Analysis: Here’s Why Kanye West’s New Album Was $3.99 at Amazon

By Glenn Peoples  12/03/10 BILLBOARD

Last week the Village Voice picked up on a thought-provoking topic: using music as a loss-leader. This was a big topic in the ‘00s as mass merchants, freed from labels’ minimum advertised price rules, used cheap CDs to lure customers who would ostensibly go on to buy dishwashers, iPods and television sets. Now, as Amazon.com uses low-priced MP3 albums to drive traffic, the topic is hot once again.

Unfortunately, the Voice got it all wrong. It overplayed Amazon.com’s market share, overestimates the damage being done by temporary sale prices, and misunderstands the nuts and bolts of music distribution.
Here’s a fairly representative blurb from the post about Amazon.com’s $3.99 sale price given to the album download of Kanye West’s new album, “My Beautiful Dark Twisted Fantasy”:

“There was a lot of speculation, earlier in the month, that West would look to do whatever he could to match or beat the woman with whom he’s spent the last year inextricably linked. And now–after the stellar reviews have come in, capped, we should note, by a perfect 10.0 on Pitchfork today–we know just how badly West wants it… The fact that West… is employing the same tactic that struggling indies have used this year to insert themselves into the conversation is indication of just how desperately he wants to sell a bunch of records this week.”

The post has many problems that can easily give people a warped view of how distribution and retail actually works. Let’s set the record straight. (And let’s set aside any argument that artists and labels are desperate to sell records, or that this desire to reach the top of the album chart is new to the industry. There has always been heated competition to achieve a No. 1 album, and artists and labels have long gone to great lengths to sell their music. Nothing new there.)

— Artists and labels are not always active participants in Amazon.com’s Daily Deals. Labels often do promotions with Amazon.com and may cut Amazon.com a price break for taking a catalog title or less popular new release for a Daily Deal special. However, Daily Deal specials for the more popular titles are a separate matter.

Think Island Def Jam and West organized this $3.99 sale price as some sort of promotion? Go to both KanyeWest.com and IslandDefJam.com and check the buy links for West’s new album. Both sites link to iTunes, not Amazon.com. Neither site even mentions the Amazon.com sale. That’s the surest sign that Amazon.com acted alone. But there’s more: West’s Twitter page doesn’t mention his new album while Def Jam Recordings’ Twitter page has daily links to the album’s iTunes page. There’s no mention of Amazon.com at either.

— Low prices at Amazon.com are hardly “the go-to strategy for making a sales splash in 2010,” as the Voice claims. Amazon.com’s MP3 store just doesn’t have enough market share – about 2% of the market – to be responsible for any high chart appearance. That’s just a fraction of the 28% market share Billboard currently estimates for iTunes.
In reality, West would have debuted at No. 1 without Amazon.com sales. A source tells Billboard “My Beautiful Dark Twisted Fantasy” sold 59,000 digital albums through Amazon.com. That’s a very solid number, but it’s only about 26% of the album’s digital sales. Remove Amazon.com’s MP3 sales and West still would have sold 62,000 more the No. 2 album, “Pink Friday” by Ninky Minaj.

— To get to No. 1 on the album chart, CD sales and iTunes sales are vital. Amazon.com alone can’t do it. Look no further than Kid Rock, whose latest album, “Born Free,” is not available at iTunes. In its first week, digital sales account for just 12% of “Born Free” sales even though it was on sale for $3.99 at Amazon.com. Without the help of iTunes, “Born Free” was only the fifth best selling digital album of the week. Because of its strong CD sales, however, it was fifth on the overall album chart and beat out three of the four titles that had better digital sales.

In contrast, Rihanna’s “Loud” was priced at $3.99 when it came out the same week as “Born Free.” But “Loud” was also available at iTunes. It sold 54,000 more digital albums than “Born Free” and finished higher (No. 2) on the album chart.

— Amazon.com’s loss leader strategy works best when it sale prices winners. It doesn’t choose unheralded albums and turn an album into a chart topper by itself.

Perhaps the Voice noticed the following correlation: Arcade Fire’s “Suburbs” and Vampire Weekend’s “Contra” both debuted at No. 1 and both were sold low sale price by Amazon.com’s MP3 store. But that’s just correlation. Even so, the Voice says “Letting Amazon sell their record for $3.99 took both the Arcade Fire and Vampire Weekend to #1.”

There were sensible reasons why Amazon.com chose to give low sale prices to those albums. Arcade fire sold out two shows at Madison Square Garden right before the album was released. One of those shows has broadcast live on Vevo. Similarly, Vampire Weekend received a great amount of press.

— Sticking with Arcade Fire and Vampire Weekend, there are two factors behind their No. 1 debuts that have nothing to do with digital sales. First, both could not have happened without physical sales. CDs and LPs accounted for 46% of Arcade Fire’s first week sales and 51% of Vampire Weekend’s. Indie retail was particularly strong for both titles.

Second, and most importantly, both albums were released during slow weeks. Vampire Weekend came out on January 10th and had mostly 2009 leftovers to battle for No. 1 (Susan Boyle was No. 2 with a paltry 77,000 units). Arcade Fire barely beat Eminem’s “Relapse” in its eighth week of release, and that week’s third-best album sold just 45,000 units. If either Arcade Fire or Vampire Weekend tried to go up against Kid Rock, Taylor Swift, Susan Boyle, Lil’ Wayne, Usher, Kenny Chesney, Disturbed or Justin Bieber in their debut week, neither would have reached No.

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One Response to “Analysis: Here’s Why Kanye West’s New Album Was $3.99 at Amazon”

  1. streetknowledge Says:

    Hey I just found your blog and appreciate the in depth articles you do about the actual music business. I was looking at your re-post of the Wired article about Fred Goodman’s book. Keep it going and I also have a blog you should check streetknowledge.wordpress.com. I just signed up for site updates and will be reading what you post on a daily basis now. Thanks.

    Majesty
    Street Knowledge Media

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