Tommy Boy Records' Tom Silverman has said that independent record labels are responsible for 30 percent of music sales and 80 percent of all releases worldwide. If indie music were a major label, it would be the biggest in the world -- and in a way, that's what's about to happen.
One of the few things the majors still have going for them is their ability to offer a single point of contact for companies that want to license massive amounts of music for online and other ventures. When Yahoo wants music videos for its site, or Sprint wants a mobile music store, they can call up their contacts at the majors and be up and running fairly soon with a million-song-plus catalog.
They're about to lose their exclusive claim to licensing vast tracts of music. A relatively new crop of indie label trade organizations, including the recently announced Merlin, is poised to do for indies what the majors have long been doing for themselves.
Here's a theory: The biggest trend in music in the past 10 years has been decentralization. Technological advances have made it possible to form a label if you're just one person with a computer -- all it takes is finding a few new bands, which seem to be everywhere, then convincing them to let you handle their business needs (which increasingly means acting in a managerial role while outsourcing promotion and distribution).
As the music business becomes more fragmented, though, a funny thing seems to be happening. Along with the decentralization trend, a strong need for new types of centralization has appeared, such as MySpace and the original MP3.com. It has been possible for more than a decade to produce music pretty inexpensively without being part of a label or any other network, but there was no central repository for the results. In retrospect, MySpace's ascension looks inevitable; once it reached critical mass, no band could ignore it. It's as if the more decentralized things get in music, the greater the need is for certain kinds of centralization.
Indie labels have started organizing themselves into a single negotiating and lobbying unit -- another move toward centralization -- in response to being locked out of markets and lawmaking sessions dominated by major labels. Charles Caldas, the CEO of Merlin, and Alison Wenham, the head of both AIM and World Independent Network, or WIN, trade groups have accused Yahoo and other companies of practicing "copyright apartheid," according to Music Ally, claiming that they treat majors and indies in vastly different ways when it comes to the licensing of music and music videos.
In the past, this uneven treatment has made a sort of cruel, logical sense. If a major label gets upset with a licensee, it can take all its toys and go home, effectively ending the party, because most online music services want all the majors represented. If an indie decides to do the same, it has far fewer toys to take home, and so the licensee's party can continue in its absence.
Merlin aims to rectify that situation, letting indies bargain for better terms collectively and giving them a much stronger bargaining position.
Rumor has it that Merlin will first demand licensing fees from Microsoft's Zune sales for its members, as Universal was able to do for itself. There also seems to be a plan for Merlin to hit up YouTube for licensing fees; the organization already announced a deal with SnoCap and MySpace.
But licensing is only part of the game. A2IM, a U.S. sister organization to Merlin, has already centralized U.S. indie labels into a lobbying force in Washington. One of its first acts was to send a letter to the FCC, asking them to look at the payola scandal uncovered by Eliot Spitzer in New York State. Labels were paying independent promoters to get songs on the radio; the independent promoters then paid the radio stations to play the labels' songs. Effectively, this was classic payola, albeit with independent promoters as middlemen.
To solve the problem, the FCC initially proposed that radio stations stop dealing with independent promoters entirely, and only deal with the radio rep at each label.
Peter Gordon, who acted as A2IM's lead negotiator with the FCC, wears a number of other hats (including running Thirsty Ear, sitting on the steering committee of Merlin, and being the AVP of WIN). According to Gordon, this policy would have proven disastrous to indie labels, who don't have someone on staff dedicated to wangling radio airplay. Without independent promoters, their link to radio would be lost.
A2IM wrote another letter to the FCC that, effectively said, "Please, this is hurting us, don't throw the baby out with the bathwater." This message, too, was heard.
According to Gordon, "The FCC brought (A2IM) in, led by (Jonathan) Edelstein's office, and we worked with the Future of Music Coalition to create The Radio Rules of Engagement." He said it allows "legitimate" independent promoters to try to secure airplay for labels, and above all, makes the whole process transparent.
This would eliminate the "backroom dealings that distort airplay," in which "the indies could not afford" to take part," said Gordon. The FCC is still deliberating but he says it's not on the backburner.
One part of the solution could be that all music radio stations would be required to play a certain percentage of indie music, in the same way that stations in France have to play at least 40 percent French-language music. One A2IM representative said this could take the form of a daily local music hour that would showcase indie bands from the area near the station, which could be the best thing to happen to radio in years.
A2IM's success with the FCC shows what can be accomplished when independent labels stand together. Gordon said, "This really shows the breadth of what a unified voice can give you ... and the funny thing is that it was all started with a 39-cent letter."
But the picture is not 100 percent rosy. Merlin's stated goal is to maximize copyright value for independent labels. A2IM, which refers to itself as an indie equivalent of the RIAA, has a mandate to effect policy change that benefits indie labels. It's not hard to imagine these groups eventually pursuing RIAA-style lawsuits against their fans, especially because they're embracing the idea of selling music in unprotected, interoperable formats such as MP3 that are more easily pirated.
"This is certainly something the majors have been involved with, and we've lacked the organization to begin to attend to (piracy suits)," said Gordon. "The larger issue is that tech is going at a faster rate, so you have innovation and technology where there's no legislation to protect the copyright holders.... We haven't even had the ability to imagine what this tech would be. Even P2P caught us by surprise."
However, he acknowledges that because indie labels haven't traditionally treated their customers with open contempt, their battle with copyright infringement would be different even after they become more centralized in their approach.
Said Gordon, "We're more liberal (than the majors) in embracing new tech, and enjoy better relationships with our customers than the majors do. The majors create stars on huge platforms -- they're almost not real, they're almost like comic book characters. With indies, these are folks that live around town, and they don't want to steal from their friends. That's a level of protection that no DRM can achieve."