Starbucks and HP to Offer Custom CDs

An awful lot of people, especially music fans over, say, 30, aren't particularly eager to give up CDs, but they also like some of the advantages of the Internet digital jukebox, especially purchase-by-the-song (these used to be called "singles"). On Tuesday Starbucks will announce a new service where customers can download songs and create their own CDs right on the premises:

Here's a deal: Sip on a mocha latte while using headphones to listen to any of 250,000 songs you call up on a computer. Then order the ones you like — burned on your own CD — to go. Who's the dealer? Starbucks.

....on Mar. 16, the Seattle coffee giant will unveil an in-store music service allowing customers to do just that, using Hewlett-Packard (HPQ ) tablet computers to make their choices. The first musical Starbucks opens in Santa Monica, Calif., and the service will expand into 2,500 stores over the next two years.

....KEEPING UP. With 30 million weekly customers who trust Starbucks not just for its many beverages but also for its ability to create an attractive lifestyle brand around upscale coffee culture, execs think they see a huge market for selling music. "We have a unique opportunity to leverage the trust people have in the brand," Schultz says.

....The coffee chain already has licensing agreements with most of the major record labels that will give it the ability to offer everything from Britney Spears and The Polyphonic Spree to Yo-Yo Ma and Ray Charles, as well as everything in between.

If Schultz is right, the ramifications could be huge. The company thinks the service will significantly add to its $4.1 billion in annual revenue while enhancing its brand. As for the music industry, still reeling from digital piracy and sharply declining sales of CDs at brick-and-mortar record stores, Starbucks could make shopping for music both legit and fun again.

....The transition to all-things digital is still at least five to ten years off, however. Starbucks foresees its music-customer base centered among middle-age javaholics, many of whom don't even go to music stores, let alone download songs. Prices will be comparable to Apple's (AAPL ) iTunes service: $6.99 for five songs, the minimum purchase. Albums will cost $12.95. To appeal to a younger set, Starbucks will ultimately offer wireless downloads to laptops or portable players.

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Article Author: Eric Olsen

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