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

An innovative technology is bringing digital distribution to brick-and-mortar retailers in a way that works seamlessly with brands and promotions. If you're thinking of kiosks that burn files to CDs or download them to thumb drives, you're way off.

Loudbytes recently got some momentum from a licensing deal with EMI, its first of the majors. The company's Crazy Funnel service allows brick-and-mortar retailers to sell digital music as standalone product or bundled with physical goods.

Here's how it works: Crazy Funnel is a cloud-based service that connects the products in the cloud to the retailer's point-of-sale system. The retailer chooses which products it wants to sell and adds the SKUs to its inventory. After the retailer scans the barcodes of certain products that include music -- a track, a digital album or a T-shirt that includes a free download, for example -- download codes can be sent back on a receipt, a mobile phone or an email.

There an obvious difference between a company like Loudbytes licensing and a download store like iTunes licensing EMI's catalog. A brick-and-mortar retailer is limited in the number of titles it can sell -- even if they are digital -- whereas iTunes will ingest millions of tracks.

That should be music to labels' ears. They need to get consumers' attention and stand out above all the noise. That's increasingly difficult in a digital store filled to millions of tracks. A physical store gives the better ability to have a conversation with the customer.

"It's really a short-tail model," says CEO Ruben Lozano.

The other important factor is the brand involvement. Crazy Funnel lends itself to incorporating brands by using digital downloads as a value-added item.

CEO Ruben Lozano says the eight-store retail chain Sun Diego just started a campaign with the clothing brand Rusty that gives consumers a download of Matt and Kim's single, "Let's Go" with purchase. Rusty pays the label for download redemptions. The stores promote the group's upcoming show in San Diego.

That's two good selling points in one: the short-tail model with the ability to work with brands. Lozano says retailers will be able to look at the release schedule, pick the best titles for their stores and see what brands are interested.

Since I first wrote about Loudbytes in October 2011 for the Digital Domain column in Billboard Magazine, Lozano says the company has mainly been working on deals with labels, expanding the model and working on relationships with brands.

Loudbytes has continued to run some campaigns. It just finished a small campaign with Vulcom Entertainment, a clothing line that also has a record label. Crazy Funnel powered a value-add promotion that allowed the buyer of Vulcom board shorts or jeans to get one of three albums.

Other companies already working with Crazy Funnel include BandMerch, Side One Dummy Records, the La Jolla Group apparel licensing company, Sun Diego Boardshops in the San Diego area and the Microsoft Tag 2D barcode.

There were two other topics I wanted to cover since I last covered Crazy Funnel. One is the role of downloads in an age of streaming services. Lozano said he doesn't think the platform is tied to just downloads and believes it can be used to bring customers to streaming services, too. He believes each type of music service provides revenue opportunities.

The other topic is the live venue. I asked if there is any potential to use Crazy Funnel at live venues so artists can bundle digital downloads with their T-shirts, posters and other physical items.

It could happen. Lozano says the company has spec'd a plug-in for VeriFone terminals that would let an artist scan a bar code, deliver a code back to the VeriFone terminal and send the download code to the consumer.

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