News Column

In Tune With the Times

November 2004, HISPANIC BUSINESS Magazine

John Cox

Ivy Queen and other Reggaeton artists are expanding the appeal – and the definition – of Latin music.
Ivy Queen and other Reggaeton artists are expanding the appeal – and the definition – of Latin music.

A leaner, wiser U.S. Hispanic recording industry is rebounding after years of declining sales as record labels employ more effective ways to market and sell music. Record labels shipped 18 percent more Latin music in the first half of this year than they did over the same period last year – the first increase in five years, according to the Recording Industry Association of America. Between 1999 and 2003, shipments in the genre fell 27 percent to $535 million. Industry executives credit a concerted anti-piracy effort as well as budget cuts that have forced record labels to become more efficient. Among many fundamental changes, recording companies are now taking fuller advantage of Internet technology and are planning their promotions more carefully. "The big changes have been in the past few years, in which we've had to cope with the biggest crisis that the industry has seen, and I think now [sales are] starting to return back to normal," says John Echevarria, president of Universal Music Latino. The return to bottom-line thinking has refocused an industry where lavish parties and unchecked marketing budgets became the norm in the boom days of the late 1990s, says Rafael Fernandez, vice-president of Latin music for the recording association. "I think you've seen a transition from an industry that was perhaps pretty open in spending, because it was so large, to one that is spending very tightly," he says. With music piracy on the rise for more than a decade, the industry launched its first major enforcement initiative last year. Several major labels pooled their money to give the recording association an additional $2 million to increase its anti-piracy efforts. Investigators were hired across the country, and labels enlisted local police agencies into service. The campaign has produced positive results: In a report released last spring, the association said that Latin music comprised 33 percent of all illegal recordings seized in 2003 – up from 24.5 percent in 2002. Meanwhile, budget cutbacks continue to ripple across the industry. Major international labels have slashed CD prices, laid off top executives, and become more selective when signing artists. At the same time, small independent labels are turning to lower-cost promotions that force artists to become more involved in their own marketing campaigns. Universal Music Latino, a major label that industry experts say controls more than 40 percent of the distribution market, has made greater use of the Internet when promoting new albums, an approach Mr. Echevarria says has been quite successful. Universal now sends music-buyers e-mails containing a free music track. It also strives to keep its visibility high by placing ads on Internet music portals. Like other labels, Universal's tighter marketing budget also means that it must be more selective about which artists it signs. "We cannot survive spending money on 'inventions' like happened before, trying to find a nice face and a nice producer," Mr. Echevarria says. In one of Universal's most far-reaching efforts to boost sales, the label recently reduced its prices by as much as 20 percent to about $9 for a CD, with some products selling for $6 or lower, Mr. Echevarria says.

Anthony Perez

"Marketing is the key to everything," says Anthony Perez, president and CEO of Perfect Image, an independent record label. Other labels have reacted to the pricing strategy – and found success. Balboa Records, a Culver City, Calif., subsidiary of Mexican-based Discos Musart, introduced CD three-packs in the middle of last year. Soon, Wal-Mart – which until then had carried very little of Balboa's product – set up merchandising racks designed specifically for the new packages, which sell for $7.50. Previously, distribution of Balboa's CDs had been limited to mom-and-pop retailers. "Wal-Mart is now moving a lot – a lot – of product for us," says Frank White, Balboa's promotions director and vice-president of operations. He said that larger labels have since introduced CD three-packs. Other recording companies have started to use traditional media in a more focused way than they had before. Warner Music Latina, a major label with a roster that includes established artists Luis Miguel and Alejandro Sanz, no longer goes directly to national advertising when promoting new talent but starts regionally with radio, print, and retailer-based campaigns, says company sales manager Hugo Flores. He says promotions now spread beyond an artist's own geographic region only when sales are so strong that media in other markets are sure to take notice. Even less marketing money is available at Perfect Image Records, an independent, Miami-based record label that, besides making heavy use of e-mail campaigns, now sends its artists to high schools and other places where youth gather, President and CEO Anthony Perez says. And in addition to reducing its music video budgets from $50,000 a few years ago to about $17,000, Perfect Image's tighter spending requires its artists to perform in a greater number of clubs and other small venues in order to generate consumer interest, Mr. Perez says. "Marketing is the key to everything," he says.

(in millions)
Music Shipments chart
Source: Recording Industry Association of America
Despite the many cutbacks, there has been expansion into new musical styles. Sub-genres like Reggaeton, a Puerto Rican-born style that combines Caribbean music with hip-hop rhythms, has provided "probably the biggest growth in the past [few] years," Mr. Echevarria says. For example, Reggaeton artist Daddy Yankee's album El Barrio Fino debuted at No. 1 on Billboard magazine's Latin Albums chart in July and remained among the chart's top 10 well into September. Daddy Yankee's publicist, Sofia Alayσn, says the commercial successes of sub-genres like Reggaeton has reinvigorated the recording industry. "You have a lot of companies now that are willing to bet their dollar on Latin artists – and not just Latin artists that are known worldwide, like your Ricky Martin and your J.Lo," she says.


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