As a distributor of urban content, how significant a business do physical CD remain?

Chris: Very significant. Obviously digital continues to grow at an enormous rate but [digital] it’s still a small percentage of urban music on the indie side; usually a single digit number. 

Wardell: Physical CD sales account for 75-85% of most distributors’ bottom lines. Taking mobile out of the equation, Urban music tends to do better physically than digitally, so it becomes even more important to a distributor who relies mostly on Urban content.

David: We are a distributor and we make our money primarily from physical sales of software. The artists we have worked with so far on the audio side (Tamia and Mint Condition) are not big ringtone artists and digital is only about 5% of the sales.

In the Urban genres do you believe that CD sales will take a rapid decline, and what types of genre continue to have strong CD sales?

Chris: As digital grows physical CDs will continue to decline, however, I don’t think anyone believes there will be a time when physical CDs are completely wiped out. At some time a balance will be struck between the two. R&B has managed to remain a healthy genre, only suffering a 2% decline this year.  Reggae, Jazz and Gospel have had smaller declines than some of the other genres as well.

David: Unfortunately sales of physical product will most likely continue to decline or remain flat at best due to the current landscape at retail. Aside from FYE and Virgin there are no national retail chains that specialize in selling audio/video. The biggest accounts now are Wal Mart, Best Buy, Target, Circuit City, etc. and it is much more of a challenge to persuade these mass retailers to bring in the product due to lack of shelf space. Back in the day, Tower Records, The Wherehouse out here on the West Coast would bring in at least 1 or 2 of everything we sold; those days are gone.

In a cyber and physical world that has so much music, what do you think the urban music consumer desires in music-related product today? 

Chris: Not to over simply it, but GREAT MUSIC! The interest for music is still very high. It’s just that consumers have a number of ways to get it. If they feel a few songs are hot but the entire album is wack, they’ll just go to iTunes, get the songs they like and are on to the next. Not to mention, the opportunity to preview the music before it hits the stores is huge. A project can be over before it even begins.

Paul: Urban music consumers desire a personal connection to the music; artists that express reality, portray a credible image, and creatively deliver a message in a way consumers can instantly relate tend to become successful. This is the foundation for developing a loyal fanbase.

David: I think the consumer wants good music, soulful music, that sounds simple but if you are talking about the consumer actually taking $10 or $15 out of their pocket to purchase a CD especially when it comes to adult oriented music, which is the kind of music we have been putting out, the song and the vocals have to be strong and believable because the urban consumer can spot a passive song right away.

Where do you see brick and mortar retail in five years? 

Chris: I believe that stores that cater and super-serve their customers will always be around. 

Wardell: No one has a crystal ball, but you can see brick and mortar evolving now; essentially not waiting for future changes. How so? One way is through the addition or expansion of lifestyle items in their assortment. Other formats have been and will continue to encroach on space devoted to CDs, in hopes of satisfying the varied interests of the entertainment seeking consumer. This has taken the form of DVDs, video games, electronics and related merchandise. As digital sales continue to grow, brick and mortar retailers will be looking for more ways to embrace that technology and to lure the “new” music consumer to their store, whether through “burn your own” kiosks or music player load-in posts throughout the store. Consideration has to be given to niche marketing, that is, Urban indies may have to be specialists to survive.

David: Man, that is a tough question that I ask myself all the time because I am so emotionally attached to the record store. I grew up in record stores and for about 15 straight years I was in record stores every day hanging posters, touching records, talking to retailers and customers. It was a great experience and I still miss it but the hard facts are that most kids today will never have that experience. It amazes me that you can’t even buy a record in most malls today I used to travel around the city and visit up to 10 record stores in one day and that’s not possible today. In five years brick and mortar will be determined by the consumer and the way I see it, young consumers have become accustomed to going online and getting their music. Some of the major artists are no longer even putting out physical CDs. Radiohead for example offered up their new album on the band’s website and gave the consumer the option of paying what they felt was the right price for the record cutting out retail completely and Madonna just cut her ties with Warner Bros. and signed a deal with Live Nation in which she will sell her content exclusively online, this can’t be good for brick and mortar.

