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Current Opportunities For Indy Label Success

by Peter Spellman, Director, Music Business Solutions

If the ’80s was a decade characterized by big corporations, slick packaging, and Phil Collins’ shining forehead, the ’90s seem to be experiencing a resurgence in the grass-roots, do-it-yourself ethics that empower the little man and woman to get out and put their creative thumb prints on the world. The music industry is hardly immune to this climate, and as a result, small labels have been springing up like lemonade stands in a suburban heat wave. Some are started by artist managers who want to organize the talent around them into a viable company; others by studio owners or producers wanting to expand their operations by developing their own indy label towards securing a production deal with a larger company; and the vast majority are started by artists themselves seeking to develop their musical product towards professionally presenting themselves to the music industry. There are four factors contributing to the indy label resurgence today and each one is a door of opportunity for anyone who can offer good music, basic business smarts and a load of perserverance.

Opportunity #1- Small is Beautiful (and profitable)
When rock’n’roll exploded on the scene in the mid-50s, major labels scorned it and so basement concerns like Chess and Sun made fortunes; likewise no one saw a buck in disco except Casablanca and millions were made. More recently rap, and to a lesser extent reggae,
illustrate the same story. Why is this the case? Major record labels are too large and ponderous to be in a position to discover and nurture great music and talent. Independents world-wide
have been, and will continue to be, the life blood of the music industry. As a result, most significant musical trends have had their birth in independent companies.

The Billboard charts for the last few years show an interesting, if not surprising, trend. Thanks to the installation of point-of-sale systems at most major music chain retailers, SoundScan’s co mputers can poll music stores and get the exact number of each title sold (prior to SoundScan it was done by a highly corruptible method of polling music chains, wholesalers and independent record stores. Apparently lots of totals were “bought”). Here are the new results. In 1990 there
were no independent labels ranked among the top 20 labels with titles on The Billboard 200. By ’91, three indie labels had entered the top 20 list, and among them placed 19 separate titles on The Billboard 200 and represented 5.1% of the label chart share.

By 1992, the number of indie labels occupying places in the top 20 had increased from three to four but, more importantly, they represented 34 titles (an 80% increase) and 5.9% (a 16% increase) of the label chart share. The trend is even more dramatic if we look at Billboard’s Top R&B; Albums chart where chart share doubled between 1990 and 1992 to a total of 22.2%! Each year since ’92, the indie distribution has been grabbing more and more market and chart share. This year (1996) finds them second only to WEA (Warner/Elektra/Atlantic). The major labels today act more like film distributors than production houses. They have the organization and capital to take new music to the public, but little ability to create the music themselves. “While the majors want to sell music like McDonalds sells hamburgers, we’d rather be a small chain of gourmet restaurants with a line going around the block,” says founder of indy label Alligator
Records Bruce Iglauer. “It’s the menu that counts–not how many are served.” Independent labels are once again artisically and creatively on the cutting-edge of the new music. This new music is not a fad but, in fact, is the fastest-growing segment of the music market. It includes
everything from rap, urban and alternative to country, world and folk.

This is not to set up a false dichotomy of goodies and baddies (independent companies and adventurous musicians vs. the multinationals and flavor of the month club). There are still plenty of struggles and contradictions between these two groups but increasingly we are seeing a pattern of symbiosis emerge where one can help the other, a fair deal can be struck, and both can profit.

Indies are highly valued as the testing ground for the superstars of tomarrow.

Factor #2- Diversity is also Beautiful (and profitable)
Growing market segmentation by music style is another significant one for independent labels. Rock’s share of music sales, so long the mainstay of pop music, has plunged 27% since 1987 alone, to about 32% of the total. This new musical diversity is even reflected in the Grammy awards. Started in 1959 with a mere 28 categories, this year the number was up to 83.
A rapidly segmenting music market means more opportunity for independents whose releases detail the richness of particular or “niche” musical forms: the blues of Black Top and Alligator, the rap of Priority and Ruffhouse, the industrial dance meshes of Nettwerk and Wax Trax, the world folk of Triloka, the rock’n’roll of Touch ‘n’Go; the list goes on and on. All began out of a love for a cetain style of music; a style the majors didn’t want anything to do with initially.

These companies didn’t simply find a niche and fill it– as so many lesser new age and “fuzak” labels do. Nor did they just concoct one and market it, like so many major-label-forged “alternative” indies. They usually developed their label along with the music they presented, often as a hobby, bringing bands and artists to an ardent audience and then riding the crest of their influence. For a number of the smarter ones, yesterday’s hobby has become today’s goldmine.

Factor #3- Distribution is Consolidating
Recent years have witnessed a trend toward consolidation in both music distribution and retail that will likely continue. In distribution, the old system– where indie labels assigned their product lines to a different regional distributor in each market– is changing to one
where a single distributor handles a label on a nationwide basis.

The consolidation of retail into megastores during the last five years is a reality in most consumer goods. Music has been no different. That development, coupled with significant merger and acquisition activity, has resulted in an overwhelming percentage of the music business being conducted by a small number of large chains. In other words, by linking up with key national distributors independents can potentially reach approximately 90% of the U.S. record-buying public! The building blocks are all in place.

But record retail is only part of the story (albeit the largest part). Independents have long known that the best way to reach their niche audiences most effectively is to go directly to them through the mail. Direct marketing of music accounts for about 10% of overall sales in the U.S. for major labels but up to 50%of sales for independents!

