Jay-Z and Kanye West may be kings of hip-hop sales, but their decision to give iTunes and Best Buy exclusive windows to sell different editions of their "Watch the Throne" album has other music retailers in open revolt.
Brick-and-mortar retailers are hopping mad that the Roc A Fella/ Roc Nation/ Live Nation/ Island Def Jam/ Universal Music Group release is giving preferential treatment to iTunes and Best Buy with separate exclusive windows to sell the upcoming blockbuster "Watch the Throne" album, which is due out everywhere on August 12.
But before that happens, iTunes will sell the album available exclusively, beginning on August 8. In addition, iTunes is pumping up sales by offering the lead track "Otis" as an exclusive download that is made available immediately to customers pre-ordering the album from Apple. That offer began July 25.
If that wasn't enough to get brick-and-mortar merchants up in arms, Island Def Jam/Universal Music Group is also giving Best Buy a nearly two-week window -- until August 23 -- to exclusively sell the deluxe CD version of the album, which wholesales for $12.40. On superstar releases, the deluxe version can account for anywhere from 50% to 70% of the first two-week CD sales.
"We believe fans should have the option to buy the same music at their preferred retailer, on the same date, and unfortunately that is not always the case." Craig Pape, director of Amazon Music, said in a statement.
Many others in music retail are condemning the move.
"A two-week window will be disastrous for music retailers," said Eric Levin, owner of Criminal Records and the head of the Alliance of Independent Media Stores.
Another retailer who declined to be identified said, "This may work for Jay-Z, but he is hurting all the other retailers and this will affect the entire industry."
Another merchant who preferred anonymity wondered if there are anti-trust implications to giving the largest music retail account, iTunes, preferential treatment.
But in a conciliatory move, independent merchants are reaching out to the two artists in an open letter explaining the role indie stores play, how they have worked with countless artist to promote their albums, and created Record Store Day to counter the negative media coverage about the supposed demise of record stores brought on by the closing of the Tower stores.
They labeled the iTunes and Best Buy exclusives as "a short-sighted strategy" and said that decision will cause "great damage to over 1,700 independent record stores -- stores that have supported you and your music for years.
"We know that you are busy, and that you put most of your energies into creating great music, but we are writing to you in the hope that you will hear us and take the time to rectify this matter. As representatives of the independent record store music community, we are asking you to allow record stores and music fans equal access to your new album."
Even other major label executives are questioning the wisdom of the move. "Why are they giving the deluxe exclusive window to Best Buy, who just made a clear statement that they are not so interested in the music category anymore when they chose Anderson to rack their stores?" a senior label executive said. "By ending their own involvement in purchasing music, they are saying they don't want to devote their own resources to music. So why would you give them an exclusive like that over the music specialty merchant that supports all your music, not just the superstar releases?"
Merchants say the "Watch The Throne" sales plan as designed effectively will allow iTunes and Best Buy to dominate sales and just leave crumbs for the rest of the retailers.
According to sources, UMG is projecting first-week sales of 400,000 units, split evenly between digital and physical. Moreover, they expect that the deluxe will be 50% of the physical sales, which means that ITunes and Best Buy will account for 300,000 units. Between the two exclusive windows, 75% of the demand is expected to be satisified within 10 days.
The album is also being offered to fans who buy tickets to the duo's tour. Fans who buy tickets can get the album by redeeming an online coupon. The album is also being sold direct-to-fan with a Moontoast page. It was unclear at press time when albums sold through those channels will be available to fans.
On their last solo albums, Jay-Z's "Blueprint 3" opened with scans of 477,000 units in the week ending September 13, 2009; while Kanye West's "My Beautiful Dark Twisted Fantasy," opened with scans of 496,000 units in the week ending November 28, 2010. Merchants say that each star normally would be good for debut week sales of 400,000 units; given overlap between the two artists' fanbases, UMG is being conservative with its projection.
While retail response has been universally angry, what they actually do vary. Some merchants say they will not carry the artists' albums at all anymore while others say they may not carry the deluxe version; one says he may not carry the artists' catalog titles anymore; another says they will carry the new album but not feature it, and probably price at list, if not higher.
High price points is a favorite tactic to punish labels who give preferential treatment to one merchant over others. In fact, Amazon, which is traditionally among the lowest price merchants in music retail, is offering the deluxe CD version for $16.93, about $4.50 above its wholesale cost of $12.40.
