Entertainment retail brews in new venues

DSN Retailing Today, Oct 11, 2004

Mass merchants and specialty retailers still control the bulk of music and video sales, but that's starting to change as the industry becomes more fragmented. Several new players have entered entertainment retail in the past few months, ranging from coffee shops to convenience stores.

The best example is Starbucks, which is using its vast network of 4,000 stores to make some noise in music retail. In early September, Starbucks partnered with Concord Records to produce and release the CD Genius Loves Company, which features the last songs Ray Charles recorded before his death. Due in part to strong sales at Starbucks stores, the CD reached No. 2 on Billboard in its first week of release.

"We're very excited that we were able to show that Starbucks can be a powerful distribution channel for music sales," said Ken Lombard, president of Starbucks Entertainment.

Starbucks said its stores sold more than 44,000 copies of the CD in its first week--accounting for 22% of total sales--and increased its market share to 27% during the second week and 32% in the third week. Since the CD's release, Starbucks said its stores have outsold all other retail channels, including the mass merchants.

Lombard said Starbucks plans to produce more CDs in the future to sell in its stores and has been "approached by a number of record labels" to collaborate on projects similar to the Ray Charles CD.

Starbucks also plans to open several music cafes in its hometown of Seattle this fall. The concept, which was launched in March at its Hear Music Cafe in Santa Monica, Calif., allows customers to browse an online catalog on computer stations in stores and create custom CDs for about $1 per song.

Digital downloading--once the scourge of music retail--also is providing a new revenue stream for traditional retailers. Best Buy offers a startup package in stores to encourage customers to download music on Napster, and Wal-Mart launched 88-cent downloads earlier this year on its Web site.

According to research firm PricewaterhouseCoopers, digital music sales will double this year and will generate $450 million in revenues. By 2008, the company estimates that sales will reach $2.2 billion and account for 16% of overall music sales.

New players also are entering the DVD market. Earlier this year, McDonald's began experimenting with video rentals in some of its stores, and last month high-end CE retailer The Good Guys opened DVD sections in its stores to help drive customer traffic. And Papa John's Pizza and 7-Eleven are helping Buena Vista Home Entertainment market its new EZ-D disposable DVD (see below).

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Buena Vista Home Entertainment is another company that's using non-traditional retailers to bring entertainment to consumers with its disposable DVDs. Since it introduced the EZ-D to four test markets in September 2003, the studio has bypassed most traditional retailers in favor of two chains not usually associated with video: 7-Eleven and Papa John's Pizza.

The chains account for a large chunk of the nearly 2,000 storefronts that now carry the EZ-D. Buena Vista executives say 7-Eleven and Papa John's are perfect fits for the disposable discs that retail for $5.99, being as they don't require a return visit.

EZ-D employs technology developed at New York-based Flexplay Technologies. The discs come in vacuum-sealed packages and are treated with a chemical that makes them start to deteriorate when exposed to air. The process renders the disc unusable after 48 hours.

Buena Vista started the test last year in Kansas City; Austin, Texas; Charleston, S.C.; and Peoria, Illinois; and expanded it in April to Phoenix, San Antonio, Denver and to most markets in Florida. Buena Vista is the only studio releasing titles on EZ-D, with a mix of newer releases, such as "Cold Creek Manor" and older titles like "The Rookie," but other studios have begun to tinker with the technology.

HBO distributed thousands of disposable discs in July with an 18-minute preview of its new comedy "Entourage." And Universal Studios last month used promotional EZ-D discs for the release of "Eternal Sunshine of the Spotless Mind." The promotion was a takeoff on the film's plot, which revolves around a company that erases unpleasant memories for its customers.