Starbucks forms Hear Music record label

By Nichola Groom

LOS ANGELES (Reuters) - Starbucks Corp. said on Monday it has formed its own record label, Hear Music, to develop records for sale both in its coffee shops and through traditional music retailers.

Starbucks' influence as a music retail outlet has grown in recent years. It posted its biggest success with the Ray Charles album "Genius Loves Company," a co-production with Concord Records that won eight Grammy awards. Concord is also partnering with Starbucks on the new record label.

The coffee chain has parlayed sales of music compilation CDs into a business that has included deals for exclusive content with well-known musicians such as Alanis Morissette and Bob Dylan and with little-known musicians. Those sales have helped increase revenue at Starbucks stores.

Starbucks Entertainment is the small but profitable unit of the coffee-shop chain that oversees the sale of music and books in its stores.

In an interview, Starbucks Entertainment President Ken Lombard said exclusive content would not be a major focus as the company works to sell CDs through traditional music channels in addition to its own stores.

"It's not an important part of our strategy going forward," Lombard said.

Albums will be released at Starbucks stores and at traditional retailers on the same day, giving the coffee shop chain no advantage, Concord Music Group President Glen Barros said.

FROM RETAIL CHAIN TO RECORD LABEL

The Hear Music record label will be based in Los Angeles, and Lombard will serve as chief manager, Starbucks said. Barros will work closely with Lombard, and Concord will also help promote, distribute and market the Hear Music label outside of Starbucks stores.

Hear Music began as a chain of music stores that allow customers to burn custom music CDs and listen to any CD in the store before buying it. Starbucks acquired Hear Music in 1999 and has developed a growing music business around the brand.

In addition to selling CDs in its coffee shops, Starbucks also has a Hear Music radio station on XM Satellite Radio Holdings Inc.

Executives at record companies were doubtful that Starbucks would do any better at making new artists successful than do traditional labels.

"They got the retail and marketing distribution to leverage," said one executive who asked not to be named. "But are they going to sell a million records? No, but they probably don't need to."

The New York Post and the Associated Press reported on Monday that Starbucks was close to signing former Beatle Sir Paul McCartney. Lombard declined to discuss any specific artists the company is working with.

"It'll be interesting when they realize it ain't easy putting out records," said another senior record company executive, who asked not to be named. "Are they really taking a chance? On who? Paul McCartney?"

Reuters