Sunday, December 14, 2008

Is Digital Sales Really the Way of the Future?

Reuters/Billboard has this interesting take on the effect of digital sales in the current and future music market.

"It's been more than five years since Apple's iTunes store changed music retail by introducing single-track digital downloads. But it wasn't until 2008 that most musicians and labels started to wonder out loud whether selling music by the track is good for their bottom lines.

Two of the year's biggest rock acts, AC/DC and Kid Rock, insist that their albums only be sold whole. And since Apple only rarely allows this, neither act allows iTunes to sell its albums in the United States.

Despite the fact that iTunes is the largest music retailer in the country, neither act seems to have suffered for this decision. As of early December, Kid Rock's "Rock N Roll Jesus" was the third-best-selling album of the year, according to Nielsen SoundScan. And it was sold only as a CD until almost a year after release, when Kid Rock granted Rhapsody the exclusive rights to sell it online in the States -- as a full album. So far, the album has sold only 3,000 digital copies.
AC/DC released its new album "Black Ice" exclusively at Wal-Mart and has sold 1.6 million copies without any digital sales at all; it's the fourth-best-selling album of the year.

Both of these success stories challenged the accepted gospel that iTunes is an essential part of music retail. Perhaps more surprising is that neither project appeared on file-sharing networks more frequently than most big albums, according to Eric Garland, CEO of the file-trading monitoring company BigChampagne.

"Check some of these artists that have hit singles versus their album sales, then compare it to what Kid Rock is doing," Ken Levitan, Kid Rock's manager, told the Wall Street Journal. He has called digital single sales the death knell of the music business.

But there's another side to the story. The year's best-selling album is Lil Wayne's "Tha Carter III," at 2.7 million copies. Digital stores played a big part in that success: His "Lollipop" single alone sold more than 3 million copies. The second-best-selling album is Coldplay's "Viva La Vida or Death and All His Friends," with 1.9 million units sold. More than half a million of those copies were sold on digital services.

Digital stores also helped Leona Lewis. The best-selling digital single of the year, according to Nielsen SoundScan, is Lewis' "Bleeding Love," which has sold 3.3 million tracks. The album it's on, "Spirit," is the eighth-best-selling album of the year, with 1.2 million copies sold, 140,000 of which came through digital channels. Counting every 10 tracks as an album, Lewis' sales jump to 1.5 million without factoring in the sales of any other singles from "Spirit." That's on par with Kid Rock and AC/DC.

These results suggest that it's possible to have a best-selling album either way. And the best approach may depend on the nature of the music itself.

"If there's a body of work that the public wants, they will engage with it and purchase it," says Universal Motown senior vice president of digital business development Cameo Carlson. "It's about the consumer you're going after and what story you're trying to tell."

Carlson is the executive behind the digital promotion of Lil Wayne's "Tha Carter III." She, too, was concerned that the popularity of "Lollipop" might harm Lil Wayne's album sales but decided to embrace iTunes rather than fight it. Besides "Lollipop," the label released five more tracks on iTunes before the album's June 10 release to make sure fans could hear other songs.

She also took advantage of iTunes' Complete My Album feature, which allows fans who buy a few songs from an album to purchase the remaining tracks at a prorated cost. It was one of the first times the feature was used in conjunction with such a massive prerelease campaign, and its success is striking: More than 10 percent of the album's first-week sales were digital, up from less than 1 percent for Lil Wayne's past titles. More than half of those digital sales came from fans using Complete My Album, making "Tha Carter III" the fourth-best-selling album on iTunes for the year.

Could Kid Rock and AC/DC have done the same?

"They're leaving money on the table by not offering track sales," Carlson says. "I don't think that creating an economy of scarcity works. There have been a couple of examples that have been successful ... people like to hope that part of the industry is still alive. But I personally think those two are anomalies."

Carlson and other label execs say that the main reason Kid Rock and AC/DC did so well selling albums is that they're established acts with loyal fan bases. That's the same reason Radiohead's "In Rainbows" sold well as a CD, even though it could be downloaded for free.

The results for emerging acts could look very different. Atlantic Records pulled from iTunes Estelle's album "Shine" after it and the single "American Boy" showed hit potential. The album spent 17 weeks on the Billboard 200, peaking at No. 38, while "American Boy" was a top 10 iTunes download. But sales dropped when Atlantic removed singles from iTunes, and the label changed its tactics soon after.

Other executives believe that other acts could follow Kid Rock and AC/DC's approach. "Kid Rock absolutely left transactions on the table by not being on iTunes," BigChampagne's Garland says. "But did he leave money on the table? I think that's a tough case to make. Singles-driven acts must be in iTunes. For album-oriented career superstar artists, it's a strategic question worth asking. But it's not an easy call."

Where iTunes fits into album sales strategies will almost certainly be one of the main topics of 2009 and beyond. "We're still at a stage that will require a lot of experimentation," says one major-label digital executive. "You're going to see us experiment with a bunch of different things. I don't think we've figured out exactly what approach we should take." "

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