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

07/20/2008 05:12 am ET | Updated May 25, 2011

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.

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