Starbucks and iTunes Bridging the Digital Divide

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This is Celia Hirschman with On the Beat for KCRW.

Industries rarely transition smoothly, and change is often clumsy. Case in point – the record business. The market has become bifurcated with two distinct paths, each with its own dysfunctional ecosystem. On one side, the traditional record market, weighted down by outdated, expensive and unrealistic operating systems. Record labels will not sustain growth using the traditional sales model anymore.

On the other side; the digital revolution. Sales on this track are fueled by consumer's interest in efficiency, portability, innovation and value.

But record labels were built for the physical goods industry. They are under spent in the digital arena. Their best option is to partner with technology companies willing to make the sizeable time and investment.

Over 110 million iPods have been sold worldwide since the player was first launched and over 70% of cars sold in the US have iPod connectivity. Digital music files are readily available, and CD sales are declining fast. But not quite fast enough. Though many consumers have lost faith in building their CD collections, they haven't fully embraced the digital platform as the replacement yet. I suspect the slow transition is due to the tradition of collecting music, whether 45's, full-length vinyl, cassettes, or CD's. Consumers are used to getting physical goods for their music investment, but digital air has no weight. Smart entrepreneurs would seize this opportunity to become the bridge between the physical and the digital goods arenas.

Starbucks and iTunes are doing exactly that with their new partnership. Whereas decades ago, consumers camped out at record stores, today, they're hanging in coffee houses. The java-rich generation still wants to feel connected to music, without sacrificing time or lifestyle, but they may need a little boost to help get them over the digital divide. Last week, Starbucks launched a promotion to give away 50 million downloads in conjunction with iTunes. Walk into a Starbucks and ask for your free music-download card. Why not get a free song from Bob Dylan, Joni Mitchell, Mavis Staples or any one of the 37 artists featured every day through November 7.

Giving away downloads is just one of the initiatives of the Starbucks/iTunes partnership. But I'm more interested in their retailing experiment. ITunes has quietly placed highly designed laminated cards in 6,000 Starbucks locations to sell full-album downloads. It's the first time a major digital retailer (iTunes) is selling downloads in a physical store (Starbucks). The cards feature the album artwork and song selections. If the experiment works, it could open the door to much greater consumer acceptance of digital downloading. And it's ideal for physical goods retailers. Like the gift card business, there are no returns, and sales are paid on redemption. It's a far more efficient business model. What's more, the separation between digital and physical worlds would be closed.

Right on cue, this is exactly what's needed to bridge the digital divide that has plagued the record industry for the last decade.

This is Celia Hirschman with On the Beat for KCRW.