Leveraging Disney's marketing muscle to move music products: with a licensing agreement for Hannah Montana Guitars, U.S. Music hopes to drive store traffic with the "most pre-sold product in industry history.".

DISNEY'S HANNAH MONTANA character is an enormous cultural phenomenon that has captured the imagination of a generation of teenagers. For the uninitiated (or those who don't have children in the 8-to-16 year-old-age bracket) the storyline of the Hannah series revolves around the adventures of Miley Stewart, an awkward middle-school girl by day, who at night dons a blonde wig and becomes musical superstar Hannah Montana. The character has led to a hit television show, CDs, a concert tour, and a line of toys and accessories. Just how big is "Hannah mania?" Consider the following: Last year's 55-city Hannah Montana concert tour was the biggest grossing musical event of the year, out drawing Bruce Springsteen and the Police. Stubhub, an internet ticket reseller, reported fetching $4,500 a ticket for the Hannah appearance in Chicago, the highest price for any event anywhere. And in Ohio, lawmakers launched an investigation into state-wide ticket selling practices after their offices were besieged by complaints from angry parents who couldn't get Hannah tickets.

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U.S. Music, best known for its Washburn line of guitars, is hoping to leverage Hannah's incredible popularity to spur interest in music making. In late 2007, the Chicago-based company inked a licensing deal with Disney to produce real musical instruments, as opposed to plastic toys, adorned with some of the most popular Disney characters. Due to the timing of the deal, only limited quantities of Hannah Montana themed products, including an acoustic guitar, an electric guitar, and a small "pocket" amp, were available in the fourth quarter. However, in over 30 years in business, CEO Rudy Schlacher has never seen such an enthusiastic reaction to a new product. "To say this stuff flew off the shelves is an understatement. Our switchboard has been overloaded every day with people trying to get their hands on Hannah guitars. Even my neighbors are coming up and asking me about getting one of these guitars."

M.I. retailers might be less than pleased to learn that U.S. Music is selling these Hannah Montana guitars through a variety of mass-merchant retailers, including Target and Toys R Us. However, Schlacher makes a compelling case that they shouldn't let a reflexive dislike of mass channels keep them from seizing a rare profit opportunity. And he bases his observations on firsthand experience, having started his career with a retail store in Chicago. "With every catalog and newspaper insert featuring Hannah Montana products, plus a hugely popular weekly television show, this is the most pre-sold instrument in the history of the industry," he says. "Put it in a store window, announce availability on a website, and an m.i. dealer is guaranteed additional store traffic. Disney and the mass merchants have done all the promotional work."

To bolster his case, he tells the story of an Iowa music retailer who ordered a selection of Hannah Montana guitars and was later angered to see the same products being advertised by local mass merchants. "He called to complain, and we agreed to take the product back," reports Schlacher. "But before we could get the return authorization issued, he called back to say that he sold all the guitars and wanted to order more."

While Schlacher is interested in moving Hannah Montana guitars, he sees the Disney tie-in as a way to bolster the sale of the entire spectrum of music products. "If it gets new people in the stores, creative dealers get the opportunity to up-sell them on a better guitars and accessories. We see it as a way to strengthen independent dealers." Larry English, president of U.S. Music's consumer division, adds. "There is also a tremendous gifting market--people buying products for others. Traditionally, m.i. dealers haven't participated in that kind of business to a large extent. We think these products will change that."

With a late production start in 2007, Hannah Montana guitars were in seriously limited supply in the fourth quarter of 2007, and Schlacher only anticipates being able to fully supply demand in mid-2008. Due to these shortages, instruments were initially offered only to a select group of m.i. dealers. However, Schlacher reports the responses were uniformly enthusiastic. "Dealers could see these instruments as real traffic builders that attracted a new customer base."

The Hannah Montana guitar line is only the first step in U.S. Music's Disney licensing pact. Disney refers to its roster of famous characters as "franchises" and has given U.S. Music rights to tap some of the most popular, including Hannah Montana, High School Musical, Cars, Princess, Tinkerbell, and Cheetah Girls. English says the industry should expect a few "big surprises" with other Disney-themed products.

"We are still refining our plans for the different franchises," explains English. "But the fact is, Disney does a better job of consumer marketing than anyone in the music industry could ever hope to do. They create incredible excitement and demand. What we're doing is making that marketing power available for m.i. retailers. Any Disney-themed product will be pre-sold. All the dealer has to do is be the collection point for accepting money."

In pursuing these new product avenues, Schlacher has given considerable thought to dealer concerns about competing with mass merchants. While he is sympathetic with the challenges of an independent business going toe-to-toe with retail giants, he argues that dealers have to adjust to a new reality. "Retail at every level is changing," he declares. "It used to be controversial if you sold to catalogs or online. Then it was controversial if you sold to Guitar Center. Now, its controversial if you sell to mass merchants. These different sales channels aren't going away, and to be successful, m.i. retailers have to find a way to position themselves. Wishing that they go away isn't enough. With Disney products, we're offering products that draw new customers, which is a tremendous positive."

Although the Disney pact represents a bright new growth avenue for U.S. Music, Schlacher is quick to emphasize that the company is not shifting focus away from its traditional m.i. product lines, which include Washburn and Parker Guitars, Randall and Eden amplifiers, and SoundTech pro sound gear. "This remains our core business, and we depend on independent retailers to support it," he adds. "When we move into new areas like Hannah Montana guitars, we do consider how it affects independents. We've given this a lot of thought, and we think it's going to be a real positive for the industry."