Indie Labels Benefiting From Digital Music

It looks like indie labels are actually benefiting from digital music and streaming, according to a new survey by the indie music trade organization Merlin. The study contacted indie labels from 26 countries to gauge their health in the new digital economy.

The survey revealed that business was up for 65% of its members, and over half derived more than 50% of their revenue from digital. Only 16% said their digital revenue decreased, mainly because of a decrease in download sales.

What was significant was that around 55% of the labels said that their digital revenue was more than half of their total income, while another 33% placed it at somewhere between 25 and 50%.

Merlin labels represent around 10% of the global digital market share at the moment, but that seems to be rising. What it shows is that indie labels are beginning to thrive in our Music 4.0 economy as they learn the various ways to earn money.

While the major labels have gotten stronger in the last few years, that doesn't necessarily mean that the indies have become weaker. The music industry continues to evolve and everyone inside is learning to change with it in order to stay in business.

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Indie Labels Have It Drastically Wrong About Apple Music

The latest flareup in the streaming music wars has the indie record labels in an uproar over the fact that Apple won’t be paying royalties for the free three month trial period that consumers have before deciding whether they want to subscribe to Apple Music or not.

The indies major contention is that their margins are so small that three months without royalty payments will put them out of business. While on the surface that seems like a reasonable argument, it misses the mark of what the real issue is - the lack of corporate respect.

While no one but the label execs themselves know if the majors have the same no-royalty deal in place for the trial period, rumor has it that the music giants are not being paid either.

Either way, it matters little. Both the majors and indies aren’t currently getting paid a dime from Apple Music and those companies aren’t rushing into bankruptcy court, so another three months will make little difference.

The fact of the matter is that no one is taking in any revenue during the trial period. Apple isn’t charging for advertising like the other freemium tiers of its competitors, so it’s a wash. No one makes money, no one loses any (although Apple does absorb the operating costs).

The trial period is a necessary evil in that if you don’t give consumers a taste of the service, there’s no way they’ll plunk down their cash on a subscription (even if it is made easier by the fact that Apple already holds their credit card information). If you don’t water the garden, it’s now going to grow, and that garden could potentially put a lot of food on the table so it’s best not to starve it just when it’s beginning to spout. Read more on Forbes.

UPDATE: Apple has decided to pay artists and songwriters for the trial period. Read more here.

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Does The Music Business Really Need YouTube?

We’ve known for months that YouTube will soon introduce its own streaming music service, and in doing so it's revisiting its licensing agreements with all the major and indie labels. For a monthly fee the new service will reportedly allow users to download their streams to enable listening offline, and also eliminate those annoying adverts that we all hate so much but are so necessary to the revenue stream of the content owners.

The negotiations aren’t going so well on the independent label side though, as indie label associations worldwide are refusing to sign what has been labeled as an unfair agreement. As a result, YouTube is threatening to block all current YouTube content from indie labels that don’t sign the agreement and prevent them from uploading anything new as well.

The indie label’s point of contention is that they’re not being offered the same royalty rate as the major record labels, and what is being offered is reportedly lower than that of Spotify. As a result, the American Association of Independent Music (which represents US indie labels) has petitioned the US Federal Trade Commission to intervene, and the Worldwide Independent Network in London has filed a complaint with the European Commission.  

That said, YouTube is well within its rights to refuse service to a company that doesn’t agree to its terms as much as a grocer isn’t obligated to lower the price of a single loaf of bread to the same price that a restaurant might pay for a hundred. The difference is that it’s also the same as not allowing you to purchase anything else in the store unless you buy a hundred loafs of bread like the restaurant. Read more on Forbes.

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YouTube To Begin Blocking Indie Labels

It's an open secret that YouTube is preparing to introduce its own streaming music service soon, and in doing so it's revisiting its licensing agreements with all the major and indie labels.

Apparently that isn't going so well on the indie side, especially in Europe where the Worldwide Independent Network (WIN), a global consortium of small labels, is refusing to sign what it deems to be an oppressive agreement.

As a result, YouTube is threatening to pull WIN's content from the site and block them from uploading any new content.

This seems pretty harsh, and indeed it stops the WIN-associated labels and their artists from directly making money from their videos, but it doesn't mean that artists like Adele and Arctic Monkey's won't be represented on the service. The ban apparently applies to only master recordings, and since the majority of videos are uploaded by fans themselves, it seems that only the "official" videos are in jeopardy of being blocked.

In essence, Google wants to refashion YouTube more as a music service, complete with the ability to download a song for offline playback. They want to pay the indies less for this feature than they'll pay majors, which is why WIN is balking.

You have to hand it to WIN for standing up to one of the biggest corporations on the planet. That said, record labels everywhere are relying more and more on the income from YouTube, and cutting that off can have a serious impact on their bottom line, which translates directly to the artists.

