I'll Take a Venti Latte ... and a CD

What may be the most powerful name in music doesn’t belong to a record label, a powerful industry executive or an influential band. In fact, it doesn’t belong to a company associated with music at all.

The name’s the same one you’ll find on that cup of java that may be on your desk right now — the one in the green circle around the picture of that iconic mermaid. That’s right, Starbucks Coffee may be the future of music in America.

At a time when the music industry is scrambling to eke out a profit and save itself from obsolescence (U.S. album sales were down about 7 percent as 2005 drew to a close, according to Nielsen SoundScan), the ubiquitous Seattle-based coffee retailer is not only one of the few successful peddlers of compact discs, it’s also determining what a large swath of Americans are listening to.

Artists are paying attention, and traditional retailers are on guard.

“They’ve become a power in the industry. They’re a force to be reckoned with,” said Melinda Newman, West Coast bureau chief for Billboard magazine. “People are looking at Starbucks and saying, ‘This is a project where we’d be best served by making a deal with Starbucks — even if it pisses off traditional retailers.”

Though Starbucks doesn’t release its numbers, the results of an alliance with the coffee company have become unmistakable since it first teamed up with Blue Note Records to offer CD compilations in 1995.

A Starbucks 2004 release of Ray Charles’ "Genius Loves Company" was a tremendous success, earning the top spot on the charts and winning eight Grammys (including album and record of the year).

Jazz musician Herbie Hancock and proven power hitters like Elton John and the Rolling Stones have also come on board, and other well-known artists have also taken part in various compilation albums sold at Starbucks.

And the coffee empire has taken musicians and bands that would otherwise go largely unheard — Antigone Rising, Madeleine Peyroux — and made them into overnight stars (the company recently announced that it would be touting the debut album of one Sonya Kitchell).

When Starbucks started selling Peyroux’s album “Careless Love” in its stores in late March, sales went up 241 percent. According to Newman, the chain sold more than 10,000 units alone, more than doubling the sales of the album at music stores and mass merchants like Wal-Mart for that week combined.

And if imitation is the sincerest form of flattery, Starbucks’ success is borne out by the fact that it’s now commonplace for retailers such as Victoria’s Secret and Pottery Barn to offer their own customized CDs.

“Do they have an impact? Absolutely,” Newman said. “People feel they have a 'Good Housekeeping' seal of approval, that any CD they see in a Starbucks already has the Starbucks seal of approval, and therefore they’re going to like it.”

So formidable is Starbucks’ presence that earlier this year, when Starbucks won a six-week period of exclusivity to sell an new acoustic take on Alanis Morissette's best-selling album “Jagged Little Pill,” it was enough to send the traditional music industry into a tizzy.

“Not very cool,” wrote Don VanCleave, president of the Coalition of Independent Music Stores.

HMV Canada promptly pulled all of Morissette’s albums from its shelves, saying it reflected the feelings of its customers (a move similar to the one it pulled when The Rolling Stones sold a DVD exclusively through Best Buy).

In September, it did the same to Bob Dylan, whose “Gaslight” recordings are also a Starbucks exclusive, in coordination with music label Sony BMG.

“Some said it was horrible to get exclusives of any kind, that traditional retailers had broken these acts for years and this was the kind of thanks they got,” Newman said. “But others said that when they were developing an act they probably would have done something like this.”

But traditional music retailers may not be able to stop the Starbucks model from proliferating, especially since the labels are clearly interested.

“The labels are paying attention, and I wouldn’t be surprised if you started seeing more unorthodox places to buy music in the future,” Rolling Stone associate editor Jonathan Ringen said. “The music industry has been in decline for a long time, and every year there’s a big revenue decline for the labels. I think any kind of successful idea is going to be scrutinized.”

Starbucks Entertainment president Ken Lombard was more blunt on the issue.

“The artists love it, and the labels have been tremendously supportive,” he said. “They’re attempting to reconnect to the music consumers they are no longer able to reach.”

Lombard attributes the coffee house’s success in the music biz to a combination of luck, timing and the sheer strength of Starbucks’ name and consumer loyalty.

“It was brought on primarily by a perfect storm of a shift toward big-box retailers, with their limited formats and no discovery; you’ve got a shift in radio that is becoming just an advertising vehicle; and the fact that there’s really no really quality place to buy music expressly for the music consumer, which disenfranchises customers who feel disconnected from their overall music experience,” he said.

“That’s where our assets come in, and when we say ‘assets,’ we refer to our consumers who come in on a weekly basis — 35 million customers a week, 18 times a month — with a frequency that no other retailer can provide.

“I think with time other retailers will realize that the Starbucks commitment to the music industry is in the best interests of the industry as a whole, from the consumers to the labels and the rest of the industry, who’ve been through a lot of confusion.”

Researched down to the last detail — Starbucks is careful not to overwhelm the potential buyer with choices, offering a relative handful of titles at a time — the coffee chain’s music selections are designed to be nearly as irresistible as its caffeinated beverages.

“They have a captive audience, tens of millions of people who go in every week, waiting in line for their latte,” Newman said. “It’s like having gum at the counter, then the magazines — people are going to make impulse buys when they’re checking out, and it’s right there staring you in the face. ‘Oh look, Madeleine Peyroux. I haven’t heard her name or her music, but it’s right there and it’s a good price. Why not?’”

Starbucks CDs cost about $12.95-$15.95, and can also be purchased at Starbucks.com

Observers like Ringen think that Lombard may be onto something, and say the fears of those like VanCleave and HMV Canada may be exaggerated.

“Starbucks is able to tap into an audience that’s underserved by the record industry, older people who don’t spend a lot of time in record stores,” Ringen said. “The upside from the artists’ perspective is that this is an audience that isn’t likely to be into file-sharing and getting stuff illegally online. And a lot of these records are going to probably be bought by people who don’t buy that many CDs generally. And they’re really good at picking music.”

However, that doesn't mean that Starbucks is lagging on the downloading trend. Starbucks bought Hear Music, a San Francisco-based music company, in 1999, and you can find a Hear Music media bar in select locations in Santa Monica, Calif., San Antonio and Austin, Texas, and Seattle, which allows customers to burn their own CDs.

In addition, Starbucks opened its first Hear Music coffee house in Santa Monica in 2004, where consumers can browse among 10,000 different CD titles, use the media bar and, of course, have a cup of coffee. A second Hear Music coffee house opened in San Antonio in December.

Starbucks also has its own radio channel, Hear Music XM 75, available to XM Radio subscribers.

As for the online download issue, Lombard said downloaders are such a relatively small part of the market that it's not really a competitor, and he emphasized that the music's a way of enhancing the coffee-bar experience for Starbucks customers.

"We're starting out with physical CDs we're selling in our stores, and we fully expect that as you look at the first step in our digital aspect, media bars, giving customers the ability to customize and burn CDs, is a step, really in the early stages of the digital movement. If you think about it, probably 3 or 4 percent of music consumers today use digital as a delivery system for their music as opposed to CDs. But we will continue to stay on the cutting edge."

Downloaded tracks from online retailers soared to 332.7 million last year, compared with 134.2 million in 2004, an increase of 148 percent, according to Nielsen SoundScan.

In the end, though, despite its successes in music, the important thing to keep in mind is what Starbucks is at heart.

“What you have to remember is that Starbucks is in the coffee business,” Newman said.