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Feature Article - iTunes, The Internet, & Record Companies

by , 10:00 AM EST, March 24th, 2004

Last weekend's SxSW Music Conference in Austin, Texas hosted numerous panel discussions for festival attendees, including one for a packed house on the topic of Integrating the Internet Into the New Record Company. Moderated by Chris Castle, a lawyer and Senior Counsel of Music Group for the firm Akin Gump Strauss Hauer & Feld LLP, the panel was an open forum discussion on the role of the Internet and how it is changing traditional music marketing strategies. A variety of "new media" heads and marketing executives sat on the panel, along with Chris Bell, Apple's Director of Product Marketing for iTunes.

The panel was a very interesting look at how the Internet is changing the face of the new record company, and how labels are adapting to the times with innovative strategies to reach their target audiences. Traditionally, record labels followed a very regimented process when marketing new albums, artists, and tours.

The Street, and not as in "Wall"

This regiment was the result of decades of practice in a well-established industry. Normally, say for an upcoming record release, labels would hire what is referred to as "Street Teams." Street Teams are basically comprised of young adults who would walk the streets passing out demo samplers of new artists or songs from an upcoming album.

The only problem with Street Teams, according to Lucas Mann, President of Clique Inc., is that there was no way to know exactly if these expensive demo samplers were actually being listened to, or instead being used only as coasters. Additionally, the cost of such a nationwide network of manpower whose numbers are basically un-trackable, left a lot to be desired for the record labels from a marketing perspective.

Bubbly

Now new innovate uses of the Internet has basically negated dependency on the Street Team in favor of new services such as Big Champagne to track interest in artists and songs. A majority of market research in the past was collected using services like Sound Source, a service some on the panel characterized as an expensive collection method only available to large record companies, and out of the reach of smaller independent labels.

Big Champagne, though still expensive, utilizes Peer to Peer (P2P) network tracking to gauge interest in songs or artists. By actually looking at the songs being shared on P2P networks, Big Champagne attempts to predict future purchase behaviors and can target demographics down to the ZIP code via IP addresses. Another tool of Big Champagne is search tracking, which collects the information on who is looking for what on these P to P networks, and directly tallies artist or song popularity.

Big Brother

Mr. Mann also discussed another new emerging technology, one that actually modified the traditional sampler CD. While still dependent on Street Teams to pass out the physical CD sampler, the modified CDs are embedded with tracking technology that records IP addresses of the CD drive the disc is played on. The tracking information even goes so far as to record how many times the sampler was listened to, and where the CD has migrated if passed along to another listener. This adds definitive numbers to a method that had little statistical backing, if any, previously.

[Editor's Note: We should also note that though Lucas Mann didn't specify which computer platforms such invasive marketing was being practiced on, almost all of the recording industry's attempts to use technology against its customers has so far started on and been targeted at the Windows platform. TMO is doing more research on the subject to find out more about this technology. - Editor]

Byte of the Apple

Another example of the changing face of new record companies is the introduction of the iTunes Music Store (iTMS) to the global market. The iTMS is making its mark not only with consumers directly, but also with the new strategies available to record labels for album and concert promotion.

According to Apple's Chris Bell, the iTMS has given independent labels a cheap and direct approach for targeting new listeners. Bands and labels are now using the iTMS in the same way that Street Teams were being originally utilized -- called a "push out" -- by posting free songs from a new album on the iTMS before the record is released in brick-and-mortar record stores.

This has proven to be an invaluable source for generating new interest in new artists and record releases. For example, Jeremy Welt of Maverick records noted that the interest and hard numbers generated from the iTMS for the upcoming release of Polyphonic Spree's second album would never have occurred in the past without a huge marketing budget to reach the audience that the iTMS provided.

The Who by Numbers

The iTMS also provides direct market research based on the quantified number of downloads of these songs and artists, something the Street Teams could never directly show. Interestingly though, the iTMS, according to the panel, actually boosts physical CD sales and concert attendance because of it's direct link to the audience.

The Law One

Another example of the power of the iTMS as a marketing tool was the Green Day cover of "I Fought The Law" featured in the Pepsi commercial for iTunes during this year's Super Bowl. Originally there were no plans to release that song at all, but because of the huge response from the iTunes audience, the song was released, and everyone made a fair chunk of change.

Whatever the future holds for the big record labels, or new independent companies trying to make their mark, the Internet continues to change established marketing practices across the board in every aspect of business. iTunes and the iTMS continue to make waves across the music industry, and hopefully at next year's SxSW, Apple will still be the dominant leader in innovation and development in the future of music.

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