That wholesale cost implies a list price of $19.98 for the deluxe edition. The regular version of the album is priced at $13.98 and wholesales for $10.35. The digital version's prices were not available at press time.
While the CD version of "Watch the Throne" is priced and merchandised in Amazon's CD music store, there is nary a sign of the album in the Amazon MP3 store, leading some to speculate that Amazon may use this as an opportunity to sell the album for 99 cents in an attempt to teach customers to think about waiting to see what Amazon will do before buying taking advantage of iTunes' exclusive selling windows, which seem likely to continue to come Apple's way in the future.
Other exclusive albums that have drawn the ire of music merchants in the past include AC/DC's "Black Ice," given to Wal-Mart, and Guns N' Roses' "Chinese Democracy" and the Rolling Stones "Biggest Bang" DVD package, both of which were given to Best Buy. All of those titles had long exclusive periods for the merchants.
"The main element in all of these exclusives is that label executives forget what is convenient for the customer," said Newbury Comics head of purchasing Carl Mello. "Making the album available in certain versions at certain times is not the most friendly thing for the customer, for whom it will feel like a game of hide and seek.
"At first, due to the iTunes exclusive, when Newbury Comic customers come into our stores looking for the album, we won't be able to sell it to them. Then, when we have it beginning on August 12, we won't be able to sell them the deluxe version," he continued.
"It is very confusing to the customer," J&R Music World's Sue Bryan agreed. "We are muddying the water and making it difficult to buy the album. It will only hurt the industry. It is not good for J&R; it is not good for the industry and more importantly it is not good for the customer."
Merchants claim that the tactic will mute sales for the album. "Look at what happened to the Beyonce album '4,' when Target got the exclusive version of the album," said Trans World VP of music and new media Ish Cuebas, who estimates that Target has a 57% market share on sales of the album; the Target edition features six bonus tracks, three of them exclusive. "After the first two weeks, sales collapsed because the rest of retail wouldn't support the album."
That album has so far scanned 552,000 units in four weeks of sales availability after debut-week sales of 310,000 units, with the last two weeks both well under 100,000 unit sales, at 72,000 units and 54,000 units, according to Nielsen SoundScan.
In contrast, retailers point to Adele's "21' had debut week sales of about 351,000 units and its sales have yet to dip under 78,000 units it its 29 weeks of availability. While the Adele album came in an exclusive version with four songs, three were live tracks and one was a cover. Also, her first album, "19," came out exclusively as a digital album, "but that was different because nobody knew who she was then and the label was testing to see what they had," Cuebas said.
Moreover, Lil Wayne's "I Am Not A Human Being," which came out Sept. 28, 2010, was available exclusively to digital retailers for a two-week window, which Cuebas says disengaged the rest of retail.
"That album hasn't sold as well as his other albums," Cuebas said. That album has sold 925,000 units, making it the fifth best-selling title in the rapper's career, with 2008's "Tha Carter III" the best-seller, with 3.6 million units.
"Once you give it to iTunes first, they can e-mail it to all their friends, which hurts demand for when all the other retailers got that album," Cuebas said.
As for the Best Buy exclusive window, "Music specialty retailers like us and the indies support every one of the labels' records, including developing artists, while the big boxes only support the big titles and they get all the rewards," Cuebas said. "I don't get it. None of the labels think long-term about the health of the industry. They are all in it for the moment."
Music merchants and even label sales and distribution executives believe that preferential treatment to big box merchants has already hurt the industry beyond the digital threat. Those executives say that underwriting loss leaders by supplying big boxes with generous price and positioning funds and exclusive version of product and exclusive selling periods shifted consumers from music specialty stores like Tower Records, Virgin, Sam Goody and FYE to the big boxes. That resulted in the first three going out of business and the latter closing more than 500 stores and shifting sales away from music into other product categories, all of which hurt the record labels almost as much as piracy.
"The labels are repeating the same mistakes online that they did in brick-and-mortar," one merchant said. "How stupid can they be?"
Another merchant asked, "When the industry looks back at its screw-ups, how can we stand around and let it happen again?"
What do you think of the decision to give exclusives to iTunes and Best Buy? Sound off in the comments below.