What record industry slump? Independent labels say business has never been better.
By Lynne Margolis
Eight years ago, Nan Warshaw, Rob Miller, and their Chicago friends were lamenting the dearth of "new and exciting music - music that ignited their passion the way punk and alternative rock had before big record labels and Gap commercials co-opted their sounds.
Then they began noticing that several area bands were putting Hank Williams twists on their Nirvana and Elvis Costello influences. So they decided, for kicks, to put out a compilation album of "insurgent country." Warshaw and Miller anted up a few grand apiece.
"We had no expectation that this was going to become a business," Ms. Warshaw says. "The first few years, we'd put out a record and when it broke even, we would say, 'Oh, what record should we do next?' "
But 3-1/2 years after it first started, Bloodshot Records finally hired its first paid employee. Today, it's a popular and healthy independent label, one of many operating outside the grip of the five mega-majors: Sony Music Entertainment Inc., Universal Music Group, BMG Entertainment, EMI Group, and Warner Music Group.
While executives at those labels wail about the industry's imminent collapse, indie labels and artists are singing a much happier tune. Profits are up - in some cases by 50 to 100 percent. That's in contrast to overall album sales, which dropped about 11 percent in 2002.
"We don't do too much crying over here," Cameron Strang, founder of New West Records, admits proudly. The home of artists like Delbert McClinton, the Flatlanders, and John Hiatt has doubled its business for the past three years and is projecting a $10 million income in 2003.
Paul Foley, general manager of the biggest independent label, Rounder Records of Cambridge, Mass., happily brags, "2002 was actually Rounder's best year in history. We were up 50 percent over 2001."
You won't hear many of these labels' artists on pop radio - and ironically, that's one of the secrets to their success. By avoiding the major expenses associated with getting a tune on the air - which can cost upwards of $400,000 or $500,000 per song - independent labels are able to turn a profit far more quickly, and share more of those profits with their artists. Another secret of their success is that the labels target consumers - namely, adults - who are still willing to pay for their music, rather than download it for free.
Other artists, such as Aimee Mann and Michelle Shocked, are going even further - forming their own labels so they don't have to answer to anybody (see "Artists Sing Their Own Notes," at right).
At a major label, most artists are unlikely to earn anything unless they sell at least 1 million albums, and even then, they could wind up in debt. Everything from studio time to limo rides are charged against their royalties, which might be only $1 per disc sold. That compares with an indie artist, who can sell a disc for $15 at a concert. If they make $5 profit a disc on 5,000 discs, they pocket $25,000.
"That's the difference between us and them," Mr. Strang says. "Artists on our label who sell 200,000 copies make a very good living."
Independents also pay profits only after recouping expenses, but they keep those down by curbing marketing and overhead costs. They also have more equitable arrangements with artists, often sharing profits 50-50.
But perhaps the biggest difference is that they let artists keep the rights to their work. Michael Hausman, who manages Mann, says once the large labels get those rights, they may choose not to release a note of music but won't let the artist work for anyone else - essentially bringing career momentum to a halt.
When rock critic and author Dave Marsh spoke on a panel at last month's South By Southwest music conference in Austin, Texas, he pronounced bigger-label contracts a bad deal for artists from Day 1, "because of unequal leverage."
John Doe, who gained fame with then-wife Exene Cervenka in the '80s punk band X, says majors pump artists' expectations to unrealistic levels.
"With majors, your visibility is much higher, but it's for a much shorter period of time," he explains. "I feel bad for today's bands because they're loved and then they're discarded."
Doe, now on ArtistDirect imusic imprint, also says there's no word to appropriately describe the meddling of major-label A&R people, whose job is to "hear a hit" on each album.
"I personally wouldn't like to be told what kind of album to make," Doe comments. Most indie labels pick up already-recorded albums, or give artists creative freedom to make the music they want.
Adds Doe: "You can't replace the feeling [of] making a record that you're proud of."
