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Online E-Music Retailing
by Christopher Knab - Fourfront Media & Music - August 2000

Back to Music Business 101

For bands and artists who are releasing their own records, the Internet offers many new and exciting opportunities. But getting online retailers to pick up your CDs (and other music related product) is as much a business as getting offline distributors or brick-and-mortar stores to carry your records.

Online Retail Shakeout

CDs, tapes, vinyl, videotapes and DVDs are now available at over one hundred locations on the Internet, and new online stores pop up all the time. Many of these online retailers, however, are still developing their presence on the Internet. Not all of the stores listed below will be around a year from now. For example, CDNow.com, once a leader in the field, has been struggling. As of mid-year 2000, they cut expenses by turning over fulfillment of orders placed on their website to Buy.com. Also, CDNnow has recently been bought by Bertlesmann, one of the leading media corporations in the world. It is yet to be determined how this will affect the selling of independent product through this online retailer, since Bertlesman owns the BMG roster of major labels and may want to concentrate on selling their affiliated label releases through CDNow…stay tuned.

A wise independent label, or independent recording artist with their own release, will carefully research each and every online retailer they're interested in.

Here's a list of the major e-music retailers as of Summer 2000

CD Explosion.com
West Coast.com
Theorchard.com (dist)

Like any good record store, e-music stores look at all the new releases that have come out each week. Every store uses different methods to decide what to carry, but basically they will decide to buy your record if they feel it's a potential seller. When they're re-ordering your record, they check their stock on hand to decide if they should re-order, and how many they should buy. Their goals are to monitor what their online customers are buying, and to get them the music they demand.

Each CD, record, or tape is called a "unit". The more copies a title sells, the more units an online store may keep in its inventory. The more a record label "works" its records, (actively promoting and marketing their releases by securing airplay, putting the act out on tour, and getting publicity for them), the more likely e-music retailers-like their brick-and mortar-cousins-will find it necessary to carry the record.

Brick-and-mortar stores use "POPs"-"point of purchase" advertising items like posters, cardboard stand-ups, and counter display materials. Online music retailers have their own version of POPs. If "action" occurs (increased sales of a record, usually a result of a label or independent artist's marketing activities), the label or artist will have to supply extra album cover artwork and track listings to the online music retailers who are carrying the CD. You can contact the company listed below to learn about their services to labels. You will need your UPC code to work with them.

Muze Inc.
Label Liaison
304 Hudson St., 8th Floor
New York, NY 10013
(212) 824-0321

You may also need to supply online music retailers with RealAudio soundclips. You can contact Discovermusic.com to check on their policies regarding soundclips. Please remember that you must have a barcode to consider this option.:

1000 Denny Way, Suite 700
Seattle, WA 98109
(206) 336-3103
fax: (206) 336-3167

A Tip

My recommendation for the most effective online music retailer is Amazon.com. Go to www.Amazon.com/Advantage, and read how to get your CDs sold through their system. It's a simple, yet powerful way for an independent label or artist to sell their music over the Internet. You will get your own "page" which you create. You will detail everything you want a customer to know about your release: include a thumbnail of your CD cover and the song listings, as well as audio samples of selected songs. Over the last year I've spoken to dozens of acts that have used Amazon, and I have yet to hear a negative word about them. Remember though, Amazon is not a record label - YOU are your own record label and YOU have to steer people toward them with your on and offline marketing ideas. They will help you get started, but you are on your own, like any other label, to get the word out about your release.

Online Distribution

On my above list of online e-music retailers, the last listing was for an online company called Theorchard.com. They're not a store, but an online distributor of sorts. For a small fee they can get an indie label's releases into all the major online retailers. They function much like a brick-and-mortar "one-stop distributor", meaning they can make it possible for an independent label to get their music to many online stores at once. Please be advised that since it takes time for them to ship product to all the different online stores, and each store has a different buying and inventory policy, it will take them longer to send you or your label the checks you are owed. (By the way, if you use them without setting up your own Amazon.com Advantage program, you will NOT have that "page" on Amazon created by theorchard.com. You have to do that on your own.) At theorchard.com, artists and independent labels are paid 70% of the wholesale price of each unit. Online e-music retail list prices always fluctuate, just like offline retail list prices, whereas wholesale prices are fixed. A store may want to compete by slashing their retail prices, but the wholesale price never changes. If the wholesale price is $7.18, the artist would receive $5.03. In addition, they withhold a 25% reserve, again, just like in the brick-and-mortar retail business, because some product may/will be returned. After two quarters, they will settle up on what you are owed… hopefully.

Theorchard charges a 30% distribution fee. As a distributor, they sell things wholesale so that retailers can mark them up. You should also know that theorchard.com charges a fee of $40 to join. They pay quarterly for records sold and accumulate monies paid to them each quarter and then pay 30 days after the end of each quarter. As a distributor, they do not get paid the moment someone buys your product at an online store, so they can't pay you until they receive the money from the accounts they deal with. They accept your product as consignment merchandise. They do not buy product outright.

Your Own Website Sales

I feel that all serious cybermusic marketers should consider selling their product on their own websites. Many fans of independent music still like the idea of as much money as possible going directly to the artist. Let's face it, direct sales have the best royalty rate going, don't they? For the novice cyber-seller, a primitive but still valid alternative is to simply post a P.O. Box where your fans can send their checks or money orders, then you send them back a CD. When you get too busy to handle all the orders coming in from your own site, there are many secure-server e-commerce companies around who are eager to take you on as a client. One such company is www.ccnow.com. However, the options discussed earlier are a more professional way to go.

Since you are in control of your own 'music store' at your site, give serious thought to putting more than just Real Audio samples of the songs from your CD. Try putting 1 or 2 mp3 versions of your song up at a time, then take them down after a few weeks and replace them with a couple more. This can increase return visits to your site, and research is showing now that giving away songs (even through Napster,) does not hurt sales. In fact, as I suspected from the start, it actually is increasing sales of CDs.

A Final Note

At this time the business of cyber-selling manufactured CDs, tapes, etc. over the Internet is still a business of shipping physical objects to the customer. Remember - just as it takes time to get a record from the manufacturer to a brick-and -mortar distributor, and for the distributor to get those records into a store, and for the store to sell them, (possibly returning product to you later)-it takes time for the online version of that process too. You'll need patience as you wait to collect money from online retailers. We're not talking about downloading music files here, folks. Online e-music retailers at this time in history are still selling good ol' plastic storage devices wrapped in paper and plastic. They face many of the same challenges as brick-and-mortar stores: dealing with payments on records sold, return policies and lots of rules and regulations.

But stay tuned, who knows…before you finish reading this there may be a downloadable e-music retailer opening up shop at a URL near you.


Christopher Knab is an independent music business consultant based in Seattle, Washington. He is available for private consultations on promoting and marketing independent music, and can be reached by email at: chris@chrisknab.net

Visit the
FourFront Media and Music website for more information on the business of music from Christopher Knab.

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