How To ... Sell a Product Everyone is Getting for Free
By Michael V. Copeland; Steve Gottlieb

(Business 2.0) – If the recording industry is facing an apocalypse, why is TVT Records having a record year? The independent label's revenue in 2003 was approaching $75 million; the bottom line grew 20 percent. One reason is that TVT has always been an oddball, ever since Steve Gottlieb founded it in 1985 by compiling albums of TV theme songs in his living room. Unlike other indies, which tend to focus on a single genre such as jazz or hip-hop, TVT signs diverse acts. Its list includes hip-hoppers Ying Yang Twins, hard rockers Sevendust, and indie rockers Ambulance LTD. But the label also thrives because Gottlieb anticipated in the late 1990s what the digitization of music was going to do to his business--and he created a business model that can produce sales even when music is being given away for free. --INTERVIEW BY MICHAEL V. COPELAND

The biggest issue we face today is utterly out-of-control CD burning. I say that, rather than file sharing, because burning completely destroys the value proposition of a CD. I don't think people should be stealing music, but the record industry has always given away some of its product for free to generate excitement and demand. My label loves all the online services, and we support them as much as we can. We were the first label to license our music to Napster. The online use of music should be nurtured and encouraged. We recognized early on that the online experience wasn't a one-for-one substitution of CDs.

But producing records is expensive. If you look at our Default album or Lil Jon, which are on the charts now, each of those artists represents a multimillion-dollar investment by TVT. It's not just the studio time--it's also providing the artist with a livelihood so he can pursue his art, and also providing support for a tour.

So how can we make that investment and continue to make money in the face of the CD-burning world? We continue to focus on giving special attention to making the purchase of a CD at retail a much better value proposition than a burn by including better packaging, extensive liner notes, artwork, and other content. It might be bonus tracks, access to online stuff, or special DVD footage. The Outer Marker, by Just Jack, includes two extra tracks and three music videos.

We put a bonus acoustic version of the hit song "Let You Down" on Elocation, by Default, and the first 350,000 copies of Seasons, by Sevendust, came with a bonus DVD with a "making-of" documentary, a bonus song, and music videos. You focus on making the appeal of the artist that much more personal, so the desire to have that personal token and connection to an artist holds sway. To the extent that you brand your artist even more strongly, you make the desire for people to have a legitimate connection to that artist more valuable. We are doing well at it, but that doesn't mean that the entire music ecosystem isn't suffering mightily. A lot of work has to be done by the industry as a whole to undo the damage done by the last three years of unfortunate decisions.