Some indies are selling more records than ever while the majors limp along
This is how crazy the music business is right now. Certain veteran independent labels, which in some cases spent the 1990s alternating between slamming the majors and begging them for emergency funding, are starting to look as if they know what they're doing.
The grievous state of selling music is well annotated, with total album sales falling 11% in the first half of '08. Major labels struggle to keep platinum sellers (acts that sell a million units) from backsliding to gold (500,000 units) or worse. But some smaller labels—among them Sub Pop, Merge, and Matador—have hit a pocket of relative prosperity, with many of their top stars selling more records than ever.
Seattle's Sub Pop, famed for signing a then-unknown trio called Nirvana in the late '80s and long adept at minting a hit moments before the label's lights went out, has recently notched three gold records. One of them, The Postal Service's Give Up, is nearing platinum. Another, the Shins' Wincing the Night Away, debuted at No. 2 on Billboard. This, for a label and milieu in which selling 50,000 records was once considered an ungodly feat.
According to Sub Pop, in 2007 it posted record revenues, which rose 79%, to around $20 million—14% from licensing its bands' music to advertisers and entertainment properties. It also sold more records in '07 than in any other year. (Sub Pop is private, so these figures cannot be independently confirmed. Some executives familiar with similar labels say that revenue level sounds high. And—disclosure—I play guitar on one Sub Pop release.)
What explains the indies' staying power? For starters, the Web's flattening of distribution, and the growing appetite for licensing less mainstream music. The Shins have provided music for ads by McDonald's (MCD), Microsoft (MSFT), and Gap (GAP). "Advertisers realize: 'I don't have to get the Beatles to have a successful commercial,'" says Ira Antelis, former music director for ad agency Leo Burnett—and indie bands come cheaper, to boot. Other aspects of the indie world—small staffs, modest expense structures, and strong relationships with an audience and its musicians—are built for a music environment that's shrinking even as niches become more important.
Sub Pop, which sold a 49% stake to Warner Bros. for more than $20 million in 1994, is not necessarily the most profitable of its peers. And while indie labels in the late 1980s and '90s typically danced on the cliff rim of insolvency, Sub Pop was especially prone to lurching over the ledge. "The company hemorrhaged millions of dollars" last decade, says CEO Jonathan Poneman, who's been with the label for 20 years. (No flashy music biz type, he. Slap a baseball cap atop his skull and wrap him in a windbreaker, and the 48-year-old could be a weary suburban dad coaching the local Bad News Bears.) By Poneman's account, beginning in 1995 he started throwing in his own funds to keep the label afloat, sums that "ended up being millions of dollars." The label did not begin paying lenders back until 2003; now, he says, all are paid in full.
The Warner deal "allowed me to have a cushion. Normally, if labels make the kind of mistakes I made, there is no cushion to fall back on," says Poneman. At one point, overextension forced him and founder Bruce Pavitt to lay off more or less the entire staff. Later, an abortive mutiny ended with Poneman firing several key employees. Another cushion: Sub Pop still gets a small cut of two Nirvana records on major label Geffen, the cumulative sales of which top 12 million, and maintains the rights to its platinum debut Bleach.
Still, even as Sub Pop et al stumble into what passes for comfortable middle age, such comfort remains tenuous. Label executives admit that the continuing disappearance of traditional music retail outlets will hurt. In response, Poneman says Sub Pop is mulling selling managerial services to bands on its label and others. Which—who knows?—might allow Sub Pop and its peers to stagger onward longer than the major labels that once invested in them.