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Small Business
Getting started: Record labels
April 23, 2001: 10:15 a.m. ET

Rooting for the underdog: Distribute, publicize music by unknowns you love
By Staff Writer Alexandra Twin
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NEW YORK (CNNfn) - You sit at work, bored at your cubicle, nodding your head to the music coming out of your headphones. You are an accomplished air guitarist, bassist or insane, Ritalin-deprived drumming machine. You see interesting bands from time to time who don't seem to get much exposure and you want to be their champion.

Face it: You are a music geek. And to quote Elvis Costello, in time you can turn these obsessions into careers.

Maybe you have even thought about starting your own independent record label?

Yes, you can make money by distributing CDs and LPs of all different genres, independently, with a staff of one, from the "office" in the corner of your kitchen. The key ingredients are a knowledge of music in your regional area, a good sense of grass-roots marketing, and a commitment to seeing a profit -- but only after a long haul and about $5,000 in start-up costs.

March Records

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March stars Wolfie (Courtesy: wolfieband.com)
 
Skippy McFadden has worked as a booker at clubs, on staff at small and mid-sized labels and was even an A&R man for major labels like EMI. There he occasionally worked with artists like the Red Hot Chili Peppers, but more often spent time checking out unknown bands around New York.

In his early 20s and living in Chicago, his interest in local music flourished. Figuring it would be fun and interesting to document some of the music that was going on at that time, he put together a compilation album of 20 area bands, got the bands to chip in on some production costs, and March Records was born.

Last month, the label celebrated its ninth anniversary. Now based out of McFadden's home in Hastings-on-Hudson, N.Y., March has grown from being a Chicago-specific specialty label to one that represents bands from all over the United States as well as a number of other countries. Current bands include Champaign, Ill., sweetie-pies Wolfie; Washington, D.C., synth-pop charmers Barcelona; Minneapolis supergroup The Waves; and Glasgow, Scotland, songwriter extraordinaire Lloyd Cole.

graphicAs the label's sole full-time employee, McFadden generally puts in 9:00 a.m.-to-9:00 p.m. days. There is always an endless supply of things that need to be done, blurring the line between work and alleged free time.

By his estimate, McFadden is the unofficial manager, publicist, graphic designer, negotiator and co-worker of bands on his label. He thinks of the artists, designers and full-service manufacturers he works with (at companies like Chicago's Failsafe) as his production department. The engineers and distributors are like a staff, albeit one where nobody works in the same office and rarely sees each other.

graphicHe jokes that his job duties should also include marriage counselor, negotiator, go-between and friend.

Not just a business, working with living, breathing bands is like having a relationship with a girlfriend or boyfriend, McFadden said. "You have to nurture the relationship over time, you have to listen and be supportive, and when it's over, it's over."

Applying that same give-and-take philosophy to the financial arrangements, he and the bands share the cost of making and marketing the album, as well as touring and any other costs 50/50. They also split profits 50/50.

The number of copies they distribute varies depending on the artist's stature. A newer artist might sell 5,000 copies of an album, whereas industry veteran Lloyd Cole might sell 30,000 to 40,000 worldwide.

graphicIn order for the work to be profitable for both the band and March, the idea is to be frugal, so that everyone comes out ahead.

Without advertisements in pricey music periodicals or expensive music videos, McFadden is dependent on college and independent radio and media, general critical support, ads in smaller, more specialized music periodicals, and publicity gained through tours to bring attention to the bands.

A small business in a different industry might attend trade shows or set up meetings with potential clients to introduce business. For introducing an unknown band to a new market, going on a tour is an equivalent step. Bringing a live show to different cities can increase album sales three-fold, versus a band that makes albums but doesn't take them on a tour, McFadden said.

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March stars Barcelona (Courtesy: March Records)
 
For a new band like Barcelona, McFadden might initially plan on making 1,000 copies of their album, with the potential to press more when and if these sell out.

The cost of the raw material is approximately $1,500 for 1,000 CDs.

Bands at March usually put up the money for their own initial recording costs, so that is not something McFadden is responsible for.

Getting a record mastered after it is recorded might cost $300 to $1,000. Other charges include getting art printed on CDs, which typically costs 50 cents to 70 cents a copy, plus $1,500 for the designer's fee. Additionally, you will pay for packaging and shipping promotional copies to media. There are advertising costs, as well.

In sum, 1,000 copies of a CD for a new artist can be made for around $5,000. graphicThe label sets up arrangement with retailers both online and off. These retailers buy the album from the label for $7 a CD, or cumulatively $7,000 for that initial 1,000 (and then sell the CDs in their store at whatever amount they wish). So both band and label have invested $2,500 and gotten back $3,500, a 40 percent rate of return. By any trader's standard, not a bad gamble at all.


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March Records: Wolfie, Barcelona, The Waves


Screaming Japanese teenagers

Don't limit your goals just to distributing your bands in the United States, McFadden said. For March, Japan is the No. 1 country where they export their albums, because Japanese music fans are so open to hearing new bands.

A band touring in the United States might get a supportive response from their audience, but when a band goes on a tour in Japan, the response is like "A Hard Day's Night" in the streets, McFadden said. Of the other international markets that he brings records to, France, Sweden, Spain and Italy also are especially intrigued by American independent music.


