Here's an article that Diane Rapaport sent us. Due to the delay on our newsletter, a few other organizations have sent this out already, but I still want to be sure all our JPF members get a chance to read it. Enjoy!
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Parallel Universes
By Just Plain Folks Mentor Diane Rapaport

During the first week of November, I presented workshops at a Business Chops seminar, sponsored by the Guitar Center and GC Pro; a class at UCLA and at the TAXI Road Rally.

I was struck with the growing gap between two parallel music universes. The major label music universe is constantly "in your face" in Los Angeles, on billboards, the radio, and public entertainment media. In that universe, what counts are the "monster" pop stars, the platinum sellers and the multimillion dollar marketing budgets.

In that universe, sales of CDs have declined in the last two years and labels are struggling to find a way to regain market strength and public loyalty. Although illegal downloads are attributed as the main cause of sales declines, many other factors may be synergistically responsible. They include:

1. Competition for leisure dollars for other products sold by the conglomerates that own major labels (videos, video games, hardware, software, audio products, movies, DVDs, etc.)

2. A recession that has made fewer leisure dollars available for all consumers and most certainly among the middle and lower income populations.

3. Poor business practices within the labels. There is a glut of product, much of it mediocre (more than 5000 titles a year), and a 90% failure rate for all recordings released by major labels. There is too much reliance on back catalogs (like Beatles and Pink Floyd) and established superstars to carry the profit. There is a lack of attention to genres other than contemporary rock, country and historical rock and less commitment to signing and developing artists that could have the staying power and creativity of so many of our 60's, 70's and 80's artists. Unfair recording contracts have turned artists into indentured servants. Finally, the underreporting of royalties to artists has led to legal scrutiny and has undermined the accusations of thievery leveled by the major labels against free Internet downloaders.

4. The consolidation of radio networks means fewer spots are available to nonsuperstar major label artists and this contributes to the 90% failure rate. The large "promotional fees" paid by major labels to radio stations and charged back to artists are an increasing burden to major label artists. These fees are huge and amount to payola.

5. There are also some less reported consequences of legal and illegal downloading. The availability of downloads opened the public's awareness of just how much music was previously inaccessible from major and independent labels. The public's thirst for access and its love of music is evident in the huge numbers of these downloads. In theory, exposure of the music leads to sales-that is the reasoning behind the conglomerate control of airplay and media. For a long time, that reasoning led to higher sales of recordings of artists. As the public gains access to other music, there is some evidence that CD sales are being spread over a wider number of genres, labels and artists, not just the ones pushed by major labels.

The Independent Universe

The independent label universe operates on vastly different economic scales and aesthetic assumptions.

It includes artists and bands that release recordings in every imaginable genre of music independently of major label distribution and promotion. These labels have learned to profit on sales as low as 2,500 CDs; and many have sold between 50,000 and 250,000, enough to make profits for labels and artists. They have learned to develop followings and markets independently of commercial media exposure. Their efforts are empowered by the growth of such ancillary organizations and businesses as Association for Independent Music (AFIM), TAXI, SongNet, Folk Alliance, Rap Coalition, Gospel Music Association, Just Plain Folks, The Future of Music Coalition and regionally based songwriter associations.

This independent universe is so decentralized and spread across so many different genres of music that accurate financial statistics of its dollar value are impossible to determine. But many estimate that it is a multibillion dollar industry.

Statistics about the number of labels, their sales and financial impacts are difficult to pin down. First, figures from Sound Scan indicate that approximately 12 to 15% of some 5000 recordings sold in the United States annually are by independent labels. However, this statistic is somewhat misleading because some labels, such as Sub Pop and Death Row that call themselves 'independent' are in actuality promoted and distributed by major labels when sales reach contracted-upon thresholds.

