Pepsi raises bar for music deals

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As the selling of music goes digital, the ad industry is becoming an increasingly important player in the distribution process.

"We saw it taking hold last year, but we're on the verge of an explosion of marketing deals between record labels and advertisers that will take the music industry in new directions," says Lee Stimmel, senior VP-strategic marketing and business development for Time Warner's Atlantic Records.

Mr. Stimmel is bullish on the outlook for selling music, despite the alarming decline in CD sales, because "demand for music has never been higher, people are transferring and sharing music like never before, and the devices for listening to music everywhere are multiplying."

But record labels aren't the only ones driving the biggest deals in music; advertisers are now beginning to pull those levers, says Rishad Tobaccowala, president at Publicis Groupe's Starcom MediaVest Group, Chicago.

"Let's face it, the record company's job is to identify talent, and they don't do that very well," he says. "Artists need distribution for their music, and as the distribution channels go digital, they don't need an independent retail marketing machine behind them. They need marketing partners, and they need direct access to digital platforms."

Advertising and music industry executives agree that a likely prototype for major music deals of the future is Pepsi-Cola Co.'s giveaway of 100 million free songs through Apple Computer's iTunes Music Stores. The program, kicking off this week seeds under-the-cap codes among bottles of Pepsi, Diet Pepsi and Sierra Mist.

"Apple gets a huge boost in launching its music brand through Pepsi's big media tentacles. The artists get paid for the music they make and consumers get free music, which is what deals in the future should look like," says Courtney Holt, head of new media and strategic marketing for Universal Music Group's Interscope Geffen A&M Records.

Illegal downloading and file-sharing of music is expected to continue, but legal vehicles to buy digital music are expanding, providing new opportunities for marketers to ride along.

More innovative tie-ins are expected to flow this year from Apple's new alliance with Hewlett-Packard Co., aimed at expanding the market for its 99ยข-a-song music service beyond the hot-selling iPod music player. Plans for a similar service called Connect are in motion at Sony Corp., and retailers are reportedly exploring their own digital music stores; Wal-Mart Stores already has such an operation.

Despite price cuts and volume sales declines, traditional retail CD sales aren't going away overnight, and neither is the promotional burden of radio play, concert tours and co-op advertising.

"As fast as digital music is growing, it's still a small slice of the pie and a lot of music is still being sold through traditional formats," says Mr. Stimmel, who insists his marketing budgets aren't shrinking, but instead are being stretched thinner to cover ever-broadening sales channels.

Ad agencies seem eager to help music marketers share promotional and media costs, but the results of high-profile artist-specific marketing tie-ins have been mixed.

"I would never claim to know why a spaghetti sauce marketer changes the color of their product box, yet advertisers always seem to believe they know which artist is the right fit for their promotion," says Tami Levy, VP-strategic marketing for Time Warner's Warner Bros./Reprise Records.

In fact, Warner Bros. rejects the vast majority of artist tie-in proposals pitched by agencies because they don't pass the "smell test" of being certain not to alienate an artist's core fans, Ms. Levy says

The benchmark for dashed hopes may be last year's much-ballyhooed $14 million tie-in between DaimlerChrysler's Chrysler Group and Celine Dion. That deal failed to inspire people to buy Chrysler's new Pacifica and put agencies on alert about major tie-ins that could burn both sides.

"It must be exactly the right fit between the artists and the product, and finding that balance is an art," says Mr. Tobaccowala.

Measuring the results of music tie-ins is an elusive task. A success is defined by the fact that both sides walk away happy, though numbers are hard to come by, say music marketing executives.

Anheuser-Busch's Budweiser was delighted with its "True Music" radio campaign last fall with Warner Bros., says Ms. Levy. The effort introduced new singles from established artists such as the Goo Goo Dolls, Trapt and John Michael Montgomery on 30- and 60-second radio commercials.

"Budweiser wanted to link its brand to authenticity, and these artists have credibility with younger consumers," Ms. Levy says. "The radio spots introduced certain sought-after music at a very strategic moment."

Increasingly, advertisers are drawing up new rules about what types of music deals suit them, says Pete Laatz, marketing alliance manager for Miller Brewing Co. The Milwaukee-based unit of SABMiller is teaming with Roxio's Napster starting this June for a promotional tie-in with Wenner Media's Rolling Stone to give away a Samsung Napster music player and $50 in Napster music credit to thousands of fans through a two-month retail and on-premise promotion.

"We are not looking to exploit anything to the point where it appears forced and attached; nor are we a bank handing out money in appreciation for a great song," Mr. Laatz says. "We will pay what the association is worth to us, and we expect results. The music business definitely needs to become more accountable in the area of an accounts-based model as they begin to take in more dollars from brands."

Focus on

How we get our tunes:

245.3 million-retail unit sales of CDs, January-June 2003, down 9.7% from previous year.

30 million-plus-total number of songs sold at Apple's iTunes Music Stores.

2 million-plus-number of iPod digital music players Apple has sold since their introduction.

Sources: Recording Industry Association of America, Apple Computer