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It's a long road

Profitability can take years. McFadden has been able to support himself full time through his label only since 1998, almost seven years after he began it. You must commit to the business for the long haul, he said. "Really, you can make more money working at UPS."

The long hours, simultaneous day jobs and slim profits nearly forced McFadden to throw in the towel a couple of years graphicago.

The market for American independent labels was stronger before 1995, then slowed as it became over-saturated and there was less free publicity from smaller music magazines, he said.

The way to make your label garner that much-needed attention is to find a niche and seize upon it, McFadden said. In March's case, the label is now associated with smart, catchy pop music.

What's indicative of the success of any one given label is that there is a demand for a certain kind of music that is not currently being filled either regionally or in a certain genre. What determines your success is whether you are able to identify and meet that demand through the kind of music you offer.

Restored faith and a new distributor for his label helped him stay in the game, he said. Having a March online music store, Futurepopshop, helps make selling more efficient.

"It's so rewarding to take these bands from zero to a ton of people, to see that happen. It's nurturing them along, it's like having kids," he said. "Most people lose that love for what they do.

Lookout! Records

How do you have an independent label that succeeds? Find something not being done and do it yourself, said Christopher Appelgren, current president and owner of Lookout! Records.

Lookout! was formed in Berkeley, Calif., in 1988 by two young music fans, who were involved with and looking to document and draw attention to the up-and-coming punk bands centered around the Gilman Street Project, an all-ages cooperative venue.

The music was melodic, frantic, and passionate enough to inspire devotion among young fans and establish it as a genre distinct from other hardcore music that was popular at that time in California.

Lookout! began with a series of four short-length vinyl records released in early 1998.

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Lookout! Records stars The Donnas (Courtesy: Lookout! Records)
 
Shortly after, Appelgren, a 15-year-old punk fan, contacted the label about getting free copies of their releases to play on his radio show. At 16, Appelgren started working as a part-time intern and mailroom employee. At 28, he now is the label's president and owner.

Lookout! released Green Day's debut album in 1990 and second album in 1992, and since then has released work by other popular bands such as Mr. T Experience, Samiam, Neurosis, Bratmobile, Groovie Ghoulies, and the label's current stars, The Donnas.

In 1995, the label saw its popularity change substantially when Green Day released a third album through Warner Bros. imprint Reprise Records. "Dookie" sold 15 million copies worldwide and drew significant attention to the band's former label.

graphicInstead of drastically expanding to accommodate their larger audience, Lookout! decided to be specific, limit the number of bands that it distributes, keep things personal and focused, and retain the fan base that it has spent 13 years building up.

Lookout! also decided to purchase its own building last year where the company has offices and the warehouse of its entire catalog.

The company distributes eight or 10 bands at a time and maintains a back catalog. It makes a point of not representing more bands at a time than employees can talk to in a day, Appelgren said. Lookout! graphichas 12 full-time employees and anywhere from one to three interns at a time.

Day to day the staff is involved with direct sales, mail orders, distribution, schedules, some bookkeeping, some marketing and promotion, although they also work with outside accountants and promoters.

They try to keep 9:30 a.m.-to-5:30 p.m. hours, but often end up coming in earlier and leaving later.

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Lookout! stars Bratmobile (Courtesy: Lookout! Records)
 
They put out about 19 releases in 2000, mostly full-length CDs, but some shorter length EPs and some re-releases of old stuff, which by their nature, don't require promotional costs and are therefore cheaper. Like March, Lookout! also advocates inexpensive sampler compilation CDs. Appelgren estimates that the company will release about 15 to 19 recordings overall in 2001.

At large, mainstream labels, companies use big successes to pay for losses incurred by unsuccessful flops, Appelgren said. For Lookout! there is no such thing. Because expenses are kept modest, a band that sells only 2,000 or 4,000 copies of an album still can see a profit.

For them, producing 1,000 copies of an album costs about $7,000. They have an advertising budget that they divide between punk and independent music media and more mainstream sources, like MTV, for whom a few of the better-known Lookout! bands shoot music videos with the hopes of getting attention.

graphicRetail buys the CD for $9, or ultimately $9,000. The label split costs and profits 60/40 in the band's favor, an unusual choice for any business, but one that Appelgren sees as essential to the label's longevity. He believes new artists will be attracted to the label because it offers them a more reasonable shot at supporting themselves full-time as musicians.

Appelgren believes that the company has carved out a niche for itself, the knowledge of which drives him from day to day. By keeping the old catalog available, the company has the guardianship of where they've been, he said.

graphic"Art balanced with commerce is the company motto," Appelgren said. "We are committed to being true to the art of the music, but we also recognize that we are making a product to be sold."

While none of the employees are pulling in mega-salaries, they all are able to support themselves and work full-time distributing music.

"It's not the kind of thing to pursue if your concern or expectation is to draw a salary right away, 'cause this is definitely a labor of love kind of job," Appelgren said. You can find a different kind of job in the music industry structure that pays a lot more, he explained.

"You don't do this for money" he said. "You do it to put out bands that you love and hope that the world responds." graphic





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.