Let's hope that this disagreement is resolved soon for everyone's sake.

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Nirvana's Original Contract

Here's a great piece of music history. It's part of the original recording agreement between Nirvana and the indie label Sub Pop. There are a number of interesting things here if you take the time to read it:

1. There are 4 people on the agreement, and drummer Dave Grohl isn't one of them, since he didn't join the band until a year after the deal was signed. Jason Everman had originally paid for the sessions for the band's first album Bleach (a grand total of $606.17), and was kindly included on the deal.

2. The deal is only for one year with two option years, which is pretty short when compared to a major label deal, who usually try to hold onto an artist for at least 5 to 7 years.

3. The advance for the first year was $600! The first option year was $12,000 and the the second was $24,000. The option year advances turned out to be blessing and a curse. Bleach sold about 40,000 copies the first year (a pretty good amount for an indie), but Kurt Cobain was dissatisfied with Sub Pop's promotion of the album and wanted off the label. The advance amount for the second year was too much for most indie labels to absorb, so they were forced to look for a larger record label, which turned out to be David Geffen's DGC, a label that was distributed by Warner Bros at the time.

The rest, as they say, was history, as the band's second album Nevermind blew up and sold 25 million.

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Indies Labels Now Have 34% Of The Market

Once upon a time the music world was dominated by the major labels, who had the vast majority of market share. Today that's no longer true as the mid-year numbers from A2IM reports that indie labels now own 34.4% of the overall market share. This is based on the number of masters, not distribution, but it's still a radical departure from the days when the majors rules and such an idea would have been laughable.

It's truer than ever that you don't need a major label to get ahead in the music business. As an example, here's the top selling indie artists so far this year:

Mumford & Sons - 1.1 million albums (combines total of all their releases)
Macklemore & Ryan Lewis - 670,000 albums
The Lumineers - 660,000 albums
Taylor Swift - 650,000 albums
Jason Aldean - 310,000 albums
Vampire Weekend - 275,000 albums
Alabama Shakes - 250,000 albums
Queens of the Stone Age - 150,000 albums

We are definitely in a DIY age. It's not just a dream anymore

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Warners Makes A Deal With The Indies, Or Does It?

The record label business as we know it has changed immensely in the last year or so and those changes continue to come hard and fast. Take for instance the fact that when Universal Music Group purchased the assets of EMI last year, they were forced by European regulators to sell off much of the catalog and several labels (including Parlophone, Chrysalis, and Virgin Classical among others) to Warner Music Group in order to make the deal.

Now it looks like WMG is getting the same treatment, as Merlin and IMPALA, two of the most powerful indie label trade groups, have been threatening to raise a fuss again with the EU regulators as they had with Universal/EMI and BMG/Sony before that. So Warners became proactive in the matter and announced an agreement with the two groups to sell or license "a significant portion" of that music to some of the indie companies (which were not specified) within those groups.

Now let's get this straight. WMG tells the trade groups it will help their clients make money, but lays out no specifics on how that will happen or with what companies. Doesn't this sound like a bait and switch where WMG makes a nebulous promise that it can easily forget about as soon as the regulators give their OK? Or, WMG can just give some token feel-good deals that doesn't substantially alter the status quo of either company.

This seems to be a classic deal to make everyone look and feel good, but without much substance. If I were one of the member companies of Merlin or IMPALA, I'd be upset. It looks like more of the same from the majors, but with the seal of approval from the organization that should be helping the indie label's cause. It should be interesting to see how this plays out.

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iTunes 90 Second Preview Troubles

Even for the 800 pound music distribution gorilla in the room that is iTunes, sorting out agreements with record labels is not easy. It seems that Apple's recent October 20th press event was really to announce that Apple had negotiated 90 second previews for all the songs in the iTunes library. The only trouble was, they only did half the negotiating.

While Apple successfully negotiated with the major labels for 90 second preview clips, they forgot that publishers actually have a say in things as well, which meant that the announcement had to dropped at the last minute until that could be sorted out. Since Apple always has multiple products per press event, they were able to change the focus of the event at the last minute so that no one was the wiser.

But the music world is more than the major labels, and Apple didn't do any negotiating with the various indie labels either, instead preferring to simply "inform" them of the change. Unfortunately, the world of digital music isn't that easy, and the indies now have to go back to their artists and third-party publishers to amend their agreements from 30 to 90 second previews, a process that could take a lot longer than anyone would have initially thought.

I think that 90 second previews are great, since the best part of a song is sometimes not contained within the 30 seconds available previously. That being said, this seemingly simple change is a great example of the complexity of the modern music business. Nothing is ever as simple as it seems.

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