Wal-Mart's Dirty Deeds Done Dirt Cheap

What's the difference between AC/DC and the major music labels?

Only one is singing "Back in Black" these days.

Yes, the prerecorded music industry has been in a tailspin since CD sales began to erode at the turn of the millennium. Higher-margin digital music sales were supposed to save the day, but they haven't been enough to rescue the players from their red-stained income statements. Warner Music Group (NYSE: WMG  ) , for instance, has posted a loss in seven of the past nine quarters.

Everyone knows that the labels are battling the new media threat of piracy, but did you know that the music makers are also seeing their more seasoned stars recruited by old-economy players?

The Wall Street Journal is reporting that AC/DC will be selling its next CD exclusively through Wal-Mart (NYSE: WMT  ) . Yes, Wal-Mart.

The world's leading retailer is no stranger to pushing rock oldies. Wal-Mart has struck similar deals with Journey, Bryan Adams, and The Eagles. In fact, an April Rolling Stone article points out how The Eagles' Long Road Out of Eden -- a two-disc CD set, artfully priced at $11.88 exclusively through Wal-Mart -- became the third best-selling record of last year.

Highway to sell
It isn't just Wal-Mart signing bands away. Last year found Madonna leaving her label for a long-term deal with concert promoter Live Nation (NYSE: LYV  ) . Paul McCartney decided to release Memory Almost Full through Starbucks (Nasdaq: SBUX  ) last year.

With discount department stores, live event promoters, and premium coffee houses becoming the new music brokers, is it any wonder to see the majors reeling?

It gets worse. Madonna, McCartney, and The Eagles proved marketable, but when was the last time that AC/DC had a hit? It's been ages since the Australian rockers shook the stateside charts all night long. However, AC/DC is just the latest retro powerhouse to realize that it doesn't really need a major label when it can milk its classics on the touring gravy train, releasing the occasional disc along the way.

The ability of Wal-Mart, Starbucks, and Live Nation to generate adequate promotional muscle for The Eagles, McCartney, and Madonna will make it that much easier for proven acts to snip the strings in the future.

Record labels wouldn't care if that was the extent of the damage. Losing pricey veterans that are often dry on new, mainstream material is the equivalent of a football team cutting a costly veteran for a fresher set of legs. The problem is that the rookies aren't coming along to replenish the supply.

Shows like American Idol are launching the next generation of crooners. Kid-geared cable channels like Disney (NYSE: DIS  ) and Viacom's (NYSE: VIA  ) Nickelodeon are using their media platforms to catapult the careers of pre-teen magnets like Hannah Montana and The Naked Brothers.

Compound that with indie artists that are now able to reach global audiences through social networking websites like MySpace or video-sharing hubs like YouTube, and it's easy to see why the major labels are pressing buggy whips these days. If old acts are bolting and new acts are sidestepping, what's a label to do?

You won't hear this from the actual labels, of course. They're too busy going after file-sharing networks or search engines like Baidu.com (Nasdaq: BIDU  ) to realize that commercial pilfering -- not consumer piracy -- is what really moved their ear cheese.

Will they realize that the trends have passed them by if they miraculously squash piracy, only to find that it's not their music that kids were swapping? That's the kind of embarrassment that could topple models, especially ones that don't realize how brittle they really are in current relevance.

Getting signed to a record deal is so passe these days.

For those about to stock -- CDs at your local Wal-Mart, that is -- we salute you.

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Wal-Mart and Starbucks are Motley Fool Inside Value picks. Baidu.com is a Motley Fool Rule Breakers recommendation. Starbucks and Walt Disney are Motley Fool Stock Advisor picks. The Fool owns shares of Starbucks. Try any of our Foolish newsletters today, free for 30 days.  

Longtime Fool contributor Rick Munarriz had his band signed to Columbia Records in the late 1980s. A pair of Billboard-charting dance hits later, they were gone. He does own shares in Disney. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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  • Report this Comment On June 10, 2008, at 9:51 AM, hayekvonmises wrote:

    The only problem I have with this article is the title...it implies the problem is with Wal Mart and is I suspiect another dig at the most successful retailer in history. My initial reaction is that the musical tastes of the masses has regressed to a very low mean, but further reflection fingers the musical acts themselves, and the industry for giving us such mediocre drivel.

    When a talented eclectic group or one of the purist variety puts out something worth lisening to people pay to listen, but the venues are more coffee house than stadium, and the pre-recorded sales take place at a table where you usually can pick up a T-shirt and an autographed CD.

    Hard to mass merchandise and compete with that point of sale business model.Local top-40 radio stations don't play them so you have to get out of the house to discover these groups.

    So what's new. Artists have always complained that the "Industry" doesn't appreciate their work and has blacklisted them.

    But,don't blame Wal Mart!

  • Report this Comment On June 10, 2008, at 12:45 PM, bpg001 wrote:

    I have no problem blaming Satan's Department Store, Wal-Mart.

    However, I TOO have a problem with the article title.

    "Wal-Mart's Dirty Deeds Done Dirt Cheap", yet you do not go into Wal-Mart's Dirty Deeds...you talk about a bunch of Recording Artists.

    Wal-Mart DOES deserve "blame" in that they are pushing ALL manufacture of items overseas, mainly to China - who doesn't know how to make toothpaste without antifreeze in it, or toys without lead paint! They need to move back to American manufacture - overseen by government and laws - EVEN at the expense of selling tube socks at $1.99 for 6 pair!

    And YOU guys need a copy editor who can spot titles that have NOTHING to do with the article!

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