A new spin on classic records

(Fortune Magazine) -- It should come as no surprise that a company backed by Norman Lear knows how to make creative use of television. Lear, the TV superproducer who created "All in the Family," "One Day at a Time," and other hit shows, is one of the owners of Concord Music Group.

Concord funded a documentary that ran recently on PBS called "Respect Yourself: The Stax Records Story," about the groundbreaking Memphis label that released albums by Otis Redding, Isaac Hayes, the Staple Singers, and others. What most viewers didn't know was that Concord had recently bought the rights to the Stax recordings. Sales jumped after the documentary aired.

CEO Glenn Barros with a guitar signed by Concord artists

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That's only one of the clever ways that the well-funded independent label is shaking up the ailing music business. Lear's longtime business partner, Hal Gaba, realized that there weren't many outlets that effectively sold music to adults, so in 2004 the company struck a deal with Starbucks (Charts, Fortune 500) to jointly release "Genius Loves Company," an album of Ray Charles duets that won eight Grammy awards and sold more than three million copies in the U.S.

Lear and Gaba became friendly with Starbucks founder Howard Schultz, and earlier this year the two companies set up a joint venture called Hear Music. It released the new album from Paul McCartney, which sold 160,000 copies in its first week - 75% more than his previous album for a major label.

As the major labels struggle to come to terms with declining CD sales - down about 30% between 2000 and 2006, and another 15% from that level in the first half of 2007 - Concord, with the backing of Tailwind Capital, a New York venture fund, has been aggressively building its business. This fall it will release a new John Fogerty album and reintroduce Stax as a label for new artists with an album from neosoul diva Angie Stone. Hear Music will put out a new Joni Mitchell project and a James Taylor CD-DVD package.

"The business that's not working today is the hits-driven business, and hits were always driven by teenagers," says Glenn Barros, Concord's president and CEO. Concord concentrates on selling albums to adults, who are more loyal to their favorite acts and less likely to download music without paying for it.

And in 2004 it acquired the rights to music that plenty of adults like when it paid a reported $83 million for Fantasy Records, which owned Stax, several jazz labels, and the recordings of Creedence Clearwater Revival (Fogerty's old band, of course).

"Concord is almost in a different business from the one the major labels are in," says Adam Stulberger, a managing director at Tailwind, which invested in Concord when it purchased Fantasy. Instead of swinging for the fences by trying to find potential superstars, Concord concentrates on steady singles and doubles - jazz and other genre releases that can sell 25,000 or 50,000 copies to turn a modest profit. (Major-label releases typically need to sell several hundred thousand copies to make money.)

The company has more ambitious goals for Hear Music projects, but Starbucks shares the risk and provides low-cost marketing in the form of product placement on several thousand coffee-shop counters.

Concord's history dates back to 1972, when founder Carl Jefferson sold his Ford dealership so that he could record performers like Ray Brown and Mel Tormé, who were past their commercial prime. "Success was defined as, Can I sell more records this year that last year?" remembers Barros, who took charge in 1995 after Jefferson died and stayed on when Lear and Gaba bought the label in 1999. "Norman and Hal saw the commercial potential."

The amount of money that some jazz releases can make on Concord would represent a rounding error on a major-label ledger, so it uses less expensive forms of marketing than the radio promotion that the majors usually rely on. It ran a make-your-own-video contest to publicize a new release from the Latin funk group Ozomatli. And it plans to sell its Stax documentary on DVD to make back the production cost.

"In my days at a major label, it was about radio, VH-1, and MTV," says Concord general manager Gene Rumsey. "Now the critical drivers for a company focused on the adult consumer and releasing quality music are CBS Sunday Morning, NPR, and PBS. PBS is our MTV."

None of Concord's 2007 releases are expected to succeed on the scale of "Genius Loves Company." But Barros says they don't have to - they just need to find a niche and, just as important, keep selling over time. "The means to reach different communities is slowly emerging on the Internet," says Lear, sounding more like a pioneer in technology than television. "And what I love about this is the opportunity we're on the verge of."

The Beverly Hills offices of Concord's top executives are decorated in Modern Mogul, all high-end audio-visual equipment and minimalist chic. At the other end of the floor, some of the midlevel employees' offices look like used-record stores into which some unseen hand deposited a desk. Jazz boxed sets line the shelves, old Stax reissues are piled on cabinets, and vintage vinyl decorates some of the walls. One bookcase displays "I Am Somebody," a spoken-word album that an impressively Afro-ed young Jesse Jackson recorded for Stax.

From a cultural perspective, the recordings Concord bought from Fantasy represent a treasure trove of Americana, the most important collection not owned by a major label: early albums by Miles Davis and John Coltrane; the early rock of Little Richard; and on Stax alone, key work by Isaac Hayes and the Staple Singers (Atlantic Records owns the distribution rights to music from Stax's early years, like the Otis Redding albums).

From a financial perspective, the label also acquired a steady revenue stream: Every time you hear "Bad Moon Rising," Concord's cash register rings.

Fantasy never spent much money marketing its recordings, and when Lear and Gaba bought the company they basically bet that they could raise sales by an order of magnitude. Some of it will come down to savvy marketing.

Among the recordings Fantasy owned was the soundtrack to "A Charlie Brown Christmas" by the Vince Guaraldi Trio, a holiday favorite that Fantasy faithfully shipped out every winter. By reissuing the album with deluxe packaging and extra tracks and striking deals to sell it at Starbucks stores and post offices, Concord sold 50% more copies last year.

But Concord still faces the same problem as every other label. Over the past few years hundreds of music stores have closed, including the only national chain that stocked a wide selection of reissues and boxed sets, Tower Records.

Concord releases sell well at Borders and Barnes & Noble (Charts, Fortune 500), as well as on Amazon (Charts). But the big-box merchants that now dominate music retailing focus almost exclusively on the kind of hits Concord doesn't plan on delivering.

Online, the company will face the same problem Stax had in the 1960s: Singles sell for far less than albums. (It wasn't until the '70s, when artists like Isaac Hayes began to focus on albums, that Stax's revenues exploded; to thank him, the company bought Hayes a gold-plated Cadillac.)

Barros believes that Concord can thrive at online outlets as music sales start to resemble the "long tail," in which relatively unpopular artists account for a growing percentage of total sales. Much of the material it acquired - Jackson's spoken-word album, for example - might never sell well enough to justify the cost of shipping and distribution.

"We're doing several digital-only releases this year because the economics of putting them out at retail don't really pay off," says John Burk, Concord's executive vice president and creative leader. And without pressing and shipping costs, albums from artists like Sho-Nuff and Fat Larry's Band - both available exclusively at eMusic, the second-largest online music store - should generate a slow but steady drip of revenue for as long as deejays sample soul music.

To encourage customers to buy more than just a single, Concord is marketing Short Stax, three-song packages that iTunes will sell for $2.

"Concord is very skilled at marketing the catalog," says David Pakman, CEO of eMusic. "They have a very solid management team that has a real business plan and executes against it."

Eventually, Concord's executives believe, every album they own the rights to will be easy to find online. Their job will be making sure that someone's looking for it.

"That stuff doesn't fade from popularity - those songs were hits for a reason," says Mike McGuire, a research vice president at Gartner, the consulting company. "The question is, How are they marketing it beyond the means people traditionally use to market music? That's where the bet comes in."