exploratory budgets on things like physical format wars. Whatever the reason, the biz handed its kingdom over to iTunes, forging ahead with lopsided deals to quickly capitalize on the new revenue stream. That shortsightedness stuck the industry where it is now -- in a shotgun wedding with its digital partners. A couple years back, with some creative thinking and a brave, positive attitude, today's digital landscape might have had more balance, each label selling its own assets while driving traffic to its site in ways that the most successful online stores do.

Despite the major labels having convinced themselves that there is now no way to capture the kind of traffic iTunes generates (due to its selling every competitor's recordings), there was an opportunity they completely missed that proved the opposite to be true. Amazingly, those download cards (sporting front cover album artwork) that Best Buy, etc. hang by the physical CDs send customers to -- where for fulfillment? ITunes, of course.

Had the consumer been sent to the label instead, perhaps the visitor could have been enticed into purchasing relative downloads, thereby increasing the amount of the sale. Each label's deployment of its own unique, online identity and lifestyle could have included interactivity with, for example, avatar salespeople and other customers, maybe in virtual cafés and lounges relative to certain styles of music. And depending upon the label's ambitiousness, perhaps there even could have been a tastemaker element. In this case, "fulfillment" would have had a broader meaning than a mere purchase, the experience breeding loyalty, a return visit and a future sale. This contrasts hugely with iTunes, where the experience and the site itself is lifeless.

For the moment, it looks like labels will continue to settle for their portion of the market at America's favorite digital superstore. By the way, none of this should be taken as a slam against iTunes. They deserve 99% of the credit for getting the whole direct-to-consumer model up and functioning as well as user-friendly. But it might be best for labels to at least get in the game and try to recapture some of their territory instead of lazily relying on whatever develops from farming-out their goods to third parties. At the company where I previously worked, we were just moments from signing away the vinyl rights to almost every high profile album we owned. But wisely, before the pen hit the paper, a bold decision was made to embrace vinyl after all.

With iTunes about as popular as it can ever get, some new digital opportunities may be waiting in the wings. Amazon seems to think so, their aggressively having entered the direct-to-consumer, digital download Olympics. And here's a thought: what about a label's website selling freshly remastered tracks as opposed to what originally was thrown up on third party sites? What about selling things beyond music like a Rock Band or Guitar Hero type of experience, which is another area where assets are being ceded out to mega-third parties...this one can still be caught in time. Since everything is now sold online and since the majority of websites are trying to sell us something, it seems counterintuitive for labels to continue to ignore setting up a direct-to-consumer, digital download site for themselves. They've got to fight their fears on this, reclaim lost ground and discover what's left of this new frontier before the next interloper plants a flag in their assets.

Comments

[yodaveg]

This is very insightful. The record labels never really established themselves as consumer brands, and it would take some serious brand-building, but it could be done.

[ragz2008]

It's funny how labels seem to have just moved on. Living desperately for quarter-to-quarter profits prohibits any kind of investment in a new future strategy.

[ramblingjohnny]

You forget one thing label are a thing of the past! A Dinosaur on the verge of extinction. Because up and coming band no longer wait for a big label deal to sell and market their music online. Burning and packaging CD on the back of the bus every day to sell at the next gig is something that must indies band have been doing for age but now they also sell on ITunes too. And while p2p was the big scary scapegoat for all the big Labels problems you have a new generation of artist who only see files sharing has part of their online viral marketing approach.

[ragz2008]

Yeah, the major labels still can't quite get a grip on the whole p2p world....

[tompoe]

A visit to The Internet Archive ( just type in the keywords "internet archive" in your favorite search engine ) and you'll find literally tens of thousands of recordings, concerts, and events to download and listen to for free. The world's biggest superstore, by far. They are a repository for text, audio and video files. Independent artists use the repository, because it is collaborating with The Great Library of Alexandria, the world's greatest repository which mirrors the works at The Internet Archive.

If you find artists you like, you can visit their web sites and purchase music, tickets to their concerts, gear, and join their fan clubs. Yep! The major labels don't like fan clubs, but they don't control independent artists, so worldwide fan clubs are all the fashion with independent artists.

Looks like there's not much of a role for big labels in the digital world. Maybe they should retool, and go into a different line of work.

[ragz2008]

Yup, that's kind of the point too! The indies have it right, their DIY approach makes them fearless and you've got to admire them for that...

[dexxjones]

ahh but they old school thinkers WANT as many steps in the chain as possible to try and perpetuate their creative accounting. also, they still hope they can try and sell more crap that nobody wants to buy by "positioning" it on itunes. fools.

[ragz2008]

Absolutely. The perpetuation of a system like that for no reason other than "...cuz that's the way it's done" got the business in their mess to begin with, that fear of breaking from the pack. Wouldn't it be great if at least one major label dedicated resources to figuring out a way around relying totally on digital income from only their digital partners?