Indie labels struggling to make money in digital era

By OTIS HART

The digital music era was supposed to be the great equalizer.
No longer would independent labels waste money pressing physical copies, securing crucial and costly distribution, or warehousing unsold albums. They could use the windfall to promote and market their artists, to turn tiny trickles of returns into legitimate revenue streams.

The Internet's long tail of niche audiences provided access to an unprecedented number of potential fans.
Well, the mp3 did end up leveling the playing field ... just not the way many had hoped.

As more and more people discovered the wonders of high-speed connections, music gave new meaning to the adage "the best things in life are free."

For indie acts, popularity no longer guarantees profit, much less the promised land — not when entire records are available for the taking via torrents or one-click hosters. And for the millions of teenagers who grew up After Napster, those files come largely guilt-free.

Amazon.com opened its store in September, selling complete, no-strings-attached mp3 albums for $8.99, 10 percent less than iTunes. And that's not accounting for sale prices — while you can download Pink Floyd's "Wish You Were Here" for $11.99 from iTunes, you can get the same files for $4.45 from Amazon.

"We plan to build a successful digital business in the same way we built a sustainable business selling physical goods, which is by starting with the customer and working backward," said Amazon spokeswoman Heather Huntoon. "That's what we've done with Amazon MP3, starting with what we think customers want — convenience, selection, and low prices — and worked backwards."

Given the already low margins associated with digital music, moving album prices lower would barely dent Amazon's bottom line, but could very well turn indie labels into Non Profit Organizations.

"The pricing model is going to be driven down to probably — without artwork, with Amazon, with Best Buys coming in — somewhere between $6.99 and $7.99 when the dust settles," said Howard Greynolds, owner of the tiny Overcoat Records in Chicago. "What percentage of that we're getting remains to be seen."

Price point taken

Is $7 an album enough to keep an indie label in the black? Not according to Rian Murphy, sales manager at Drag City Records. Murphy's label decided to pull its catalog from digital subscription service eMusic because it had to sell three times the amount of songs to make the slim profit iTunes already provided. The service provides plans that can whittle the price of a song down to 27 cents — appetizing to consumers but nauseating for artists.

"Keep your eye on the bottom line, and if it doesn't make sense, don't do it," Murphy said. "Things become known eventually. You don't really have to force them down people's throats."

Murphy says it's up to independent labels to resist slashing their own prices just to fit someone else's corporate business model. Drag City albums sell for $9.99 on iTunes and $8.99 on Amazon, though Murphy says Amazon is swallowing the difference.

"There are too many people out there who don't value their own exposure, who want (their music) to get to the maximum number of people and they don't care what they have to do," Murphy said. "This is the reason, as far as I'm concerned, that the industry is in trouble."

It's the music, stupid

The industry Murphy speaks of consists of labels, distributors and managers, but primarily artists — artists who discovered it's quite easy to make your own record on ProTools, but not so easy to trade it for goods and services.

"There are a lot of very mediocre bands out there right now, and it's going to be harder and harder for those sorts of artists," Gillespie said. "There's too many bands on too many labels putting out too many records.

"If you figure in single-track downloads at 10 tracks equals one album, the economy of the music industry is only off about 8 percent of where it was in the late 20th-century peak. So it's not that dire, but it's become diffused over so many bands and so many releases."

As the de facto price for digital albums falls, labels will have to become more selective in who they sign and look for alternative resources, like licensing and touring.

"You've got to be a good live band," Gillespie said. "If you're no good live, you soon won't be able to sustain a career in this business."

Capitalism. Cannibalization. Piracy. Getting a piece of this pie has never been so hard. Unless, of course, you've got talent.
"Ultimately, it still comes down to good music," Greynolds said. "Bands can complain that their record isn't selling, and the hardest thing for any band to admit is maybe people don't like their music."