[opendtv] News: The Net Is a Boon for Indie Labels

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
  • Date: Tue, 27 Dec 2005 08:39:40 -0500


December 27, 2005

The Net Is a Boon for Indie Labels

Even as the recording industry staggers through another year of 
declining sales over all, there are new signs that a democratization 
of music made possible by the Internet is shifting the industry's 
balance of power.

Exploiting online message boards, music blogs and social networks, 
independent music companies are making big advances at the expense of 
the four global music conglomerates, whose established business model 
of blockbuster hits promoted through radio airplay now looks 
increasingly outdated.

  CD and digital album sales so far this year are down 8 percent 
compared with the same period a year ago, according to Nielsen 
SoundScan data. And while sales of digital tracks through services 
like iTunes have risen 150 percent, to well over 320 million songs 
this year, that rise is not enough to offset the plunge in album 
sales. Overall sales are down less than 5 percent if the digital 
singles are bundled into units of 10 and counted as albums, according 
to estimates by Billboard magazine.

Still, despite the slide, dozens of independent labels are faring 
well with steady-selling releases by, among others, the Miami rapper 
Pitbull and the indie bands Hawthorne Heights, Bright Eyes, Interpol 
and the Arcade Fire. Independent labels account for more than 18 
percent of album sales this year - their biggest share of the market 
in at least five years, according to Nielsen SoundScan data. (If 
several big independent companies whose music is marketed by the 
major music labels distribution units are included, the figure 
exceeds 27 percent.)

The surge by independents comes as the four dominant music 
conglomerates - Universal Music Group, Sony BMG Music Entertainment, 
Warner Music Group and EMI Group - find themselves hamstrung in their 
traditional ways of doing business by an array of forces, including a 
crackdown on payola (undisclosed payments made to broadcasters in 
exchange for airplay).

In a world of broadband connections, 60-gigabyte MP3 players and 
custom playlists, consumers have perhaps more power than ever to 
indulge their curiosities beyond the music that is presented through 
the industry's established outlets, primarily radio stations and MTV.

  "Fans are dictating," said John Janick, co-founder of Fueled by 
Ramen, the independent label in Tampa, Fla., whose roster includes 
underground acts like Panic! At the Disco and Cute Is What We Aim 
For. "It's not as easy to shove something down people's throats 
anymore and make them buy it. It's not even that they are smarter; 
they just have everything at their fingertips. They can go find 
something that's cool and different. They go tell people about it and 
it just starts spreading."

  There are several signs that as more consumers develop the habit of 
exploring music online they are drawn to other musical choices 
besides hitmakers at the top of the Billboard chart - a trend that 
suggests more of the independent labels' repertory will find an 

  On the Rhapsody subscription music service, for example, the 100 
most popular artists account for only about 24 percent of the music 
that consumers chose to play from its catalog last month, said Tim 
Quirk, Rhapsody's executive editor. In the brick-and-mortar world, he 
estimates, the 100 most popular acts might account for more than 48 
percent of a mass retailer's sales.

"It's no longer about a big behemoth beaming something at a mass 
audience," Mr. Quirk said. "It's about a mass of niche audiences 
picking and selecting what they want at any given time."

The independent sector as a whole already outsells two of the big 
four companies, Warner Music and EMI. And the more ambitious of the 
independent labels' managers have set their sights on seizing even 
more terrain. This year they formed a new trade organization to 
establish a unified front when striking deals with online music 
services, among other priorities.

At the major labels, many executives privately dismiss the 
independents' quick expansion as a blip that has more to do with 
consolidation of the big companies - Sony and Bertelsmann merged 
their music divisions last year - than it does with savvier marketing 
by the small labels themselves. In fact, the independent labels 
collectively are selling fewer albums than they did five years ago, 
too - they just aren't sliding as quickly as their bigger rivals.

