The relationship between the label and the consumer

Glenn at Coolfer recently responded to my post that took him to task on a post he made:

"He thinks the music industry figured out at some point that it doesn’t need a middleman, that is can sell its music directly. Coolfer can’t go along with that one. Labels, I’d bet, understand very well that their role is not to own the entire supply chain but to encourage efficiencies in its role in the supply chain. Music groups don’t own Best Buy or Target, and they won’t own celluar carriers. They’re going to have to live with their role as the content provider. And I think they know and accept this."

I thought (and think) Glenn is wrong about this; his comments regarding my post inspire a more thorough explanation. Glenn equates iTMS with other brick-and-mortar retailers like BestBuy, but it's simply inaccurate to afix the same label. Yes, they both have arguably the closest contact with the consumer, but that doesn't mean that they have the same relationship. And to my point, the physical relationship (B&M outlets) is deteriorating rapidly into commodity and loss-leader business (the vast majority of sales is now through the big box stores) with iTMS paving the path to digital distribution. Also to my point: the competitive advantage held by Apple is small because the barriers to entry are so low. Yes, Apple is a strong brand but as of now they are using hardware to control the content, something that historically has never been a long lasting competitive advantage. Duplicating Apple's offering at iTMS is simply too easy, and it won't be long before the labels simply partner with any DRM-compliant distributor.

As for distribution in general, the labels have frequently gotten involved though never much on a grassroots level. The reasons for this are obivous: the capital investment is enormous, it's outside their expertise, etc. But technology changes all that. There was a time when major labels actively developed a branding-type of relationship with the end user--Sire, Arista, Geffen, etc. once used their stable as a key marketing element, building their reputation on their roster and developing brand equity. Small labels still do this to a large degree, and with such a low barrier to entry in distribution, it seems obvious that the independent labels will foster the most endearing relationships with their customers. And with mom and pop record stores dwidling every year, who can blame them? It's a little disingenuous to assert that "selling directly to the consumer is hardly a core competency of any record label" when every label spends millions on marketing. "Selling directly" at a big box store means "putting product on the shelf" and accepting payola in the Sunday circulars. The relationship between those customers and their retailers is almost exclusively based on price.

Which is why now, more than ever, marketing at a major label is just as important as A&R. The greatest record in the world will stiff without support, and we all know that massaging the market is essential. That's why one of the core competencies at a major label is marketing--reaching the end user is driven not by iTMS or WalMart but by the labels. To that, why would the label want to let other barriers come between themselves and their customer? 50 years ago, it was obvious why: getting physical distribution was very expensive and far outside a label's core competency. Technology's changed all that. Apple has proven that there is strong demand for digital distribution, and the barriers to entry are relatively low. Why let Apple play gatekeeper (or any of the others racing to get into the game)? Labels spend millions driving people to the digital doorway, then are happy to let someone else get a cut for...hosting servers? Simply put, I'm not convinced that Apple's role as retailer is a) unique or b) essential or c) difficult/expensive to duplicate.