Universal Experiments With Digital Only Releases

The New York Times today reported that Universal is starting a "digital only" release program for select indy bands.

"…this week, the Shazam and seven other relatively unknown acts will get a shot at the kind of exposure that only the major record labels can provide, after being recruited for an experiment by Universal Music Group. Universal, which like other record companies has heavily relied on profits from sales of CD’s, has signed the artists to a digital-only label. Starting Tuesday, it will release songs through services like iTunes from Apple Computer, Rhapsody from RealNetworks and MSN Music from Microsoft."

"The move says a great deal about how record companies are grappling with the Internet, which has toppled established techniques for promoting talent and threatened the industry’s economic structure. After years of dithering over how to sell music online, the major labels are eyeing digital sales in some cases as a first step on the road to the larger marketplace."

"It is partly a matter of necessity. Since sales of CD’s began to fall almost four years ago, hundreds of record stores have shuttered, while the remainder have devoted more shelf space to DVD’s and video games, leaving less space to stock CD’s."

"But music industry executives say they can also use the Internet to measure fan interest or start a buzz for a new act before releasing an album. Universal’s new label represents another leap – the belief that by signing enough acts with small, established audiences, the company can earn a profit on digital sales alone. The new unit, Universal Music Enterprises Digital, could become a model for labels that are seeking a low-risk way to market an act without producing a physical album or underwriting a band’s tour or music videos."

"It’s just so expensive these days to record an artist and make a video and put them out on the road to properly develop them," said the executive responsible for the digital label, Jay Gilbert, a senior director at Universal’s Music Enterprises unit. "This is an alternative to that that’s not very expensive but can be highly effective."

"But for the companies, shifting to a digital world means treading on unstable financial ground. Instead of plunking down $16 for an album, fans can now visit free file-sharing networks to grab songs. Even when fans pay for the music, they buy singles over albums at a ratio of more than 25 to 1, according to Nielsen SoundScan data."

"To keep up with the shifts in where and how fans shop, the record companies are grasping for new approaches. As they move toward licensing their music catalogs to companies that plan to filter unauthorized material out of the free file-sharing systems, Universal has made a deal with one such company, Snocap, started by Shawn Fanning, the creator of Napster, the former file-sharing Web site."

"Warner Music Group is developing a unit similar to Universal’s, initially to sign artists and finance recordings for online sales, with the potential for later CD releases…"

"For the artists, the deals do have a downside. The company does not pay them an advance or cover the cost of producing an album. That part is up to the musicians, who finance their own recordings and in most cases have been selling their music – in the form of regular plastic CD’s – through their own Web sites or outlets like Amazon."

"The artists retain ownership of their master recordings but license them to Universal for a limited time; if online sales of an artist’s music reach a certain point – around 5,000 copies of a particular song – the company has an option to pick up distribution of the CD to record stores."

"Universal is paying the musicians an estimated 25 percent royalty on the retail price of the downloads, without taking the industry’s standard deductions for CD packaging and promotional giveaways, according to people with knowledge of its contracts."

"In exchange for the music, Universal is throwing its considerable muscle behind promoting the artists, including them in its own advertising and seeking to license their music to films and television shows. The company will also handle online marketing."

"Other labels have been using the Internet to promote artists whose physical CD’s are to be released later. Warner Brothers Records released the major-label debut of the band the Secret Machines to online services like iTunes in February, three months before it was available in stores. "

"What I think the physical world has told us is that there isn’t a lot of room or patience for putting out an album that people don’t want to buy right away," said Tom Whalley, the label’s chairman. "You can’t let it sit in the store 6 months, 12 months, while you build up the demand…"

HYPEBOT: This sounds great in theory, but without details on exactly what Universal is (and is not) doing to promote these releases; it is impossible to know whether or not this will be of any value to the artist.  Any act selling on CD Baby or working with The Orchard can get digital distriubiton via the major services for a similar or smaller fee.  Digital distribution is essential, but it’s the marketing of the music – creative efforts made to get the music heard – that is what the labels need to be worrying about.

Read the full NY Times article here.  Free sign up required.