But the big music companies have also embraced many vehicles that had 
primarily showcased independent material. Many labels buy advertising 
space on blogs that post free music files, and this year Interscope 
Records, a division of Universal, struck a deal to distribute music 
from a new label created in partnership with MySpace, the popular 
social networking site that claims 40 million members.

  Even so, the gains of independent labels appear to stem from more 
than online buzz: the small labels have also found themselves the 
darlings of television and film music supervisors looking for 
out-of-the-mainstream sounds; and the labels are placing their albums 
on the shelves of big-box retailers like Best Buy, often with the 
help of a distribution company owned by one of the four music giants, 
like Warner Music.

  But no factor is more significant than the Internet, which has 
shaken up industry sales patterns and, perhaps more important, 
upended the traditional hierarchy of outlets that can promote music. 
Buzz about an underground act can spread like a virus, allowing a 
band to capture national acclaim before it even has a recording 
contract, as was the case this year with Clap Your Hands Say Yeah, an 
indie rock band.

Yet the independent sector has felt the sting of the industry's 
slump, which began more than five years ago. Many small labels 
complain that widespread CD burning and trading of songs on 
unauthorized file-swapping networks has dampened their sales the same 
way it has those of the major record companies.

  In addition, the music specialty shops and small retailers that once 
provided an anchor for independent label sales are being squeezed out 
by mass merchants who heavily discount new releases, and the broader 
problems of piracy and competition from other products like DVD's and 
video games. Still, the sense of foreboding that sends chills through 
the hallways in certain major-label office suites does not pervade 
the independent labels.

  For many independent entrepreneurs, there is a degree of confidence 
that comes from running leaner operations while aiming for more 
modest sales levels. Unlike the majors, independent labels typically 
do not allocate money to producing slick videos or marketing songs to 
radio stations. An established independent like Matador Records - 
home to acts including Pretty Girls Make Graves and Belle and 
Sebastian - can turn a profit after selling roughly 25,000 copies of 
an album; success on a major label release sometimes doesn't kick in 
until sales of half a million.

"No one's trying to sell six million records; we're trying to sell as 
many as we can," said Chris Lombardi, Matador's founder. "We're 
working with realistic success."

The market slide, coupled with the pressure on the big companies to 
meet quarterly financial targets, plays directly into the hands of 
small labels that have the patience to attract new fans over time, 
independent entrepreneurs say.

  "They're all terribly under the gun to justify every investment and 
tie it to an immediate return," said Steve Gottlieb, chief of TVT 
Records, which is home to acts like Lil Jon and Ying Yang Twins, two 
of a handful of independent acts to secure placement on major radio 
playlists. "That type of discipline doesn't allow for the extra time 
or the extra album it took to break a U2 or a Bruce Springsteen. The 
majors are really just focusing on platinum artists and no longer 
have an appetite for artist development except in the rarest 

  Britt Daniel, the singer and songwriter who leads the Austin, Tex., 
band Spoon, agrees, and counts himself among the beneficiaries. After 
the band was dropped from the major label Elektra in 1998, Mr. Daniel 
found his way to a new contract with the independent label Merge, and 
Spoon's third album for the company, "Gimme Fiction," has racked up 
sales of nearly 100,000 copies, outstripping the previous two and 
ranking as one of the year's best-reviewed releases.

"There are great bands on major labels and bad bands on independent 
labels, but it seems like the records made on independent labels are 
more about real creativity and more heartfelt stuff," Mr. Daniel 
said. "It may just be a three-, four-, five-year cycle where indie 
music is cool. Sometimes I get cynical, but people tell me, 'No, this 
is the way things are going to be from now on.' "
You can UNSUBSCRIBE from the OpenDTV list in two ways:

- Using the UNSUBSCRIBE command in your user configuration settings at 

- By sending a message to: opendtv-request@xxxxxxxxxxxxx with the word 
unsubscribe in the subject line.

Other related posts:

  • » [opendtv] News: The Net Is a Boon for Indie Labels