Manage for Success: Random Thoughts (Newsletter #11, March 2002)

Welcome to Newsletter #11: Random Thoughts On a Day at an AFIM Crash Course

The following are thoughts and observations that occurred to me after spending a day in San Francisco recently as a panelist on this year's Crash Course for AFIM (Association for Independent Music) members. The course is "Record Business 101" for newcomers to the industry. The panelists are experienced music executives, and the sessions offered included Legalities and Technicalities; Production and Manufacturing (the panel on which I participated); Distribution; Sales, Marketing and Promotion; and finally, Retail.

A lot of bright young people attended the course. They all seemed to be vitally interested in music, with the desire to make a living -- no less a killing -- appearing to be secondary. They were knowledgeable on the broad picture, but somewhat naive about the realities and details of the music business. That's why they were attending these sessions.

Many attendees were owners of labels developed around themselves as artists, with a desire to foster and promote their own music. Although the word "vanity" would normally apply, it didn't seem to be the situation here.

I believe there are four primary problems facing all owners of independent labels today: under-capitalization, distribution, access to media, and a glut of indifferent music -- all troublesome, particularly for start-ups.

Label owners tend to start labels out of a desire to put out music that they love and are committed to and wish to convey to the public at large. They use their own -- usually limited -- funds, or borrow from their families. And, even if they've written a business plan and established an operating budget (all too frequently neither is done) they don't raise enough money to see them past the initial few months of operation. They haven't allowed for the fact that it will be a while before any records are sold and quite a longer time until they'll get paid for them.

Distribution has become a nightmare for most independent labels, with the likelihood that it's only going to get worse. One panelist told the story of being contacted by the owner of a label who was about to go under because he had been distributed by MS who went bankrupt about two years ago, then switched to Paulstarr who went bust some months later, only to then switch to Valley-owned DNA which was dissolved when Valley declared bankruptcy late last year! Talk about going from the frying pan into the fire, this guy went through hell!

Meanwhile rumors abound about the viability of at least three key national distributors who are owned by majors: ADA (owned by WEA/Warner Music), RED (owned by Sony), and Caroline (owned by EMI). Unfortunately, many others are in questionable financial shape as well.

The industry has consolidated to an incredible degree: from many large labels about ten years ago now down to only five multi-nationals. And just as the majors have coalesced, the many regional distributors all over the country -- who once worked hard to expose and sell the music of the many labels they carried -- have disappeared or combined to a mere couple of handfuls of so-called "national" distributors. And these few distributors won't usually represent a label who can't guarantee a million dollars of business per year at the wholesale level.

Add to this the fact that a label no longer gets paid in sixty or ninety days for records shipped to their distributors, because most records are now sold on a "consignment" basis. The result is that a label will only get paid some months after a consumer actually buys and pays for the music. Consequently, a label frequently ends up with all its distribution and financial eggs in one very precarious basket.

Adding insult to injury, a brand new label has an additional problem -- most distributors won't take them on unless they've got a catalog of at least three titles.

So what's a new label to do? How do they sell that first release? I'll address that in a moment.

I've written previously about how the majors have a virtual lock on most airplay formats, and about the diminution of free space available for reviews of records and articles about artists in both local and national media.

As for the glut of product, it seems that the majority of the 35,000 or so titles shipped each year come from indies. Which is not to say that they're not good recordings. In fact, I believe that many of the releases from small independent labels are indeed not only very good, but frequently of more inherent value than a lot of what's issued by the majors. The problem is that the public by and large doesn't know about these indy releases, has not heard the music, and has limited dollars available to spend. In fact, it's usually the majors who release a lot of questionable pap that should never have seen the light of day or space in an end cap!

Well, I don't have all the answers, but I can offer some advice.

First, if you're considering starting your own label, do a lot of research and spend a lot of time planning, preferably with the assistance of an experienced professional.

It just so happens that we are especially equipped to assist you in these matters. Solutions Unlimited has decades of experience planning, budgeting, and solving record industry management problems. And we particularly like to work with start-ups. Don't hesitate to call us to discuss your particular situation.

Do a business plan, and include in it realistic budgets that go beyond the first year of operation. Project accurate costs and reasonable and likely sales volume. This is sort of a "proof of concept" that will show you if you can be viable or not.

Unless you're unusually lucky, you won't achieve success for a few years, so plan accordingly. Then raise sufficient funds so that, even with limited sales, you can stay in business for at least two to three years while you establish artist careers and credibility.

As for distribution, consider handling it yourself -- become a self-distributor, at least for the first few releases, while you learn the business and build a catalog. Consider starting by selling to retail stores in your own home region, and as you achieve limited success, build out from there to other territories. If you've got good music, and have worked very hard to sell it, you'll very likely hear from a national distributor who wants to carry your label.

Another point, which I've been stressing to my clients for some time now, was brought up in the marketing panel. That is, with the limited possibilities for airplay for many genres of music, and the paucity of print media space to publicize your act, it's become essential that an artist tour on a very frequent and regular basis. Perhaps he'd start in his home region. For example, an artist based in New Jersey can do "run-outs" or regular touring from Boston to Washington, D.C., all within a day's drive. As success occurs, both in frequency of gigs and sales of records in the home region, consider branching out to additional regions. It's amazing what can happen with a lot of planning and hard work.

Make use of non-commercial radio, such as community, college, and NPR stations. Send samples to the music directors or DJs of specialty shows that your music is right for. Then follow up by phone to be sure the samples have been received, and encourage them to play your music.

When your act tours, if only locally, arrange for the press, even if only small-circulation community papers, to review performances. Be sure your local DJs and music directors are invited to performances and encouraged to interview your act on the air. Do this often enough, and if the music is good, success is the likely outcome.

In any event, despite the gloom currently pervading the industry and the somewhat grim picture I've painted above, I felt that the attendees were essentially optimistic about their future. I know I am because I believe strongly that really good music will eventually find its public.

In the Production panel I mentioned that it's important to have a calendar grid which works back from a release's street date, showing all important manufacturing and shipping milestones. I didn't have such a grid with me, but I've come up with a simplified version that I'm happy to make available to those who request it. Please send me an email with your request and I'll see that you get it right away. Or, you can download it from the "Articles" page on my web site.

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Copyright 2002 by Keith Holzman, Solutions Unlimited. All rights reserved.