How vital is the urban independent retailer to the marketplace today, and will their relevance continue?

Paul: Extremely Vital! Urban independent retailers are the epicenter for breaking urban artists. Their knowledge, understanding, and feel for the music allow them to introduce new material to the public organically. In addition, the stores serve as destinations for deep catalog and personalized customer service. The ones that remain have embraced technology and struck a balance with the physical. 

David: I think it is vital especially for the artists that are not getting a lot of shine from the major labels, independent stores are still the place where you can get “turned on to a record.” The independents were vital to our sales on Tamia’s record because quite frankly some of the major retailers were not that excited about our radio story at Urban AC and 10% of our sales came from the independents which is significant. If you are talking about an artist that is heavily marketed to a younger demo like Kanye West then the dynamic changes but still about 5% of the sales on Kanye’s new album were sold at the independents. I think their relevance will continue because they are still tastemakers and they are the buffer for us and we depend on them to get our product into the consumer’s hands.

Wardell: The urban independent retailer is still a key in developing artists. Case in point, we distribute a record by an artist named Ryan Shaw whose album came out earlier this year. He was an unknown artist putting out his first record. As you know unless you are affiliated with a platinum selling producer or artist, this is a daunting task for any new artist.

There was no video and no urban station playing the record. So prior to his album coming out, the label booked several performances where we invited retail to witness this extraordinary singer. We also e-mailed streams of one of his songs to retail accounts and urban sites. Word of mouth from the retailers had the industry buzzing about him even before the record hit the shelves. About 2 weeks before his album dropped we had him perform at the Urban Network Conference. Several urban retails from across the country were in attendance, and once again he blew everyone away. When his album dropped the retailers welcomed us with open arms! We tied in tons of funky promotions at UIR accounts such as added value CD, counter laminates, blow-up displays, retail listening parties you name it.

Are companies willing to accept that they may be generating lesser sales numbers due to the expansion of the digital marketplace? 

Paul: Companies realize there’s a paradigm shift in how the public consumes music.  As a result, additional revenue streams must be improved or created (i.e. touring, licensing, merchandising. online profit sharing, and mobile content) to make up for the CD deficit.  Steps towards relevant change are being made accordingly.   

David: Acceptance is hard for record companies to do because for so long they were in total control of the business model they created and they are still reluctant to embrace the digital marketplace because they do not have full control and the smart artists are beginning to take more control of their content and their business. Companies have to accept that they are generating fewer sales because it is a fact and nobody has figured out how to stem the digital tide. The current lawsuits they won are symbolic but file sharing is not going to stop.

Wardell: Sure, they have to accept they are generating lesser sales due to the digital marketplace, unless they’re living in a vacuum.  We’ve taken measures to boost both the physical side of our business and the digital side.  RED recently implemented a merch initiative. We’re selling t-shirts and hoodies, and will soon expand to other music and lifestyle related merch items (i.e. wallets and belt buckles). To further embrace the changing market we have expanded our digital and marketing teams. We now provide many digital assets, like ringtones, downloads, streams and banners, to our retail community for their own web sites. The utilization of e-mail blasts has proven successful to add value to a retail CD offering. As CD sales lessen, everyone in the channel, distributors, labels and retail alike have to look for new sources of revenue. We like to think that we provide a broad assortment of products for our retail partners to sell. We also encourage them to embrace the digital world and to find ways to capitalize on a growing segment of our business.

Is your digital marketing strategy significantly different than your physical retail strategy? 

Chris: The absence of co-op advertising and the unlimited “stock” of a record at digital retail are two strong distinctions from their physical counterparts. The methods of marketing to digital retailers are not necessarily that dramatically different. Understanding each account and having strong relationships remains key. Creativity goes a long way. The importance of labels helping to create a story that is real and compelling prior to the release date has never been more important.  Most visibility (let’s call them online end-caps) go to new releases.  Without co-op, those spaces can’t be bought. Getting it right out of the gate is essential. Jeff Safran heads our digital team and we’re able to leverage the power and size of Universal Music Group’s digital team when and if we need it.

