“The power of music as a promotional tool is enormous. “

– Bill Stensrud

In the last post, I talked about how SM Entertainment creates value for TVXQ and captures this value with its price. I applaud SM further for their efficient supply chain management to effectively deliver CD, DVD, and photo albums to consumers, especially after reading the blog post “Thoughts on the Supply Chain for Recorded Music” by Bill Stensrud, technology entrepreneur.

First, let me briefly summarize the channel structure of the recording industry: composer/performer –> label (finance, manufacture, promote, market) –> distributor (buy in bulk, warehouse, ship) –> Retailer –> Customer.

This supply chain seems streamlined and minimizes the number of marketplace contacts. However, with the appearance of Internet retailers, direct digital distribution (such as iTunes), and illegal downloading, this supply chain has been seriously severed. The following graph shows how each short-lived music trend has been replaced time and time again in the music industry.

As much as I already know the destruction internet can cause to the industry, when I compared this graph to TVXQ and other South Korean album sales all over the world, this analysis seems that much more shocking.

Nowadays, it is becoming prevalent for artists and labels to use the recordings to “promote performance-based income opportunities” rather than deriving revenue from the recording itself (Stensrud).

Indeed, albums seem to simply take on promotional roles for raising awareness for the artist and for selling concerts and performances, which people still value highly. TVXQ tours every year and seems to be doing the same thing — with one exception– their albums sales are still going strong: selling 114,956 copies in October with a total of 246,838 since the release on Sep 24.

Gaon Chart

I attribute this number to SM Entertainment’s unimaginable methods of promotion and idolization of TVXQ.