For a brainy British rock group, Gang of Four was remarkably influential. In the late 1970s and early '80s, this foursome's blend of punk, funk, and politics foreshadowed later mega-selling acts Red Hot Chili Peppers and Rage Against the Machine. In more recent years, the bands Franz Ferdinand, Bloc Party, and the Rapture have brought a full-fledged dance-punk revival out of Brooklyn lofts and into Nike (NKE) commercials.
Gang of Four bassist Dave Allen has managed to stay current, too. In the late '90s, Allen was a general manager at the first pay-for-download music service, eMusic.com. In 2000, he joined Intel (INTC) as part of a group focusing on MP3 players and other Internet-connected consumer products. The move brought Allen to Portland, Ore., where he and business partner Ned Failing started their own online music company, Pampelmoose, in 2004, aiming to outfox the ailing record industry.
The industry's problems are well-documented (see BusinessWeek, 5/22/06, "Facing the Digital Music"). Total album sales fell 4.9%, to 588.2 million units, in 2006, according to Nielsen SoundScan data.
By comparison, physical album sales through the Internet rose 19%, while digital album sales surged 101%. If the old system is broken, Pampelmoose sees the Web as the solution.
The Long Tail Strikes Again
Like a conventional record label, Pampelmoose offers studio production, distribution, PR, promotion, and business consulting. It also runs an online store where bands can hawk their wares.
Unlike typical labels, though, Pampelmoose doesn't require artists to sign away their publishing and recording rights for a shot at the big time. "We are trying to keep the artist completely in control whilst helping them market heavily through the Internet," Allen says.
Pampelmoose's biggest success story so far is local rock group Dirty Martini. The band sold about 7,000 copies of its self-titled 2005 debut CD, no small feat for an independent release. A second album, Tea and Revenge, began shipping last fall, and Allen looks for sales of 10,000 to 15,000 copies by the end of 2007.
Late last year, Wired magazine Editor in Chief Chris Anderson mentioned Pampelmoose on his blog calling the business, "well, pretty Long Tailish." Anderson's concept of "The Long Tail," coined in 2004 and expanded last year as a book, describes how products with low demand can collectively outsell the few blockbusters, given unlimited storage space (see BusinessWeek, 7/17/06, "Who Needs Blockbusters?").
Allen fully subscribes to Anderson's theory as it applies to his business model. "We're at the far end of the tail, actually," Allen explains. "We've carved out our niche, and we just take incremental payments from these artists for a little piece of something from everything they do."
Blog as Barker
One tool Allen credits for boosting business is his blog. Pampelmoose's Web site underwent a revamp in December, 2005, when it was getting about 30,000 visitors a month. Allen replaced the site's ordinary e-business home page with a blog, where he posts several times a day on topics related to Portland or pop culture.
As of December, 2006, monthly visitors were up to 142,000, accounting for roughly 500,000 page clicks. Some were clicking through to buy merchandise (see BusinessWeek.com, 5/15/06, "Does Your Small Business Need a Blog?").
While 2006 found the mainstream press finally embracing user-driven content, Allen suggests most would-be bloggers probably shouldn't quit their day jobs. "Nobody on Earth can really just run a blog and get paid," Allen says. "A blog is a useful vehicle for pointing people at your product. It's the retail store window, if you will."
Internet technology and declining major-label sales have provided an opening for some other smaller labels (see BusinessWeek.com, 6/28/06, "They Signed Gnarls Barkley"). Pampelmoose's nonexclusive arrangement and aggressive online push make it unique, some industry insiders say. "It's the sort of model that pushes conventional labels closer to the edge of the cliff," says Seth Riddle, A&R executive at venerable British indie label Rough Trade.
For the time being, revenues remain Pampelmoose's biggest challenge, according to Allen. The company pulled in gross revenue of $372,000 in 2005, and Allen expects final numbers for 2006 to show a 30% increase. Pampelmoose co-founder Failing draws a stipend from the company, but the Gang of Four bassist doesn't. They've recently added one other full-time employee.
"We're just basically reinvesting everything we get into it, in pure startup mode," Allen says. "The problem with having a company like ours, which is amassing content, is that it's a little slow-going. So it's not the sort of thing where investors suddenly come knocking, wanting to jump on board. If they want 10 times returns in five years, they may have to wait a little longer."
As a member of a highly regarded rock band, Allen can afford to be patient with Pampelmoose's growth. In 2005, Gang of Four reunited for a series of U.S. and British concert dates. That year the band also released a new album, Return the Gift. Allen clearly has the advantage of his post-punk past, but the future—for Pampelmoose and startups like it—will likely arrive on the Web.