What's That Sound? Probably an Indie Label

NEW YORK ( TheStreet) -- The influence of the Big Three major record labels and the broadcast industry that supports them is noticeably shrinking, giving way on several fronts to the growing power of independent music businesses.

The Big Three are what's left of what was once a larger group of huge labels that between them still dominate the industry. Market pressures over the last 20 years effectively forced a reorganization that has left three giants standing: Sony Music, a part of Sony ( SNE), Warner Music Group ( WMG) and Universal Music Group, a unit of Paris-based Vivendi.

Independent labels already have nearly a third of the total market share for album sales, and that number appears to be growing. From 2011 to 2012, that share went up 0.5%, to 32.6%. Looking at only digital album sales, market share for indies is even higher, at 39%.

As a group, independents tend to specialize in specializing, feeding niche markets that the big commercial labels largely ignore. Many artists in jazz, reggae, blues or electronic music, or new composers of classical music can be found on independent labels.

But independents are also at the top echelons of hit makers. Taylor Swift, crossover artist extraordinaire and multi-Grammy winner, records for Big Machine Records, a label in the independent, Nashville-based Big Machine Label Group, founded in 2005.

As Jason Notte notes in an article from May 27, the top song Memorial Day weekend on Billboard's Hot 100 was Macklemore and Ryan Lewis' Can't Hold Us from their independently recorded and released album, The Heist.

Concord Group (purchased by Wood Creek Capital Management in March) not only has the leading jazz catalog but through its subsidiary labels also holds Creedence Clearwater Revival's catalog and a distribution agreement with Starbucks' ( SBUX) Hear Music label that includes the likes of Paul McCartney. Concord artists took home eight Grammys in February.

More significantly, independents as a group are mobilized, cooperating with one another, pooling resources and creating opportunities for one another.

This week, the leading voice for that organized approach, American Association of Independent Music, or A2IM, held its annual conference in lower Manhattan, to be capped by an awards ceremony Saturday night.

"We have 317 label members of all different genres and sizes," A2IM President Rich Bengloff said in phone interview Thursday. "This conference features members from 28 states and 13 different countries."

As Billboard points out here, determining what constitutes an independent label can be tricky. There are distribution partnerships with majors to be considered, as well as investments by the majors in independent labels' business and a growing number of side deals that blur the old lines.

But that inclination of major labels to strike deals with the indies is evidence itself of the shifting landscape. While the old guard still controls the playlist on FM radio, the playing field for new listeners online has been effectively leveled by a proliferation of services and tools easily available to emerging artists.

One of the most important of those has been streaming radio service Pandora ( P).

A decade ago, Bengloff said, independents faced major obstacles trying to reach fans. Radio's limited airtime was dominated by the big name acts; likewise, retail outlets had limited space and advertising was prohibitively expensive.

"For the most part radio was problematic," Bengloff said. "There were barriers. Retailers, you had to buy your way in for cooperative advertising. So for both promotion and monetization we had those barriers to entry."

Enter Pandora.

"We saw them as a democracy that was going to allow us to have access," Bengloff said. "They treat you more than fairly. They realize that independent music is the lifeblood."

According to a Pandora representative, a full 70% of the company's streaming catalog right now is independent artists. An A2IM report states indies make up 40% of Pandora's streaming.

The success of those efforts has rattled the rusty cages of the broadcast industry, illustrated by a lawsuit file against Pandora by BMI, the subject of a recent analysis by TheStreet's Rocco Pendola. In brief, Pandora is trying to pay the same lower royalties rate that radio broadcasters pay. Performance rights organization BMI, which has a board made up mostly of older print, TV and radio executives and no one from the Internet or streaming media sector, claims that's unfair.

"Gotta love good old boys' clubs," Pendola writes.

ASCAP, the other major performance rights organization, which has actual musicians and composers on its board, is also opposed to Pandora's royalties plan, fearing that its members will be paid even less than they are now.

In both cases, those concerns appear ill-founded. If current trends continue, Pandora and other similar services stand to put considerably more money into both musicians and broadcasters pockets, by offering a much wider selection of music with a greater frequency and with far more precise listener statistics.

According to Bengloff, Pandora has been working closely with independents, putting them at the "front of the line." That cooperation helps swing the musical culture door wide open.

"People want music discoveries," he said. "They want new things."

Independents can provide that experience and, with newfound social media power and statistics provided by places like Pandora, place it more consistently into the context of people's small social circles.

Major labels just don't have the flexibility to provide that kind of musical innovation, he said. While they still provide people with music they want to hear, they can't make money on an artist selling 40,000 copies. But for an indie label with only a handful of employees, 40,000 is a very big deal.

As a result of the pressure for biggest selling products, major labels tend to be song-oriented as well as star-oriented.

"Our people sell a body of work," Bengloff said. "No one's buying Queens of the Stone Age because oh, that was a great song -- they're buying it because there was a dozen great songs. We're selling an album as opposed to what they're selling is a bunch of singles."

The Queens album he's referring to, ... Like Clockwork on Matador Records, is currently at No. 1 on Billboard's weekly charts. Since labels represent styles and stables of artists, that particular body of work translates into sales for other artists on the same label. Matador, for instance, also sports Yo La Tengo, Cat Power, Sonic Youth, Pavement and others. If you go for one, you'll probably be interested in the others.

"If you go to a independent metal label Century Media show, you'll see half the kids wearing a Century Media shirt instead of the bands on the stage," Bengloff said. The label is not just a motley collection of hit songs, but a brand of music that kids identify with.

"Indies have always been the brand, but we were limited in how big we could become so we were small niche market because we weren't able to get radio play," Bengloff said. "But now we're able to break out and do the crossover."

-- Written by Carlton Wilkinson in Asbury Park, N.J.


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