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Label Gets Top Spot With Online Spin

Published on 10-07-1999
Published at LA Times

Wind-Up Entertainment, a small independent record label with only a few dozen employees, annihilated the competition this week, snatching the top spot on the pop chart away from superstar Garth Brooks and teaching the music industry establishment a lesson about the power of the Internet in the process.

The scrappy, New York-based company sold about 316,000 copies of "Human Clay," a surprise hit by a fledgling rock act from Tallahassee, Fla., named Creed. That's 50,000 more copies than Brooks, the nation's top-selling album artist who banked on an elaborately orchestrated, multimillion-dollar promotional campaign that included a prime-time television special to hype his latest release.

Wind-Up took a much less expensive approach to drive consumers into record stores. The 2-year-old label, which is distributed by BMG, sparked sales for Creed through an intense, micro-marketing effort on the Internet, encouraging fans to preview every song on the album in advance and download the first single from the collection for free--a practice opposed by most of the major companies.

"My hat's off to the folks who run Wind-Up. It's a very impressive small indie," said Mike Shalett, chief executive of SoundScan, the New York research firm that monitors record sales for the music industry. "I'm a giant believer in micro-marketing, and this is a concrete example that you don't need to be the biggest record company to win."

The success of Wind-Up, which was started with a $5-million investment in early 1997 by Alan Meltzer, illustrates that there is still room for entrepreneurs in the increasingly consolidated $40-billion music business, an industry in which five global corporations dominate the landscape. It also proves an unknown recording artist can hook up with a small team of Web-savvy marketing experts and use unconventional techniques to beat the majors.

While all of the major record conglomerates have established Internet divisions, they remain deeply concerned about how to protect copyrighted music on the Internet and how much consumers should be charged to download singles. Many labels now allow fans to preview snippets of songs for promotional purposes, but most are reluctant to let artists give away entire songs. (Some labels have even threatened legal action to prevent artists from attempting to do so.)

In Creed's case, Wind-Up does not intend to even sell "Higher," the first single from Creed's new album. In fact, the company invested several months consulting with technology experts to figure out how best to give the song away.

Wind-Up came up with an unconventional promotion costing less than $50,000 that involved Web sites at eight major retail chains and about 100 radio stations, where fans could download the song for free. Retailers were also given an additional exclusive track from the album available for streaming at their Web sites. The idea was to help retailers and radio stations drive traffic to their sites by previewing the new music to avid Creed fans.

In exchange, the retailers who participated, including Best Buy and Musicland, prominently displayed Creed posters. Wind-Up also promised a free Creed concert to the radio station that registered the highest percentage of listeners in their market to download "Higher," which encouraged stations to get behind the record. The song is already in heavy rotation on radio and MTV.

Fans were also able to download "Higher" for free at http://www.creednet.com, a Web site that Wind-Up created and runs for the band. During the monthlong promotion, the company says about 250,000 individuals downloaded the album's first single, many of whom Wind-Up believes bought the album during its first week in stores.

"What we did was take some of the most basic elements of consumer marketing and applied them to the Internet," said Wind-Up President Steven Lerner, a 35-year-old marketing expert with no previous record-label experience. "This is not some secret McDonald's recipe here. We're just doing traditional marketing stuff in a new place."

Wind-Up Chairman Meltzer, a 55-year-old former CD wholesaler and record retailer, said the company spends as little money as possible on traditional promotion techniques such as trade and tip sheet advertising, believing most of those publications are never read by consumers.

"I don't believe in crap like trade advertising. I want to talk directly to the fan," Meltzer said. "The way we measure success is by how much traffic we drive to the Web site. The first thing I look at every week is not my SoundScan sales report but my Web traffic report. We count the number of visits and the length of each stay because we know that those statistics will ultimately translate into sales."

Wind-Up's success with Creed this week will help boost the market share of its distributor, BMG--even though the German conglomerate will collect only a small fee for delivering the product to retailers. Indeed, BMG will be able to take credit for several hits this week in the top 10 thanks to a similar arrangement with Jive Records.

If you subtract the sales market share produced this week by Wind-Up and Jive, both of whose deals with BMG end next year, the company's total percentage of sales would shrink nearly 6%. (Sources say BMG's relationship with Jive may be in danger due to a dispute between BMG Chairman Strauss Zelnich and Jive chief Clive Calder.)

While BMG and other global record giants derive fees and market share from their connection to such independents, they offer little or no input into developing hit artists and take few of the profits. With independents such as Wind-Up proving they can dominate the charts on their own, it's going to be more difficult in the future for major conglomerates to convince artists to join a roster where hundreds of artists are competing for attention.

Wind-Up has just six acts on its roster, including Creed--which had been approached by several major labels before joining Wind-Up. A few weeks after Meltzer and Lerner launched the company, Meltzer's wife, Diana (Wind-Up talent chief), heard a home-produced album by the rock quartet and talked her husband into attending a showcase.

Showing how fast a small label can move, Wind-Up heard the music Wednesday, flew to Florida on Friday and brought the band to New York the next week to close the deal. In May 1997, Meltzer and Lerner hired a top record producer to remix the album, called "My Own Prison" and released the first single to radio.

Although "My Own Prison" never topped the pop chart or even entered the Top 40, Wind-Up worked it relentlessly by releasing several new singles and ultimately sold about 4 million copies in the last two years. Last year, the company, which generated about $50 million in revenue, created Web sites for each of its artists and also formed its own music publishing division. Employees have been given equity in the label.

Michael Nathanson, an entertainment analyst for Sanford, Bernstein & Co., says Wind-Up's Web-savvy marketing could serve as a model for how the record industry might look in the future.

"Up until now, most people in the business have dismissed the notion that a band could be broken on the Internet," Nathanson said. "They promote the idea that an artist needs a big record conglomerate to penetrate radio and MTV. But look at Garth. He had his own NBC special the week his album hit the stores. He leveraged Wal-Mart big time, and his company shipped close to 3 million albums; but what did he get? I think this is proof that the music business could change."

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Marketing Creed

Wind-Up took Creed's "Human Clay" to No. 1 using inexpensive promotion on the Internet. It surpassed Garth Brooks' latest album, wich cost much more to market.

* Gave away first cut of album at http://www.creednet.com
* Targeted consumers over the internet by making single available for downloading at more than 100 retail and radio web sites
* Previewed all tracks of album on various Web sites.
* Bartered retail deals through unconventional promotion

* * *

EMI/Garth Brooks
* Produced and broadcast a special on NBC.
* Advertised for the TV special
* Made special deals with Wal-Mart and other retailers.
* Shipped 3 million copies for retail, which pumps up numbers now at the expense of future returns.
* Advertisemed in Billboard and other trade magazines.

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