Wednesday, April 29, 2009

Major labels should take note of the Fat way of doing things!

In recent years major music labels have pushed buying songs online as their great hope to save them from declining sales. One of the major problems they've discovered is that by attempting to maximize profits by cutting CD and vinyl manufacturing costs and pushing people to buy songs individually on iTunes instead of entire albums (as well as pricing digital downloads barely belowe CD prices when they should be half the price), is fans cherry pick a hit song or two by a band instead of buying their full album. Pop bands sell a lot less records this way and we've seen the CD market decline steadily and even online album sales not do so great, even if individual song sales continue to go up.

So what's a record label to do in these times of market and format change? The majors seem to really be floundering around. By almost abandoning album sales for singles they've really shot themselves in the foot, they totally missed the vinyl resurgence (vinyl sales have steadily climbed the past two years), and they are pricing their products even higher in a declining economy (iTunes and Amazon are both jacking their download prices).

What the majors should do is look towards the indies. In a shitty economy, it's where the innovation lies. The smaller more nimble indie record labels can adapt and change faster to music fans needs and their shrinking paychecks. Take Fat Wreck Chords for example, the label owned by Fat Mike of NOFX. Fat has ridden the vinyl resurgence by doing what other indie labels like Sub Pop and Am Rep did before them, creating a collectors market and buzz for their vinyl 45s by making singles clubs, limited edition colored vinyl, hand numbered editions, etc. They also do their own distribution through their website.

Take the new NOFX record for instance. For their "Coaster" CD that was released yesterday, they named the vinyl "Frisbee" and gave it a completely different cover. Plus they included with the vinyl a code to download the MP3 version of the album online from their website. But they took it even further, the first 1500 people that pre-ordered the album online from Fat directly got a hand numbered hand stamped free single... and if you know anything about limited edition NOFX singles, you know that it will be selling for $50+ on Ebay within a few years. They sold out of the first 1500 vinyl copies + single a month or two before the album even came out, I just got mine in the mail last week. That's a fucking marketing plan.

With the release of the CD version of the album came a new announcement from Fat. The album will be priced under $10 in every store in North America. Heck, why not? The economy is lowering music fan's buying power. Plus the manufacturing costs for CDs has drastically dropped in the past decade while the retail prices have actually increased. But once again, Fat went even further:

"This is not a sale. This is how much this CD costs, and not only that, but EVERY CD on Fat Wreck Chords will now be under $10 and most will be under $8. No, we are not crazy. We just think that having a very low CD price is a fair way for scene supporting music fans to support their favorite independent bands and labels. Sound crazy? I think it sounds reasonable. We make less profit, but bands hopefully will sell more CDs to more people, which is why we started doing this in the first place."

Crazy, a record label lowering retail prices for fans and bands, even if it means lowering their profit margin. But it's not really that crazy at all, it's what's happening all across America. Union workers are agreeing to pay cuts to keep their jobs and businesses afloat, employees aren't getting cost of living increases or bonuses, most state agencies are dropping services and letting go of staff, and there are massive layoffs. To survive in the faltering economy, businesses have to lower their profit margins, which really got out of hand in the last couple of years anyway. I know at my work we've spent the past six months pouring over budgets and services and determined where we can cut, even if it means people losing their jobs. And people are doing this with their own lives at home, trying to cut expenses to make ends meet. This is a reality check after all the wasteful spending on credit/debt days during the Bush Administration.

Cheers to Fat Wreck Chords for leading the charge with both innovation and price dropping in the music industry, lets hope both the big guys and other indie labels follow suit. I think those that don't just might find themselves out of a job one of these days.


Anonymous said...

Although it's great that Fat Wreck says the prices will be so much cheaper, stores still have to factor in such other costs as distro's, shipping, and their own costs. I can't say I've seen a single Fat Wreck item in this city for less then $14.

Tim Arrowtop said...

Good article, however, it seems that most people who cherrypick singles from major label download sites aren't the type to collect music in any format other than what's easiest to do. I don't normally see soccer moms scouring record stores for that newest John mayer 7", (although I bet a lot of soccer moms wouldn't mind 7" of John Mayer.... damn, i digress, I digress...) It seems to me that a new business plan or model that you just outlined coupled with quality material would increase sales as well as making music interesting to listen to again on a purely mainstream level. This isn't really happening unfortunately. And honestly, I say let the iTunes users download some Fergie song for 1.99, that's just their taste gettin' more classy!

Ken Cheppaikode said...

>Although it's great that Fat >Wreck says the prices will be so >much cheaper, stores still have >to factor in such other costs as >distro's, shipping, and their >own costs. I can't say I've seen >a single Fat Wreck item in this >city for less then $14.

how it works is that Fat has adjusted their suggested retail price to $7.99-$8.99 on most titles.

so stores can order 'em direct from Fat for about $4, or from most distros for about $5.

this lower list price JUST went into effect, though, so it'll take awhile for those reduced prices to be reflected as cheaper CDs in stores.

cause stores paid $8-$9 for all the existing Fat CD's they already have in stock.

they are not going to mark THOSE CD's down to the new list price, or they'd take a loss on the sale......

I would imagine there will also be a FEW unscrupulous stores (not too many, though, in this retail climate nobody wants to be selling CD's for $6 more than the competition) who'll simply ignore the new suggested retail price, even with the drastically reduced wholesale cost.............

Anonymous said...

Or the biggest issue has been ignored. Who left in the world wants anything off Fat Wrek?

Ken Cheppaikode said...

ha, good point!

they did just sign Teenage Bottlerocket and Banner Pilot, though, I do like both those bands.