Rap Coalition

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Friday, December 22, 2006

The Past, Present & Future
of The Industry
In 2006, the traditional music business kept taking body blows. For the first time this millennium, no album sold more than 1 million copies in its initial week of release. Plus, for many, the liquidation of Tower Records symbolized another tolling of the bell for brick-and-mortar record retailers. Through the end of November, overall album sales were down 4.6% from 2005, according to Nielsen SoundScan. Not surprisingly, digital download sales continued to rise, up 67.1% over the same time period. While many pundits are quick to nail the coffin shut on CDs, physical goods remain 94% of all albums sold.

How will this impact independent artists? For most indie acts, such stats mean little, though Tower was one of the largest major chain retailers to stock indies. The good news is while the boys and girls at the major labels may be quaking about the continued downturn, opportunities for indie labels and artists continue to rise.

For many artists, being independent is now preferred rather than a necessity - with music licensing soaring and methods of reaching fans increasing - it’s easier to get music heard—if not by the millions, than by the mini-masses. However, with so many small fish in endless small ponds, how does an artist transition from minnow to mogul?

Here’s a look back at 2006, most of which indicates that the old way of doing business is due for a big overhaul. One thing is for sure: established businesses and business models are either evolving or dying.

The days of major labels signing and nurturing developing acts appears to be a thing of the past. The majors continue to sign fewer artists - only seeking those that come with an established fan base built by the band’s own sweat and tears.

A major label contract remained the Holy Grail for some independent artists, though. Following Death Cab for Cutie’s migration from Barsuk to Atlantic, by year’s end, indie darlings Interpol had moved from Matador to Capitol. Its first album for the label is expected in 2007.

But other artists saw the indie waters as much more inviting than the major tide pool. A number of acts, Joanna Newsom and Hellogoodbye among many others, continued to make headway on indies.

Nettwerk head Terry McBride made headlines this year when he announced that he’d ultimately like to see all of the clients he manages-whether they be Barenaked Ladies or Sarah McLachlan— record for their own labels than for a major. BNL are already triumphantly doing so. After leaving Warner Bros., the band has released a Christmas album and a new studio album on their own Desperation Records. Even if sales were less than the group had on Warner Bros., the band’s profit rose because it got to keep such a bigger piece of the pie.

Shucking the constraints of a record contract enabled some artists to completely cut out any middleman. In 2005, Garth Brooks, who owns his masters, made a landmark deal with Wal-Mart that allowed his catalog to be repackaged exclusively by the retailer. This year, the Eagles and Wal-Mart entered into a long-term agreement that will cover sponsorship and exclusive audio and video releases.

Even Little Steven is getting into the act. He inked an exclusive deal with Best Buy for a line based on his syndicated Underground Garage radio show. The retailer will create displays around the artists, many of whom are independent, that Little Steven features on his show. It will also include releases from a new record company, Wicked Cool Records, set up by Little Steven.

While these deals all differ financially, they can be a windfall for an artist and a window into the future. In many cases the retailer does a one-way buy, so regardless of whether the releases sell or end up sitting on the shelf or warehouse, the artist is paid for all copies bought by the retailer.

Brick-and-mortar’s continuing retail woes were exemplified by the liquidation of the 89-store chain, Tower Records. According to Billboard, the closures are hitting the indie artist sector hard. Tower accounted for around 4.5% of total indie sales, but for an indie rock act sales at Tower could make up to 30% of their order.

Music sales at independent retail also continued to fall. According to Nielsen SoundScan, for the week ending Nov. 26, sales at independent retailers were down 19.7% from 2005.

Even before Tower’s shuttering things were looking bleak. According to the 2005 year-end figures tallied by the Recording Industry Assn. of America, only 39.2% of CD purchases were made through a traditional brick-and-mortar record retailer. That figure was down more than 10% from 1995. Customers bought 32% of their CDs at other retailers, such as big boxes like Best Buy or mass merchants like Target and Wal-Mart.

Because of limited shelf space, and because many of the big box outlets sell CDs as a loss leader, the selection rarely extends beyond major label artists and the largest indie acts. The future of traditional brick and mortar record retailers is any one’s guess.

Online retail seems to offer better options. CD Baby remains the gold standard for indie artists– reportedly paying out more than $37 million to the 160,000 artists who sell their own product through the site. CD Baby also serves as an aggregator of self-released CDs for Apple’s iTunes.

Digital delivery and user-generated content continued to be buzzwords in 2006. Microsoft introduced Zune, its long-awaited answer to the iPod. While initial sales of the digital media player were hardly impressive, Microsoft says it expects to sell 1 million units by June. In what could be another new business model, Microsoft agreed to give Universal Music Group a cut of every Zune sold and other major labels were expected to receive the same treatment. According to Billboard, Microsoft was also working out revenue-sharing deals with independent labels.

While iTunes continued to dominate digital download sales, eMusic made news of its own in December when the online store, which specializes in independent music, surpassed the 100 million download mark.