Other record retail alternatives include bookstores, record clubs, specialty gift stores, TV home shoping, digital interactive TV and even vending machines. But probably the greatest threat to traditional record retail will arrive through computers. Digital transmission of music via power line and satellite is poised to transform the recording industry as we know it. On-line opportunities for independent labels are multiplying rapidly and levelling a playing field that was decidedly tilted in favor of larger companies. “The accelerating trend”, says Davitt Sigerson, president of Polydor, ” is putting much more control in the hands of the public, and much less control in the hands of the tastemakers and gatekeepers.” The majors see it coming and many are worried.

Factor #4- Technology with a Human Face
Robin Hood would approve of what the purveyors of office equipment are doing these days: making powerful technologies affordable for rich and not so rich
alike. They’re giving small businesses the same tools and resources to which only large organizations once had access. And prices are plummeting! Today you can set up a modern office with computer, laser printer, copier, fax board and all necessary software for under $2,500! (call me for details).

And prices are not all that are falling. What began as a trickle of highend technology to the economy segment of the market has swelled to a flood of deluxe features now commonly available on low-cost machines. Upgradable computers, sophisticated voice-mail systems, and full-featured copiers and faxes are now available at prices that used to buy you only no-frills technology.

What all this hardware and software will give you is the look and efficiency of a professional businessperson, and, in the end, save you tons of time, money and energy. The extraordinary strides made during the last five years in information gathering and communication enables even the smallest record company to obtain, analyze, and utilize sales and consumer data that are equal to that obtainable by large branch distributors and labels.

On a more basic level, these tools can help you manage projects, design your marketing communications, set agendas, track your schedule, build mailing lists, network coast to coast, keep records, print labels and generally assist you in maximizing your resources as a small independent label.

Checklist for Starting Your Own Label
O.K., these are the factors making it an opportune time to start and grow your own indy label. But opportunity alone does not equal success . As mentioned at the start of this article, great music, business smarts and a load of perserverance are also required. Do
you have what it takes? Check it out:
Great Music. Don’t even think of starting a label without great music. This may be your own music or that of bands and songwriters you know. Just be sure you’ve gotten enough feedback to know you’re on to something special. How do you get this feedback? Ask! Get input from at least ten people you respect on what makes you or your artists different from others. Write a summary of the best original qualities, and try to think of ways you can enhance them. Originality is an all-important key to succcess. Look for it and, when you find it, nurture it.

Business Smarts. Starting your own indy label is probably the ultimate entrepreneurial venture and, as such, demands a good amount of business know-how. Any skills you can acquire in project planning, bookeeping, marketing, product development, writing, contract negotiation and office management will go a long way toward insuring your label’s success. Organizations like the Small Business Administration can be very helpful to young business start-ups in need of resources and information.

Apart from the music, money will be the most important ingredient in launching your label. Some start their labels on a shoestring and end up very successful. But most ventures will require a minimum capital outlay of $10 to $20,000. Anything less and you’re shooting yourself in the foot before the race begins. Banks and investors will be reluctant to capitalize such a risky venture but a well-thought-out business plan (and a good credit rating!) could make the difference in garnnering the support you’ll need. If you’re a woman or a minority your chances of otaining a loan are much greater. Look into grant opportunities too. A lot of grant money goes unclaimed each year and your chances are as good as anyone else’s!

As a one-man or one-woman record company executive, you should be prepared at the beginning to wear many different hats. Take stock of your strengths and weaknesses, and those of any partners you may have. Starting your company will be the easy part. Keeping it going will require long days and even longer nights. It will mean learning how to be a self-starter, taking risks, being creative, being calm amidst chaos, and taking responsibility for your actions and decisions.

It’s the rare artist who can function alone and effectively as business person without some conflict with their creative side. This is because the very qualities that make one the most ought after writer, producer or musician may spell diff iculties when applied to running a business. This is not to imply that business cannot be conducted creatively. It can and it should be. It simply means that the artist needs to strike a balance between the two and, perhaps, consider teaming up with a partner who can contribute to those tasks the artist needs help with. If at all possible, the roles each individual will play should be clearly defined IN ADVANCE with as little ambiguity or overlap as possible.

Perserverance. If you’re planning on starting your own record label you will hopefully be thinking long-term. Overnight success is extremely rare in this business. Persistence and holding onto your unique vision are the golden keys that will often unlock future rewards.

It’s important to remember that artists who are charting and labels that are “suddenly” news have usually been plying their respective trades a long time without fanfare. Joseph Brooks could have given up after the song he believed in was rejected three times, twenty times, fifty times, a hundred and thirteen times(!). It was only on the hundred and fourteenth attempt that a music publisher saw his song’s hit potential and “You Light Up My Life” went to #1 on the pop charts in 1977, earned a Grammy award, and made Joe Brooks a multimillionaire.

Brian Epstein had a vision but every record company in Britain, save one, passed on the Beatles. He stuck to it, picked himself up after each rejection, and finally landed a deal with EMI. The rest is history. Persistance and vision are the energizing factors common to both. Trend analyst John Naisbett’s new book, “Global Paradox” (Wm. Morrow & Co., 1994), has a provocative subtitle that has some relevance to this topic: ” The Bigger the World Economy, the More Powerful its Smallest Players”. Our world has become friendlier to small business. The climate is right. With the right combination of talent, information and energy you too can become a powerful player in an industry dependent on small companies for tomorrow’s sounds.

by Peter Spellman
Director of Career Development at Berklee College of Music, Boston,
and author of The Self-Promoting Musician: Do-it-Yourself Strategies for Independent Music Success (Berklee Press).


You can find him at Music Business Solutions.
Copyright © 1999 – 2003 MUSIC BUSINESS SOLUTIONS, all rights reserved.

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