Many industry participants, including Michael Caplan, cofounder of just-launched Or Music in New York, go so far as to predict that the current major-label model is as doomed as the dinosaur - partly because majors are unable to read and react quickly enough to market activity. If a record stops selling, it takes weeks for them to "turn the semi around." And if an artist's sales pick up in a market, the majors can't capitalize quickly enough to maximize profits.
"The idea is to keep it lean and mean," Mr. Caplan says. "We're gonna be nimble."
Caplan, who spent 21 years as an A&R (artist & repertoire) man with Sony-owned Epic Records, says big labels also have lost sight of what music is about - the artists, not the songs.
By seeking home-run hitters at the expense of solid team members, he notes, "They're just ceding a whole big part of the marketplace that we can go after."
Even some major-label executives agree that the current model isn't working. Zach Hochkeppel, director of marketing at Capitol/EMI-owned Blue Note Records (home of multiple Grammy winner Norah Jones), admits, "There's a lot wrong with the record industry as a whole, and a lot of it comes from the fact that the major labels have too much power."
Majors have the muscle to pay radio-promotions people to push for airplay, and product-distribution systems that far exceed the reach of indies. Bigger distributors won't deal with indies because the numbers are too small for their chain-store clients.
Big-box stores won't carry an album unless they know it will sell at least 5,000 units - which new artists won't necessarily do right away.
And few indie labels even market to big commercial radio stations, much less press for hits. They usually can't afford to pay independent promoters to "work" a song.
Instead, they build relationships with college and public radio stations and local retailers who are more receptive to less mainstream music.
While Rounder does use radio promotions people for Adult Album Alternative and Adult Contemporary formats, the label may work a release for 12 or more months, not 60 days, as some majors do. Many of Rounder's artists don't get airplay and still have solid sales. Raffi is the No. 1 children's artist in the world. (The label's biggest success story is Alison Krauss, whose two latest releases are about to become her second and third platinum albums.)
But Rounder never signs artists based on sales projections, Mr. Foley says. "The decision is made based on whether we want the artist to be heard."
Self-described folk singer Ani DiFranco is the poster child for the Do It Yourself label movement. Her successful Righteous Babe Records has helped inspire artists Aimee Mann, Jonatha Brooke, and scores of others to go it alone.
But unlike DiFranco, most choose that route after miserable major-label experiences or a lack of offers. Pittsburgh artist Bill Deasy has encountered both. Some years back, Deasy and his band, the Gathering Field, were signed to Atlantic Records. Just days after, their recruiter - whom they thought was in line to head the company - was overthrown. It took them two years to get out of their contract.
Deasy, best known as the cute guy whose "Good Things are Happening" video plays at the opening of the "Good Morning America" TV show, just formed what he considers his first real record label. Last week, he released his second solo disc, "Good Day No Rain."
He says the experience has given him his "most acute awareness" of the difference between trying to get signed and going indie. After recording four songs with Greg Wattenberg, who produced the Five For Fighting hit, "Superman (It's Not Easy)," Deasy says, "I really had an eye toward the prize of the record deal.... And then [I] just came flat up against the wall of the music business. You know, when you're over 25, you're a senior citizen."
But he admits now, "I'm sooo glad I didn't get (another) record deal - and I'm not just saying that. It's just so obvious to me that the music business isn't really about music."
He and his manager formed Bound To Be Music and released the disc themselves. "I am just feeling so thrilled and relieved that it worked out this way," he says. "If you're making $10 a CD and you sell 10,000, that's not so bad."
Brooke and Mann spent time in their own label purgatories before giving up on the system.
After starting her own label, Bad Dog Records, Brooke also confessed, "I gotta say [I'm] the most fulfilled and content I've ever been."
With the ease of Internet sales and new support systems such as United Musicians, an organization formed by Mann; her husband, Michael Penn; and their manager, Michael Hausman, to provide support services to indie artists, bucking the system truly seems like a smarter option than joining it.