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the wal-mart effect
What's been the impact on the record business of discount retailers like Target, Wal-Mart and Best Buy? Here are the views of David Gottlieb, former vice president of marketing for RCA Music Group; Dave Marsh, editor of Rock and Rap Confidential; and Danny Goldberg, former chairman and CEO of Artemis Records.

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david gottlieb
Former vice president of marketing, RCA Music Group

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The Tower Records, the Virgin, the Sam Goodys of the world, those stores are having an impossible time trying to survive. So if you want a record on sale there, you pay to be involved in their external advertising campaigns, and in-store advertising campaigns, which are extremely pricey. And when you're talking about certain mall stores, that's what helps them cover their margin and pay the rent, is the record labels putting that kind of money in.

For the big stores -- the Best Buys, the Targets, the Wal-Marts, who are the bulk of our business -- those three accounts alone are 50 percent of our sales. We're nothing to them. There's a great stat that music is one-tenth of 1 percent of all of Wal-Mart's gross revenues. So we're the smallest tadpole in the Wal-Mart pond, yet they're the most important thing in the world to us. And Best Buy is not much different. I think we're 3 to 5 percent of their overall revenue.

So if music disappeared out of some of these stores, they're not really going to feel it. But if we disappeared out of their stores, we would feel it. So that's why that dynamic exists.

Some of the Velvet Revolver guys were sitting in a meeting that we shot and they said that they had heard that day that because of Wal-Mart and Best Buy, they had to have clean versions of their songs. And they were all looking at each other like, "a clean version of one of our songs?" What are the implications of that?

The implications are you won't be in Wal-Mart. And you potentially could not be in Best Buy. But if the band didn't create a clean version, an edited version of the album, you could walk into a Wal-Mart and not be able to buy a Velvet Revolver record. And then, you've got to figure that in large chunks of the United States, the only place that a kid, somebody who's 20 years old, and maybe at the community college or not in college at all, just working, or the person who's over 30 and has a 9-to-5 day job but wants a great rock record, the only place they can buy a record is Wal-Mart. That's the only place they can buy a CD. And if Wal-Mart's not stocking it, I don't think they're going to be driving 30 miles to find a record store. …

And the music section at Wal-Mart is, you know, a third of the size of this office, maybe half the size of this office. It's tiny. And they are carrying maybe 600 titles at a time, 700 titles at a time.

Out of the 60,000--

Out of the 30,000 records that get released every year, they probably have 750 titles.

How do they decide?

They decide based on what's going to sell.

Who knows that?

They have a good gauge. They have a good idea. You know, Wal-Mart looks at the radio charts a lot, and sees what's on the radio. They play very close attention. A lot of times, you're not selling your record in huge chunks at Wal-Mart until you're two or three months into the project, and a song is exploding on Top 40 radio. Wal-Mart is really only your biggest contributor market share-wise first week if you're a country artist or a well-established pop artist, like a Christina or a Britney or a Justin or something. Otherwise, if you're a rock band or another type of artist that's developing, you're not feeling Wal-Mart until three to six months into the project.

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Dave marsh
Editor, Rock and Rap Confidential; former contributing editor, Rolling Stone

The big difference with Wal-Mart is, number one, relative to a huge increase in the universe of titles, they don't rack a huge increase in titles. Secondly, they are very content-restrictive about what they will and won't carry. Much more so, by the way, than they are about language in movies. Much more so. …

You know, but there's a fortune to be made with records you don't sell at Wal-Mart. Master P would not be out there, you know all that underground rap and stuff, would not be out there with the bling-bling if, if Wal-Mart was the only path you had. But it's the only path you have if what you're after is the kind of success that the big corporations need to drive the pop side of their division.

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Danny goldberg
Chairman and CEO, Artemis Records

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I have to believe that if Best Buy and Wal-Mart don't like a certain genre, a certain kind of lyrics, and if there's a public that likes it, there'll be ways of finding them. It's just not that hard. Technology is a two-edged sword. It has created these centralizations, but it also creates the ability to easily make CDs, to easily do mail-order through Internet. The Internet is a plus, you know, in finding audiences that are underserved.

And if you have to make your numbers at Best Buy, you have to make your numbers at Fox television, or at MTV, you're tending to look at what's popular. And as much as you may tell those congressmen that you're going to change the morality, guess what, Clear Channel dropped Howard Stern, Infinity kept him, and behind closed doors the people at Infinity are giving each other high fives and the people at Clear Channel are saying, "What do we do to get the ratings that Howard Stern used to get?"

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posted may 27, 2004

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