Read Part 1
Physical retailers struggled under the weight of a growing catalog of CDs. There was an upswing in the creation of new titles and a marketing model had emerged in which every extra inch of a commercial record store was sold for promotional dollars: end caps, listening stations, light boxes, and counter displays. Record labels believed they had to pay for this promotional space to have a shot at getting any customer attention. Sometimes this marketing and distribution structure worked beautifully. Other times it flopped so bad that record label owners ended up “upside down.” Sometimes labels got more returned recordings from retailers than they had sold in the first place; that’s how extreme promotional programs had become. It was not efficient. CD retail prices went up while unpaid downloads emerged. Two pressure points from opposite ends.
In walks Apple and creates a path forward. They simultaneously create the hardware (iPod) and the online store (iTunes) to allow customers to legally buy and enjoy downloads. Finally, there was a legal path forward closer to the broader shifts in how people were using technology and wanting to experience music. Labels felt no choice but to jump on board.
In the process, a technology company created a walled garden, an eco-system where they controlled the parameters and the price, and they owned the customer relationship.
Over time, other technology companies emerged with similar legal download models.
Continued next week in Part 3: The Debundling of the Album has Unintended Consequences on Profit
Dmitri Vietze is the founder and CEO of rock paper scissors, a music and tech public relations firm.