- The Washington Times - Friday, May 30, 2008

It is, or should be, part of an honest opinion peddler’s job description to admit when predictions he has made, either explicitly or implicitly, turn out to be bunk.

More than once in this space, I’ve reported on Starbucks Coffee’s attempt, through aggressive music, movie and book promotion, to transform itself into a quasi-media company.

Starbucks’ expansion presaged a new model for the marketing of, especially, music, I speculated. Pretty soon, we would be seeing other retail chains catering directly to the niche tastes of their most affluent customers.

Taken together, these efforts could combine for a long-tail market that competed with both the explosive growth of digitally downloaded music and such formidable big-box CD movers as Wal-Mart.

As it turns out:

Wrong, wrong and wrong again.

If it hasn’t been amputated, the entertainment arm of Starbucks Coffee is at least resting in a sling - the victim of imperial overstretch.

“There is obviously a danger with becoming too enamored of the idea of being a media player - which can seem enticingly sexy and even easy to someone without media sales experience - and losing focus on the thing you did that brought the audience in the first place,” says Jonah Bloom, editor of the trade journal Advertising Age.

According to a report in the Wall Street Journal, Starbucks announced last month that its earnings fell 28 percent in the quarter that ended in March and its shares are down 57 percent from their 2006 peak of about $40.

Howard Schultz, the company chairman who reassumed his role as chief executive, has responded by cutting back on Starbucks’ extraneous merchandise, including stuffed animals and, yes, CDs.

“We have to defend our position,” he reportedly told employees at an annual meeting held in March.

That position, it should come as no surprise, is as a coffee maker, not a cultural tastemaker.

What went wrong?

Starbucks’ misplaced confidence in its multimedia potential began with a perfect marketing storm and a good dose of beginner’s luck - namely, the multiplatinum success of the posthumous 2004 Ray Charles release, “Genius Loves Company.”

In retrospect, the album’s popularity may have had less to do with Starbucks and more to do with, well, Ray Charles.

The R&B; and soul legend had just died; a critically acclaimed biopic, “Ray,” was doing healthy business at the box office; and Concord Music Group, the prestige label that became Starbucks’ chief music-merchandising collaborator, had gathered a star-studded slate of duet partners for Mr. Charles.

“Any realist would’ve told you that its success wouldn’t be easily repeated,” Mr. Bloom says of “Genius.” “The chances of those factors coming together again like that were slim.”

Well, now we know for sure: Starbucks and Concord, which later formed the joint label Hear Music, have since failed to match the success of “Genius Loves Company,” even with releases from top-tier boomer favorites such as Paul McCartney, James Taylor and Joni Mitchell.

At the outset, a typical Starbucks outlet would offer four or five new releases or specially packaged compilations. That number eventually swelled to as many as 20 CDs at a time - and dilation led to dilution of the novice music retailer’s distinctive brand.

“The initial idea behind Starbucks’ music merchandising was to present unknown artists to customers with refined musical tastes,” says Philip Daniels, an entertainment-industry lawyer based in Los Angeles.

As it scales back its entertainment frills and refocuses on coffee, Starbucks won’t completely scrub its stores of music merchandise. It’s in the process of phasing out physical CDs in favor of “digital release” cards that can be redeemed online at the iTunes Music Store.

It’s on this front, Mr. Bloom says, that the company may yet salvage a remnant of Mr. Schultz’s multimedia vision.

If it gets smart, that is.

The frontier for all retailers that aspire to third-place status - that is, a space other than home or workplace that merits an extended stay - is free access to wireless Internet. Starbucks offers Wi-Fi access, but it’s available free only to AT&T; subscribers. (Everyone else pays a steep $10 day pass.)

One of Starbucks’ chief mistakes was to rely on old-fashioned CD racks - relics, Mr. Bloom says, of the ‘80s and ‘90s. And for all the money the company spent to promote new releases such as Mr. McCartney’s “Memory Almost Full,” sales volumes have been uniformly puny - less than 1 percent of the overall music market.

Imagine if Starbucks had rolled out a digital music portal - packaged with the same care the company brought to its traditional CD rollouts - that could be accessed for free via wireless Internet.

Had it opted for digital delivery sooner and more comprehensively, Mr. Bloom says, Starbucks might have carved out a more significant share of music sales. At the very least, he adds, it might have met demand for free Wi-Fi, which is “horribly overdue.”

Yet, even under optimal conditions, Starbucks probably was capable, at best, of nibbling at the margins of impulse music shopping. Russ Crupnick, president of the music division of the NPD Group, a market research firm, says entertainment consumers favor speed, simplicity and directness; in today’s fast-paced world, they avoid clutter and distraction.

Think of the streamlined Netflix experience: tens of thousands of movie titles at customers’ fingertips - many of them, since the recent introduction of the Roku set-top box, instantly viewable.

Destination is key: Coffee may be a suitable companion to leisurely book-browsing at Borders and Barnes & Noble, but the experience is not easily replicable when the primary commodities are swapped.

Contrary to Howard Schultz’s highest hopes, Starbucks Coffee is, and likely will remain, a get-it-and-go affair for the vast majority of shoppers.

However, he shouldn’t feel too bad about failing, Mr. Crupnick says.

“These days, even media companies are struggling to be media companies,” he says with a laugh.

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