The Orchard, top digital distributor dealing mainly with independent labels, continued to make deals in 2006 with new stores, mobile partners and labels. Additionally, the Orchard launched a synch licensing division to push its distributed acts. Among the successes was the use of Ragg’s "I Want More" in a nationwide commercial for Target.

News of user-generated content sites continued to dominate the financial pages. Following Rupert Murdoch’s purchase of myspace in 2005, Google followed suit in 2006 by gobbling up YouTube. As the New York Times’ Jon Pareles notes in a recent article, such sites as MySpace, purevolume and YouTube remove all gatekeepers between artists and audience, but to what end?

With 2.2 million artist pages and growing, MySpace continues to reign supreme as the go-to site for posting content. A quick glance at MySpace’s home page revealed that 39,875 videos had been uploaded in one day alone, but what good does a MySpace page actually do for an artist unless there is some way to light a cultural fire under your site?

Yes it delivers an easy access point for fans and A&R execs, but when every act and his dog has a MySpace page (don’t think we’re kidding), the element of discovery becomes akin to finding a needle in a haystack, unless an act can somehow rise above the fray (the clutter, not the band), such as by being designated Filter Magazine’s pick of the week or landing in MySpace’s spotlight on indie videos, standing out seems impossible. Despite the odds, having a MySpace page is still considered necessary for both major and indie acts.

If folks were flocking to the Internet, they were turning away from the radio dial. Terrestrial radio continued to be concerned about sinking listenership. Perhaps the need to adapt explains why a slew of indie country artists are finally getting a shot at mainstream country radio. Whether it be Broken Bow artists Jason Aldean or Craig Morgan, Big Machine newcomer Taylor Swift or former major label kingpin Toby Keith on Show Dog Nashville, country radio is finally adding acts like these to their play lists. Perhaps the biggest coup belongs to Loftin Creek act Heartland, who scored a No. 1 song on Billboard’s Country chart with "I Loved Her First," and a No. 3 debut for the album of the same name.

Other re-calibrations for terrestrial stations included the shift toward developing Internet listeners. For example, more listeners now hear KCRW, the influential non-commercial station based in Santa Monica, Calif., through its website than its terrestrial radio band. That’s good news for unsigned and independent artists, given that Nic Harcourt, host of the channel’s popular "Morning Becomes Eclectic" program gravitates toward breaking artists.

Of course advertisers are following radio listeners to the web. According to a December article in BusinessWeek, companies are moving their advertising dollars away from radio to the internet. A new eMarketer study predicts that by 2008, the dollars spent advertising on internet advertising will be 8.1% of total ad dollars spent. This year, radio advertising accounted for 6.9% of all dollars spent, according to Universal McCann, and that rate is falling.

Satellite radio, once considered the future, experienced growing pains. Both Sirius and XM cut subscriber projections for 2006. However, the good news is that by year’s end, the combined number of subscribers could reach 14 million.

As Sirius’s deal with Eminem and XM’s pact with Bob Dylan & Tom Petty indicate, both outlets are trying to increase subscriptions by luring big-name programming. This could mean less focus on channels featuring unsigned artists or more opportunities for polished acts that appeal to celebrity ears.

If the radio picture remained cloudy, there is one area where indie artists continue to reap benefits: placement on television shows. For every huge synch license (Think Tom Petty’s "American Girl" on the premiere of "What About Brian") there are easily 10 times as many (and that’s lowballing it) synchs on baby bands. This is for several reasons: Many shows pride themselves on developing a reputation for exposing viewers to great new music. So that means that "Grey’s Anatomy" is just as happy to play an unsigned act like Get Set Go or Ingrid Michaelson as it is a major label newcomer such as Anna Nalick or the Fray or Snow Patrol.

Music supervisors are clamoring to use unsigned acts, not only because of the quality of the music, but because, and the truth may hurt, their material can be licensed, literally, for a song. Rates for use of an indie track are often low, sometimes as little as $500 for a cable show synch license, but the exposure is high. By comparison, sources say average cost to obtain a synch license and a master recording is between $30,000 and $50,000, so indie acts may want to negotiate accordingly. And the pattern using indie artists is being repeated with video games and films as well.

Regardless of all these industry dust-ups and shakeouts, most industry soothsayers maintain that live shows are an artist’s best route to success. Slots on multi-artist rock tours, such as Warped and Taste of Chaos, have helped propel unsigned acts such as Lacuna Coil to major indie status and despite high gas prices and an overall slowing economy, most artists agree that nothing is stronger than the connection an artist makes with his or her fans face to face. The oldest trick in the book—-- winning fans over one venue at a time—is still in fashion.

Melinda Newman is a Los Angeles-based music journalist who writes for the Los Angeles Times, the Hollywood Reporter, M-Lifestyle and many other outlets. She was formerly Billboard’s West Coast Bureau Chief/Deputy Editor.


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