Typically, what attracts your company to certain indie artists/labels? How involved are you personally in the decision making or acquisition process? 

Chris: At Fontana, our model has been to partner with labels that have an entrepreneurial spirit and are smart in their business practices. It’s important that our labels have a superior artist roster as well as a strong team of executives that can properly market and promote the music. The label’s reputation and track record are very important as well.  I am very involved with our acquisitions process. Everything is a team effort here which leads to better decisions.

David: We are attracted to artists with a track record of sales that are willing to control their own destiny, the artists are our partners and they have a say in the music, the marketing and the deal structure. At Image we can offer distribution and marketing support. The artists work with us to select the independent publicist, radio promotion, street team etc. they have to be willing to get out and work their record at radio, press and retail. I along with George Steele/V.P. of Audio Acquisitions and Brett Dismuke are all involved in the acquisitions and it’s really based on the artists past sales history and their willingness to run their own business and get out and work the record.

How important is it to have distribution nowadays since so many up and coming labels and artists are aggressively utilizing the internet? 

Chris: It’s still very important. We see the internet as mostly a marketing function with an obvious huge upside on the sales side but it will be years before it takes over physical sales...if it ever does. 

Paul: Having a legitimate distributor behind you is paramount.  They’re very knowledgeable of the wholesale and retail (online, brick and mortar) infrastructure and have established relationships intact.  Buyers prefer to deal with one reliable source for all sales related issues and marketing activity. 

Wardell: With retail sales comes the need for distribution. Therefore I believe distribution is key if you want to get the maximum selling potential from your CD. When labels sign with RED they form a partnership with a company that has an excellent Sales & Marketing team that can get your product into Independent retail stores, One Stops, Major Chains, Mass Merchant and Non-Traditional accounts as well as e-commerce sites.  We can work your release regionally, nationally, as well as online. Our team is capable of adding to any marketing plan that may already be in place, in addition to creating an all out marketing assault needed in today’s sales climate.

What honest advice do you give to indie labels who want to sign on with your particular company?  

Chris: Do your homework. Know if you need a distribution deal or a label deal. Study the marketplace and try to have realistic expectations. Distribution means nothing if there is no demand for your product.  Also, labels need to sign artists that are willing to actively work and develop their own story. Getting a deal shouldn’t be the end game for artists but seen as the very beginning!!   

Paul: Create relevant material and never lose sight of artist development.  Have a thorough understanding all companies you chose to deal with to determine if they’re the right fit for your respective product.  Have a seasoned person in-house who understands the marriage between sales and distribution.  Strive to develop solid relationships with artist management.  Lastly, think outside the box!

David: Honestly you have to have a work ethic because we are not a record company that is going to hold your hand and tell you what to do. You should have experience in the industry and a competent manager that can handle all of the business within the company and that has good working relationship with the independent marketing people they choose to hire. The artist is responsible for working with the producers they select and bring a record that we can get on the radio; we don’t do studio budgets and for the most part we don’t A&R the project in the creative process. The artist handles their own publishing. We don’t do artist development or break new artists; we just don’t have the staff or resources to do that. So in short we want serious, experienced professionals with good reputations and relationships.

Wardell: The advice I have for potential labels that would like to sign with RED is to make sure you’re ready for our level of distribution. This is very important because many labels think they’re ready, but are unprepared. However if you are ready for primetime, approach us with some knowledge about RED and be real passionate about wanting to be here. Don’t base your music decisions on Demographic or market research when signing artists. Sign artists that make you feel something! If you are right about the music the marketplace will react and then you’ll sell CDs and success will follow.
In addition, put your best foot forward by making sure you have a professional presentation which includes a proposal that contains, but is not limited to, your label staff, artist roster, release schedule, music, media kit, marketing plan, financials, etc. The company should already be financially sound when they approach RED.  Prospective labels should also be aware of the liabilities and responsibilities of their company as they enter into a partnership with our corporation. Overall, you should come with a comprehensive plan and a realistic goal for your label.