Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions
Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions

Taylor Swift has joined a litany of artists in holding back a new release from subscription services. Her new album Red is conspicuously absent from Spotify, Rhapsody, Rdio, Mog and Xbox Music this week.

The album's absence from subscription services is part of a formula that has worked well in the past. Red is not likely to be available at subscription services until Swift's next album is released, according to a source familiar with the label's strategy with her previous releases. Instead, the focus for Red is a mountain of retail campaigns and promotions at both well-known CD sellers and non-traditional retailers. And, as has happened in the past, "Red" was released on a Monday instead of the typical Tuesday release day.

Like some other executives, Big Machine Records founder Scott Borchetta has struggled with the subscription model.

"I personally struggle with that model - I don't think that it should be free," Borchetta told at the iHeartRadio Music Festival in Las Vegas in September. "We've spoken with the services, and spoken with Spotify in particular, and we've talked about a lot of different things. We just haven't hit on the right model that works for us. I don't have thousands and thousands of albums and hundreds and hundreds of artists, I have a finite artist roster and finite number of releases. If you're a big battleship like Sony or Universal and have tens of thousands of masters, that income stream makes sense at a big corporation. It doesn't make sense to a small record company."

Whatever size you consider Big Machine to be, the album is hard to miss in the marketplace. "Red," selling for $14.99, has been the #1 album since at iTunes since early Monday. Target is selling a deluxe version of "Red" and giving it a promotional push via a TV campaign. More than 1,600 24-hour Walgreens stores put the title on sale at midnight Sunday and have the CD on display. "Red" is also being displayed at Best Buy and Walmart.

From This Week's Billboard: How Taylor Swift's 'Red' Is Getting A Boost From Branding Mega-Deals

Even pizza chain Papa John's is selling Red. Customers can buy Red at Papa John's locations or have it delivered with their order. Pizza boxes have been transformed from bland cardboard into a special design featuring the Red album cover. And the Papa John's website has a page dedicated to Swift that streams audio clips of the new album. Fans can get a large one-topping pizza and Red CD for $22. Adding the CD to any order costs $13.

Swift's visibility goes beyond the album release. Keds is offering a limited-edition, $50 Red sneaker in honor of the album release (Swift and the album are currently promoted on the Keds home page). Swift has brand deals with Elizabeth Arden, American Greetings and CoverGirl, and she is featured in a Macy's TV campaign.

Red sold 262,000 units at iTunes on Monday -- that's more than most albums sell in all formats at all retailers in an entire week -- and is projected to top a million in first-week sales.

The album's heightened awareness blunts one of the primary roles of the subscription service. A subscription service is a place to discover music and listen before buying. The more people listen, the more likely they are to buy the music -- or a concert ticket or some other item. The argument makes more sense with unknown artists. A superstar artist like Swift has an unparalleled amount of awareness for her releases. Or, a subscription service would argue, at least it provides a legal, ad-supported alternative to piracy.

Of course such a service can also be used as a substitute for buying music, but so far the evidence in the U.S. points to subscription services and download stores existing in harmony. The idea that services such as Spotify cannibalize sales has not yet been put to rest, but recent news that Mumford and Sons' Babel smashed Spotify's single-week streaming record while selling 600,000 units probably will do it.

Cannibalization could be a factor here. As Billboard reported Tuesday, Big Machine has held Red back from Amazon's MP3 store and Google Play. iTunes has a one-week exclusive and is selling a "Mastered for iTunes" version for $14.99. The theory is that Big Machine wanted to take no chance that deep discounting by either Amazon or Google would take away from getting as many first-week sales as possible. A sale price under $3.50 does not count toward Billboard's album chart.

What if streaming were included in the product mix? For the sake of argument, if Red surpassed the Spotify single-week streaming record set by Babel by a factor of three (which Babel did to its predecessor), Red would generate $120,000 in royalties at 0.5 cents per stream. If Spotify et al were additive rather than substitutive, Big Machine would come out slightly ahead. But if Spotify et al were substitutive rather than additive, Big Machine would lose the equivalent of 11,436 digital album sales.

Artists and labels have a toolkit available to them when deciding how to release an album. Taylor Swift can choose from one of the most impressive toolkits in the music business. With all due respect to some great and innovative companies, subscription services just don't rank high on a list that also contains Walgreens, Papa Johns and Target.

Additional reporting by Andrew Hampp.

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