Retail Track: Exclusively Yours

Last week, Don VanCleave, who heads the Coalition of Independent Music Stores, dramatically brought exclusives back into the limelight by pointing out that during the week of Sept. 17 Best Buy featured 15 new releases, each with exclusives available only at that retailer. What's more, all those albums were priced at $9.99.

VanCleave also said that Best Buy pricing not only defines the marketplace value of a new release, but when coupled with the label's generous supply of exclusives, only shifts sales to the big boxes rather than generating incremental sales for all merchants. If it continues, some independent stores will not survive, he concluded.

But for VanCleave's appeal to be heard, it would have to fall on the ears of label folks who have a long-term view of the physical-goods world. Even before the possibilities of the digital world were conceived, labels gladly traded short-term sales success for long-term pain every chance they got.

Nowadays, the major labels seem to believe they are thinking long term by embracing the digital world, apparently expecting it to deliver sales salvation through new configurations and business models. Given that view, they appear to be unconcerned anymore with what happens in the physical world.

Back there, big-box merchants are still the dominant force selling CDs even as they themselves prepare for the digital marketplace. But unlike the majors, they seem to realize there will still be business in both physical and digital goods. That already gives them one up on the majors. But truth be told, Best Buy, Target and now Wal-Mart each do a much better job advertising music than the majors do. While the retailers may significantly shift sales away from traditional music merchants, their marketing efforts also alert consumers to new releases, no matter where consumers buy them.

Best Buy initially led the way with exclusives, inventing the concept when it put together a value-added premium in the form of an interview album given away with the Beatles' "Anthology 1" in 1995.

Soon most major labels were supplying Best Buy with exclusive tracks and other material. "The very first time a label helped Best Buy get an exclusive, the retailers should have revolted and punished the label and artists involved," a head of distribution recently told me. If the other retailers had done so, no other label would have stepped up to the plate, and exclusives wouldn't be an issue now. Instead, well-meaning traditional music retailers asked, "How can you punish the fans of a band by not carrying their music?" But because traditional merchants didn't collectively come together to fight exclusives, now fans can often get all their favorite band's music only at big-box stores.

Don't blame the big boxes though. Best Buy deserves the exclusives because they take risks to develop creative ways to market music. Likewise, Target and Wal-Mart are now challenging the consumer-electronics chain in creatively marketing music. With those types of merchants breathing down Best Buy's neck, sometimes tactical efforts are needed to keep a leader ahead of the field.

Recently, Best Buy created a way to reward label partners that supply it with exclusives. According to sources, the merchant has ascribed certain values to different kinds of exclusives, which can be used as a credit to pay for its marketing programs. Labels get 50 cents a unit for an exclusive download track; $1 for an exclusive track included on a CD; $2.50 for a couple of tracks and video material on a DVD.

So if Best Buy orders 30,000 units of an album that comes with an exclusive track on the CD, the label gets a $30,000 credit toward whatever advertising program it chooses from the merchant's marketing menu to promote that title.

With exclusives now the coin of the realm, all the big boxes, as well as iTunes, are using their clout more aggressively to obtain them, label sources say. That's why more labels are bending and beginning to play the exclusive games. And that's why labels that still resist doling out exclusives should be rewarded by traditional merchants.

I can think of one more reason why big boxes will continue to get exclusives. I used to call it "lazy-man marketing." It's so much easier to go to Best Buy, Wal-Mart and Target to set up a new release and reap the short-term sales success that those merchants can provide than it is to set up an album with the consumer so the entire marketplace can share in the sales. Working to have a healthy account base would mean taking the long-term view of the physical-goods world. Somehow, at this stage of the game, I just don't see that happening.