Commentary: A Little Niche Music

By Tom Lowry

Mingling with all the big-name musicians at the Grammy Awards on Feb. 27 in Los Angeles will be the Whites, Ralph Stanley, Norman Blake, James Carter & the Prisoners, and the Soggy Bottom Boys. Who? Their names may be obscure, but they are among the Grammy-contending artists performing on the soundtrack for the movie O Brother, Where Art Thou?, a hodgepodge of Depression-era songs up for Album of the Year. What's remarkable is that the record has sold more than 4 million copies, despite having almost no radio play or splashy magazine covers. O Brother is one of four albums from year-old Lost Highway Records that together have garnered 16 Grammy nods.

Lost Highway's success is a wake-up call for the $33 billion world music biz. Ask any mogul why sales were down 11% in 2001 and are expected to drop a further 3% this year, and he'll blame the CD-burners and the clones of Napster Inc. And he would have a point: Sales of pirated CDs were $4.5 billion last year, according to the International Federation of the Phonographic Industry.

But let's face it, many of the industry's ills are self-inflicted. Costs, from outsize superstar contracts to grandiose promotions, are seriously bloated and tend to reward mediocrity. Lost Highway, by contrast, expects to break even in its first year, with $109 million in sales. Its modest goals and surprising success send a message that bigger and pricier ain't necessarily better.

Music execs always promise to swear off big budgets, but somehow they never do. In January, London's EMI Group PLC (EMIPY ), one of the music Big Five, shelled out $28 million to diva Mariah Carey just to void her four-record, $80 million deal. Sony Music Entertainment's Epic label signed aging moonwalker Michael Jackson to a $100 million deal, then spent $30 million more to produce and market his latest album, Invincible, which so far hasn't taken off. Lost Highway's costs: less than $5 million to make and promote the four nominated albums, including Timeless (a tribute to Hank Williams), Ryan Adams' Gold, and Lucinda Williams' Essence.

Lost Highway is the brainchild of veteran Nashville music exec Luke Lewis, 55, who, as head of Universal Music Group's Mercury Nashville label, says he began to "lose some passion" for country music as it got watered down in the 1990s. So he got his bosses at Universal to let him launch Lost Highway (the name of a tune sung by Hank Williams) as a home for a stable of singer-songwriters wanting to steer clear of over-the-top marketing. Sure, Lost Highway has a safety net that most true independents don't: It's under the umbrella of Universal, the No. 1 music company, and is distributed by sister label Island Def Jam. But Lewis runs Lost Highway as a frugal, autonomous operation.

Industry insiders say Lost Highway's example could spark more niche labels at the majors. "Any time you have companies starting to evaluate costs, you will see the rise of boutique labels," says Terri M. Santisi, a former EMI exec now a consultant at KPMG. "The smaller labels can also fill a void in musical tastes." It's already happening. Warner Music Group has the Nonesuch label (remember Grammy-winning Buena Vista Social Club?). And Sony created the Lucky Dog, Hidden Beach, and Aware labels.

The new diversity should be welcome news for music lovers, frustrated by consolidation in music and radio, which is shrinking the range of what gets made and played. So let's hope Lost Highway walks away with some prizes, if only to drive home the message to those big-spending moguls that it's the music that counts, not the marketing.

Lowry writes about the entertainment industry from New York.

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