#DigitalSkeptic: This Pro Music Marketer Just Wants a 10% Cut

NEW YORK (TheStreet) -- David Macias has no problem being the Sam Walton of the recording industry.

"As the music business has shrunk, it has gotten harder and harder for artists to make the livings they need to make," explained the president of Thirty Tigers, a Nashville music marketing and distribution company. "So my thought was, be like Walton and build a music entity with low enough margins so the artist keeps more, and we make it up in the volume."

So after a decade and a half in the mainline record label biz, dealing with artists such as Whitney Houston, Kenny G and Alan Jackson, Macias set himself up in his guest bedroom 13 years ago to make a lean, mean, music-making machine.

And wouldn't you know it: His 21-person shop is showing some real teeth here in the Digital Age jungle. Macias has built a fascinating roster of mostly Americana acts such as Lucinda Williams, Patty Griffin, The Avett Brothers and many others. And besides making -- at least to my ears -- some dang nice records, unlike the rest of the domestic American music industry, Thirty Tigers' sales are up. Big time.

In 2009, Macias says he sold $3.3 million full-year; by year-end 2013, he posted $8.9 million in sales -- a 169% jump that would make Sony BMG, Universal Music Group or Warner Music Group drool with envy.

The secret? Macias focuses on the emerging fat end of the modern music biz: mid-market artists poorly served by major labels. "When I started off, it was not unheard of for a major artist to sell 20 million records," he explained. "Those days are gone." Instead, he said, the music industry has been replaced by a vast sea of middle-level artists who sell reasonable amounts of records but struggle to capture the attention of a major label.

"I have gone the entire other direction and tried to ring as much excess out of the major record label model as I can," he said.

"We are frugal @#$%^&*ckers."

The un-music label
The glory of Macias' approach is its simplicity: He kills the most sacred of music industry cows -- that is, he does not try to control the master recording rights of the music he sells. Rather, he hands the artist a healthy advance and takes a flat 10% cut of the gross receipts of the wholesale price of the CD or download.

As Chris Castle, partner of Christian Castle Associates, a music law firm based in Austin, Texas, explained, Thirty Tigers' flat rate model is a modern riff of standard distribution music deals that have existed for some time. Instead of a major label retaining full control of recordings essentially forever and around the world, artists make their own records out of their own pockets against the advance they get, then keep much more of what they sell.

"The model is simple: If I am doing all the work anyway, I would like to keep 70% of the money, thank you very much," Castle said. He believe deals from companies such as Macias' give artists the intermediate step between going with a major label -- where the price of admission is essentially 100,000 units sold -- and offers them more control and freedom over their careers.

But far more importantly, for investors weary of a music industry that makes as much sense as Yoko Ono record, Macias offers glorious fiscal transparency. Assuming a musician sells 50,000 units, Macias says he works from a roughly $8 wholesale price for each CD or digital download sold. (He says streaming rights will be significant eventually, but those rates are not set yet.) That grosses up to roughly $400,000 in total sales for 50,000 units moved. Macias takes his 10% cut, or $40,000 to pay back his investment, then kicks another 15% to a music distributor that moves the actual product. That leaves an unheard-of-for-the-music-business 75% -- or $300,000 -- flowing directly the artists, who then pays for everything from promotion to production.

"The artist is more responsible for more moving parts than in the traditional model," he said. "But for the right performer, it can be lucrative for all sides."

Not the Wal-Mart of music
Macias bristles when I ask him if his model is really doing nothing more than giving his clients a Wal-Mart experience. "I openly reject that we are providing anything less than top-quality service," he said. Efficiencies he provides lie in basics such as working from low-cost office space, choosing acts wisely and keeping overhead down in travel, entertainment -- and his own salary.

"I started making $40,000 a year doing this and now I am making $45,000. A traditional music exec would laugh at those numbers, but I am profitable at the end of the year so I get a cut of that. So it works out," he said. "And when my artists deal with me, they deal with me. Patty Griffin is coming into town today and I am driving to the airport and picking her up myself. No label exec does that."

What's fascinating for investors is that Macias sees no limit as to how far his flat-rate, artist-owns-it-all model can go. Thirty Tigers just opened a music publishing business to administer digital rights and invested in his its first film.

"I do not see myself changing this model much," he said. "It's really about getting the word out and explaining to a wider market that if you accept we are working in a more efficient world, you can still make a reasonable living.

"You just have to adapt."

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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