Marketers, Music Sites Find It Takes Two To Tango

On the heels of Pepsi’s co-promotion with Apple’s iTunes, advertisers and music-downloading sites are pairing up to jockey for a share of what could be a $3 billion industry by 2009.

In the last two weeks, Wal-Mart has gone live with an 88-cent-per-song music service, and Starbucks has started an in-store CD-burning venture with Hewlett-Packard. Sony’s Connect site is set to launch later this spring with a McDonald’s co-promotion. Napster 2.0 is teamed with Samsung— which sells the Samsung Napster MP3 player—and is planning a summer promotion with Miller Brewing.

Since download quality and the music catalogs are generally indistinguishable, noted Josh Bernoff, principal analyst at Forrester Research, a co-marketing deal is a “very important” tool for competing in the market (which includes subscription services and pay-per-download sites).

“That could vault a company to being one of those three or four players who will survive,” said Bernoff, projecting that the market for legal downloading will grow from $308 million this year to $3 billion in five years.

Pepsi-Cola launched its iTunes partnership with a Super Bowl spot out of BBDO New York that starred music downloaders, smiling and unrepentant, who were targeted by the record industry. (The soundtrack, Green Day’s “I Fought the Law” cover, quickly became a top iTunes download.) In the promotion, 100 million bottle caps on Pepsi products include codes for redeeming free downloads.

“Anecdotally, we’ve heard from consumers across the board that our program introduced them to digital downloading,” said Scott Parker, senior marketing manager for Pepsi’s music division in Purchase, N.Y. “We certainly saw a bump in sales, and the spot had incredible reach.”

In December, Samsung launched a $2 million print and online campaign via its in-house marketing department to tout the Samsung Napster player. Now, Miller Brewing has enlisted Interpublic Group’s Zipatoni to coordinate a summer promotion with Samsung, Fender and Rolling Stone. Miller will give away 3,000 of the MP3 players and $50 in Napster credits. Fender’s 50th anniversary is a hook, with Rolling Stone as an umbrella partner (ads will also run in other music and men’s magazines).

“We’re traditionally skewed toward sports, but that’s become crowded, expensive and expected,” said Pete Laatz, manager of entertainment marketing for Miller in Milwaukee. “So music is becoming a larger area for us to execute around.”

As far as the downloading services, Bernoff noted, “There’s already three times as many music stores as the market can support.” iTunes, the first to launch, is far ahead—Apple says it controls 70 percent of the legal-download market and reached the 50 million-download milestone in mid-March. (AppleMusic.com spent about $10 million on ads in 2003, according to TNS Media Intelligence/CMR.)

Bernoff said co-marketing agreements are crucial for the services—which charge just under $1 a song—because profit margins are too thin for the sites to market themselves. (But for Apple, iTunes does double duty, helping to stimulate sales of iPods, which more than doubled to 730,000 units in the first quarter.)