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Have You Thought of Starting Your Own Record Label?
Small & Diversity is Beautiful / Distribution is Consolidating / Technology with a Human Face
By Peter Spellman, Music Business Solutions
(more articles from this author)
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If the '80s was a decade characterized by big corporations, slick packaging, and Phil Collins' shining forehead, the '90s are experiencing a resurgence in the grassroots, do-it-yourself ethics that empower the little man and woman to get out and put their creative thumbprints on the world. The music industry is hardly immune to this climate, and small record labels have been springing up like lemonade stands in a suburban heat wave.

Some are launched by artist managers who want to organize the talent around them into a viable company. Others are launched by studio owners or producers wanting to expand their operations by developing their own indie label towards securing a production deal with a larger company. But 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 indie 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 perseverance.

Factor 1: Small is Beautiful (and profitable)

When rock 'n' roll exploded on the scene in the mid-50s, major labels scorned it. However, basement concerns like Chess and Sun made fortunes. Likewise, no one saw a buck in disco except Casablanca and again millions were made. More recently, rap, country, 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 worldwide have been, and will continue to be, the lifeblood of the music industry. As a result, most significant musical trends have their origins in independent companies.

The Billboard charts of 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 computers 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. Among them they 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%! During one week in 1996, indie labels occupied all top 5 spots on the chart!

Majors today seem to 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 Bruce Iglauer, founder of indie label Alligator Records. "It's the menu that counts-not how many are served." Independent labels are once again artistically and creatively on the cutting-edge of the new music. This new music is not a fad; it is the fastest-growing segment of the music market. It includes everything from rap, urban and alternative to country, world and folk.

I don't mean to set up a false dichotomy of goodies and baddies (independent companies and adventurous musicians vs. the multinationals and flavor-of-the-month clubs). 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 the highly valued testing grounds for the superstars of tomorrow.

Factor 2: Diversity is also Beautiful (and Profitable)

Growing market segmentation by music style is another significant factor for independent labels. Rock's share of music sales, so long the mainstay of pop music, has plunged 27% since 1987 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 (1999) the number was up to 85.

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 Green Linnet, the rock 'n' roll of Touch 'n' Go-the list goes on and on. Each began out of a love for a certain 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 gold mine.

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 categories. 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 about 90% of the U.S. record-buying public! The building blocks are all in place.

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 recordings 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 shopping, digital interactive TV, the Internet and even vending machines.

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 leveling a playing field that was decidedly tilted in favor of larger companies. "The accelerating trend," says Davitt Sigerson, former president of Island Records, "is putting much more control in the hands of the public, and much less control in the hands of the taste-makers 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 $3,000.

Prices are not all that are falling. What began as a trickle of high-end 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 business 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.

About Berklee Press
Berklee Press is the non-profit, educational publishing division of Berklee College of Music. Proceeds from the sales of Berklee Press products are contributed to the scholarship funds of the college. Berklee Press publishes high-quality practical books, videotapes, DVDs, and interactive products for all areas of contemporary music education including performance, ear training, harmony, composition, songwriting, arranging, film scoring, music therapy, production, engineering, music business, synthesis, and music technology. Berklee Press products are dedicated to furthering the enrichment and success of musicians, students, teachers, and hobbyists alike.

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