Entertainment Marketers 2008

Marketing Music: Who Needs a Major Label?

Eagles Manager Azoff Partners With Wal-Mart to Promote Band's New Album, While Radiohead Creates Buzz for Their Latest by Offering Pay-What-You-Want Deal Online

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Photo: Robyn Twomey
An ocean and a generation may separate the Eagles and Radiohead, but today's music industry -- with its broken sales model -- led both groups' managers to bypass the major labels when releasing new albums last year.

The Eagles' contract with Warner Music Group had lapsed, so for the release of "Long Road Out of Eden," Azoff Music Management Chairman Irving Azoff found another outlet with a mega-reach among consumers: Wal-Mart. EMI's deal with Radiohead had ended, so Courtyard Management's Bryce Edge helped the Brit cult band offer a revolutionary pay-what-you-want internet deal for their new album, "In Rainbows."
Selected for:
'Long Road Out of Eden'
  • Think big, think bigger, think Wal-Mart
  • Store circulars reach 85 million
  • "No record label in history could spend" $20 million-plus in support

Like all other groups, the Eagles and Radiohead weighed their futures against the backdrop of an industry flailing in its transition from physical product to digital distribution. U.S. album sales dropped 36% between 1999 and 2007, almost 15% last year alone, according to Nielsen Sound-Scan. Some 3,100 record stores around the country have closed since 2003, according to market researcher Almighty Institute of Music Retail, including all 89 Tower Records.

But both groups also navigate these uncertain waters from a position of strength, putting them in a position to make bold moves. The Eagles are certified by the Recording Industry Association of America as the best-selling American rock band ever, with 100 million albums shipped. Radiohead's seven albums have sold a total of 23 million worldwide, but their rabidly loyal fan base makes them a unique case.

"We looked at a number of different options," says Mr. Azoff, a highly successful manager whose clients include Van Halen, Christina Aguilera and Steely Dan. Those choices included going through a major distributor or supplying the major retail accounts themselves on a nonexclusive basis. "But we wanted to have control over the final product and how it was marketed" to Eagles fans.

Outspending the majors
Talks with Wal-Mart Stores Exec VP-Chief Merchandising Officer John Fleming and VP-Division Merchandising Manager David Porter, the point man for all music and movies at the chain, led to an exclusive deal with what Mr. Azoff refers to as "in excess of $20 million in promotion and advertising support. ... No record label in history could spend that kind of money on a release."

A one-time label head at MCA, Mr. Azoff saw that Wal-Mart's sheer numbers could not be beat. CDs were placed in strategic locations at checkout counters in the chain's 6,500 stores for impulse buys, with accompanying in-store TV and end-cap displays, reaching the majority of Wal-Mart's 140 million visitors per week. The chain's weekly circular reached 85 million consumers and advertised the exclusive sale of the album. Wal-Mart supported the band's environmental initiative by using Rainforest Alliance-approved recycled paper in the packaging.

As part of the deal, the Eagles placed "Long Road Out of Eden," their first studio effort since 1979's "The Long Run," on their own Eagles Recording Co. and, more important, retained control of the master recordings.

Even with a price point of $11.88, low for a double CD, the Eagles effort will earn more money from worldwide sales than any album in history, Mr. Azoff says, adding that the project will net the band $50 million, with 4 million units shipped in the U.S. and 8 million sold worldwide (distributed by Universal Music Group).

However, "even that pales in comparison with what we can make on the road," he says, as the band is in the midst of a sold-out world tour. "This was more about control of our recordings than anything else."
Radiohead, meanwhile, gave up control by letting fans name their own prices for 'In Rainbows.'

Radiohead's manager, Mr. Edge, who has worked with the band since 1991 with partner Chris Hufford, came to a conclusion in his negotiations with EMI.

"They weren't prepared to give us control over how the catalog would be sold and marketed," says Mr. Edge, who met with Warner Music Group, among others, before deciding that the band's influence over how their product was distributed should be of primary importance.

"It was totally a gut-instinct call," he says. "The idea came from trying to solve the problem of the band being very picky about how and where they promoted themselves and looking to prevent the music from leaking onto the internet before release."

The group announced Oct. 1 that they would accept orders for downloads of "In Rainbows" and allowing fans to pay as much or as little as they wanted. In addition, fans could order a deluxe "discbox," with a CD/vinyl of more new songs, along with a photo book, for $82 to be delivered in December.

Buzz machine
When word got out about the Radiohead plan, online sites and bloggers drove buzz and linked to the website. Crucial to the surrounding media event, fans who purchased the download were alerted they'd receive instructions on how to fulfill their orders within 10 days.
Selected for:
'In Rainbows'
  • Bloggers drive buzz and link to website
  • Key to pay-what-you-want offer: 10-day waiting-period. If it had been instant, fans might not have paid.
  • Creates invaluable database for future communication
That waiting time was one of the fortuitous elements of the promotion; Mr. Edge says if consumers were given access to the music right away, they might not have paid for it. "Psychologically, it helped people consider the value they put on a Radiohead download," he says.

While Mr. Edge so far has refused to release official data, according to ComScore, 1.2 million people downloaded "In Rainbows" during that 10-day period, and 68% paid nothing, but 32% decided it was worth from $1 to more than $15, with estimates of the band's take at $6 million to $10 million. While calling those claims exaggerated, Mr. Edge says a "little less than 50% paid a reasonable amount of money," and the band made "twice what they would have in a traditional record deal."

Radiohead also has harvested an invaluable database they can use to keep in touch with fans -- announcing a remix contest for new single "Nude," for example.

The physical album, on Radiohead's TBD label, entered the U.S. chart at No. 1, selling 122,000 copies, with 25% of those sales as iTunes downloads at $9.99 apiece, certainly a curiosity considering fans could have had it for free three months before. "It just shows there's still a market for CDs," Mr. Edge says. "And they sound better than MP3s."

Factoring in a summerlong tour that started this month, Mr. Edge says Radiohead will net about $25 million this year. While he acknowledges "there aren't many bands with a worldwide, hard-core, active fan base" who could do something similar, he doesn't discount the efficacy of the download model for a new group.

"Every time you make a fan, be sure to hold onto them," he says. "Get their details and keep in communication. You don't need more than 50,000 of them to make a business model happen. The future is in micromarketing, selling directly to your audience. That way, you won't be at the beck and call of the major-label checkbook."
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