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From left: Copies of 'For One More Day' by Mitch Albom, sold through Starbucks, became a New York Times best seller in October 2006; Apple CEO STEVE JOBS, left, and Starbucks chairman HOWARD SCHULTZ announce the iTunes Wi -Fi Music Store at Starbucks Sept. 5, 2007, in San Francisco; Schultz and co- owner/chairman HAL GAGA attend a kickoff Glen Barros, president /CEO of Starbucks' Hear stores and Starbucks. Conventional retail- party for the CD project `Ray Music partner Concord Music Group, notes that Star- ers howled when the chain got exdusive pe- Sings, Basie Swings' at the home of producer Norman Lear bucks' limited choice of titles is part of both compa- riods to on Sept. 28, 2006, in Los sell titles like 2005's Bob Dylan set Angeles. Inset: iPhone Starbucks interface nies' strategy of selling to older music buyers who still "Live at the Gaslight 1962." It has been a purchase CDs. "We've always focused on the adult few years since Starbucks' last major exclu- "Everybody has tried to crack the code of music audience," Barros says. "Music is still an impor- sive, but the forthcoming Simon & Gar- this idea of instant gratification. Well, we've tant part of who they are, but there are other priorities funkel "Live 1969" album, originally scheduled to be done it." The iTunes -based Wi -Fi Music Store has that come first. To reach that adult con- released by Columbia /Legacy last fall, will launched in Seattle, San Francisco and New York, sumer, you have to make it easy for them reach the adult be exclusive to Starbucks from its March and Lombard says Starbucks will roll it out in Los An- to make the decision of what to buy, and 11 release date until the fall. Lombard is geles and Chicago in the next six months, with plans you have to make it easy for them to get." dnsumer, you have sanguine: "We weren't the first retailer to to install it in most American Starbucks stores by the In the past few years, Starbucks has get exclusives, and obviously we're not the end of 2009. managed to avoid the price wars and loss to make it easy ,last, and we just thought the Simon & Gar - , though, is the Starbucks project that ex- leaders that have pummeled the profit unkel was a perfect fit ... Our position [is tends outside the walls of its coffee stores. Barros says margins of nearly every other kind o r them to decide hat] we want to partner with the industry of Hear Music, "It really is a joint venture -we work on physical music retailer. and other retailers, and as we've continued most issues together. But if you want to divide up the "We definitely want to make sure that what to buy. to show a true commitment to doing the labor, Starbucks takes a lead role in the A &R selection, our customers acknowledge the value -GLEN BARROS, Concord right thing for the industry, we've seen less and of course the merchandising and marketing within proposition," Lombard says. Still, the and less pushback. We're just trying to do the Starbucks channel; we take a lead role in the oper- chain is experimenting with pricing initiatives for its everything we can to enhance the music experience for ation, marketing and sales to channels outside of Star- food products- investors have been looking a-siNtn6a the consumer. And that's a benefit to everyone." bucks. There are logistical and operational challenges, at its recent trials of $1 cups of drip coffee. Might there One of Starbucks' biggest music initiatives is its part- since we're drawing from two different staffs. But we've be similar experiments with entertainment prices? nership with iTunes, including the Song of the Day found that it actually helps give a sense of event to every Lombard's not saying. "As we try to move forward with program that distributed cards for free downloads. record, and the teams have really worked well together." our overall strategy," he says, "it really is about mak- Lombard and Schultz are enormously enthusiastic As for future Hear Music releases beyond Kenny ing sure we do things to surprise our customers. It's about its results. G and McRae, Barros is guarded: "Look for eight to all part of our ongoing discussion." "We had some pretty aggressive expectations, and 12 releases this year, in multiple genres and with Even without price competition, though, there's been it exceeded our expectations -not just at Starbucks artists in various stages of their career. There are a some friction in the past between old- fashioned record Entertainment but also at iTunes," Lombard says. few genres that probably don't make sense for what INVESTOR RELATIONS K..-.

KENNY G AND STARBUCKS go way back. The rial -there are only two covers on it -as well saxophonist's 1994 Christmas album, "Mira- as his departure from Arista, the label where cles," was the first CD sold in Starbucks' stores, he's spent his entire recording career until now. and in the mid -'80s, his uncle, Harold Gorelick, G still speaks often and fondly of Davis and convinced him to become one of the company's Arista. He says they got a "friendly divorce" initial investors. G recalls going down to the after the saxophonist decided he wanted to roasting plant to meet Starbucks president/ focus on his own compositions and the label probably anywhere in the world. But unfortu- by that, but I would want to write new classi- chairman /CEO Howard Schultz: "It smelled indicated it preferred him to record covers. nately, I don't get paid for my record sales there, cal music. That's the fun part. And maybe I beautiful in there -he showed me how coffee's "This is by far the best record I've done in 15 so we're working really hard to come up with do an album of standards, but I write them. roasted -but I didn't know anything about cof- years," G says. "I'm coming back to my roots in new ways to legitimize that." He's enthusiastic New standards, you know? So they have the fee. But here's what I know: I saw Whitney Hous- music. I want to walk into a Starbucks, see my about the promise of new technology for his ca- vibe of the old, traditional jazz standards, but ton the first time she sang, sitting there for her record there, and go, 'My integrity is right there reer as well: "A person in Shanghai can wake up they're new." audition for Clive Davis, and I went, 'OK, unbe- on the cover.' " in the morning in their pajamas, and they can G also credits spending time with the in- lievable talent.' When Howard Schultz talked G recorded bonus tracks for the Korean and buy my record in their home. Or maybe they'll tensely brand- conscious Schultz for the way to me, it was the same thing: a passionate ge- Chinese releases of "Rhythm and Romance" join my fan club." he's handling his public profile these days. "I nius that's a winner. So when I wrote the check. with singers famous in those regions; the singer Even before the album's release, G is think- think in the last three, four, five years, I've let

I wasn't really investing in a coffee company. I on the Chinese bonus track is Wang Leehom, ing about the next steps in his career: "I pic- my brand get a little diluted," he says. "And was investing in a man, in an individual." an Asian- American star who appeared in "Lust, ture myself maybe making an album of clas- now I'm back. I'm ready to take control of my

On Feb. 5, Starbucks' Hear Music imprint re- Caution." "I've been to China and Asia 50 times sical music with a symphony, and then going brand again. I want my brand to get back to leased G's Latin -themed "Rhythm and Ro- in my career," G says, "and China's one of those on the road and playing in every city with the integrity that I had when I was at the top of mance." It marks his return to original mate- markets where my music's more popular than their symphony orchestra. I could be inspired my game." -DW

26 I BILLBOARD FEBRUARY 16, 2008

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