Java and a Shot of Hip-Hop
Those efforts, so far, have paid off handsomely. Wall Street and coffee aficionados alike have embraced Starbucks's music offerings, which run from established artists like Coldplay to the debut of 17-year-old singer-songwriter Sonya Kitchell. Her album, Words Came Back to Me, was coreleased with Velour Music Group. "It's resulted in a lot of impulse purchases," boosting the value of the average Starbucks transaction, says Kristine Koerber, a senior analyst with JMP Securities. "You see a CD, you're likely to pick it up and the $4 cup of coffee." In 2005 alone, a total of 3.5 million units of over 40 album titles were sold through Starbucks, a 307 percent jump from units sold in 2004. Starbucks won't disclose the entertainment division's revenue, but analysts estimate it makes up just a small percentage of the company's $6.4 billion in annual sales.
Starbucks's ability to sell CDs at full price has also turned heads, especially as the beleaguered music industry has battled declining sales, with music lovers downloading MP3 files instead of buying CDs. Industry experts point to Starbucks's strategy of limiting the number of CDs it sells in-store at one time to no more than 20 and strategically placing the albums close to lines or registers as keys to its success. Starbucks registered over 25 percent of all sales of the late Ray Charles's Grammy-winning Genius Loves Company, which was coreleased with Concord Records and remains Starbucks's bestselling album to date. Albums not released by Starbucks have also fared well; roughly 12 percent of all sales of Sheryl Crow's latest album, Wildflower, were made at Starbucks counters.
The company hopes to capitalize on that momentum with its Hear Music coffeehouses, launched in 2004. Currently in three locations nationwide, the coffeehouses let customers burn their own compilation CDs at "media bars" or sample a selection of other albums. "It kept me in the store longer, which is basically their goal," says Koerber, who recently visited a Hear Music Coffeehouse in Miami. "It is basically a music store selling coffee." Starbucks could well take advantage of its extensive wireless network, so that customers could walk in and download songs to a laptop or an MP3 player.
Coming soon. To keep up with all the initiatives, Lombard has more than quadrupled the size of his staff, from 18 employees in 2004 to nearly 80 today. The division is currently housed under one roof in Seattle, but six to eight members of the content team will move to Los Angeles later this year to be closer to industry executives. Add to that the recent deal with the William Morris Agency, which Lombard says will help his staff identify and manage multiple project ideas. "We want to review and have access to as many content opportunities as we can," he says. Lombard and his team will have the final word on any new ventures.
For all its success with music, Starbucks may face a bump in the road when it comes to film. While Lombard insists that Starbucks will not invest in any movies, the company plans future marketing campaigns like the Akeelah partnership with Lions Gate. In the weeks leading up to the movie's release, Starbucks screened the film to its baristas and introduced coffee-cup sleeves bearing the movie's name and other promotional material. But the attempt to create buzz fell flat at the box office. Akeelah took in a disappointing $6 million in revenues on its opening weekend last month, finishing well behind the Robin Williams comedy RV and the acclaimed 9/11 film United 93.
So, what does the future hold? Will its growing entertainment business dilute the Starbucks brand? Will customers soon tire of all the additional merchandise in stores? Probably not, Lombard believes. Selling music and movies, he says, supports the core Starbucks mission. "We are not a music company; we are not a movie company," he says. "We are a coffee company."