Second, sixty to seventy-five percent of the music sold by independent labels does not contain bar codes and is not being sold in the retail stores that are tracked by Sound Scan. Derek Sivers, founder and president of CD Baby, the largest Internet retailer for independent artists, reports that of the approximately 41,000 artists that collectively sell more than 500,000 recordings annually on CD Baby, 33,000 are artists that do not bar code their recordings. CD manufacturers and brokers report similar percentages of bands that do not bother with bar codes.

Finally, the Sound Scan does not track sales of independent recordings at gigs, by mail order and through artist-owned independent Web sites; all of which are significant sources of income to independent artists.

Independents and Revitalization of Local Economies

Many large independent labels are not based in LA, Nashville or New York. American Gramaphone (Mannheim Steamrollers) is based in Omaha; Rounder in Boston, New West in Austin. Many artist-owned labels thrive in small towns and cities and are known only to their followings-some of them quite large-that hear them perform and pass news about their recordings and performances via the Internet.

These labels are supporting and being supported by increasing numbers of home studios (and sales of equipment and software), thriving live music scenes in cities across America and Canada, musical equipment and audio sales, the growth of niche magazines, graphic design and production services; CD, cassette and vinyl manufacturers and a large education business dedicated to teaching artists and business professionals.

Local music businesses spend money on equipment and services, hire employees; and contract services from nearby vendors (recording studios, sound reinforcement). As a band or a music business company expands sales beyond its local community, it imports money into that community. Growing businesses help grow local economies, spread money to other businesses and increase tax bases.

To date only one American city has quantified the financial impact and importance of music to their local economy. In 2001, the city of Austin made a formal economic impact study. The impact was significant: over $616 million in economic activity, almost 11,200 jobs, and over $11 million in city tax revenues was attributed to music. Most of these revenues were driven by independent artists and the thriving live music scene that showcases an astonishing variety of music.

The Economics of Small

Independent labels profit with substantially fewer sales than major labels by keeping recording and promotional costs down and marketing to niche audiences. Excellent sounding recordings have been recorded and manufactured for about $7500, a financial outlay within the reach of many artists. Sales of 1000 recordings at gigs at $15 will recoup that cost. Sales of 5000 recordings at gigs at the same price earn enough to finance and grow a music business. When costs are scaled to realistic expectations of sales, labels remain profitable. And, when sales exceed those forecasts, the artists and the labels thrive. And many have.

Chris Strachwitz, founder of Arhoolie Records, (Tex Mex, Blues, Cajun, Sacred Steel), coined the phrase "slow selling, long lasting" in the mid-70s to describe a recording business that does not depend on hits for profits and whose back catalog is a source of great, lasting music.

Many independent artists sell many thousands of records year after year because they have become well-loved in their individual genres. These include blues artists such as Lightning Hopkins and Mance Lipscomb and folk artist Doc Watson. New age pianist Steven Halpern has sold 11 million recordings in 25 years, and mandolinist David Grisman's record company Acoustic Disc has sold more than 12 million recordings in the last decade.

Some labels have put out recordings by new artists that built solid followings over the years, such as Sugar Hill (Nickel Creek) and Rounder (Alison Krauss). This has enabled them to sell nearly a million recordings each. The process of slowly building artists and their followings is what the major labels used to call artist development.

Summary

There are two parallel music universes, one imploding, the other growing healthier.
Growing numbers of major label business professionals that are finding themselves out of work in the major label universe are exploring options in the independent one, bringing with them the benefit of their experience and contacts. At the same time, musicians and bands that are not on Billboard's top 100 and are out of favor within the major labels are turning to independent labels. A good example is Delbert McClinton, who is now recording for New West. His established audience base enabled that label to sell more than 250,000 recordings.

This is good news for the independent universe, which will only benefit more as the public becomes aware of the fabulous variety of music on these labels and the music renaissance they have spurred. And this in turn, may spark a revolution to recapture some of the airwaves for regional and local music and news.

My hope is that the major label universe will recognize that they can benefit from the health of the independent universe and find ways to support it. Not only is the independent universe providing valuable artist development, but major labels will continue to sign artists that have become successful in genres that the major labels can easily market and promote.

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