They Are Going to Need Help

As independent record stores struggled with the effects of digital technology, entirely new types of record stores popped up online. Matt Wishnow worked at Elektra Records in the mid-’90s as the World Wide Web was just gaining its sea legs and finding a popular base of users. With two business partners, he founded Insound, an online mail order store that centralized distribution of music, band merchandise, fanzines, and books that primarily dealt in independent culture and independent labels. It was a website where fans could find items too obscure for their local record store to carry, delivering on the Internet’s promise of convenience.

From his office in Insound’s Greenpoint, Brooklyn loft space, Matt explained how his business had intersected with the rising tide of digital piracy through the 2000s, where he saw the digital retail business heading, and whether the direct-to-fan possibilities offered online meant that DIY was the future for serious artists.

When MP3s were brand new, I knew that our business benefitted from file sharing. At the time, I was interviewed a lot and I’d say, “I’m going to speak out of both sides of my mouth on this.”

On the one hand, I can’t imagine Death Cab For Cutie, The Shins or Modest Mouse being what they are without some version of file sharing. Insound has some of the most motivated music consumers in the world and we just did a survey of our consumers. The low-end spends $40 to $60 per month, the high-end spends hundreds of dollars every single month and obviously a lot of that is physical music. So I knew that the crossover between Napster, Audiogalaxy and Insound was that we had people who were becoming more motivated to buy specific things. Obviously, the ratio of downloads-to-buying was nowhere near one-to-one, but we were getting business from that discovery of music.

On the other hand, I realized piracy was socializing a way of music consumption that was going to have potentially devastating impacts on music listeners and musicians. I didn’t totally know what it would mean, but I knew that it was pretty scary.

There are music businesses forming—one is for ubiquitous product that people want to pay nothing for, and even if they pay something it’s not because they think it’s something worth paying for, but because it’s convenient. Then there are the people who will want to develop that relationship with a band and will pay hundreds of dollars for vinyl, tickets, something limited edition. Those are the two businesses that are being hatched that I see.

Vinyl was less than 10 percent of sales when we started and CDs were 90 percent. We also had a small business of ‘zines and books—but that whole business became blogs. Vinyl went from 10 to 20 percent the first few years. Then, five years ago in 2005, vinyl jumped close to 30 percent. We were about to launch our digital store and I thought, ‘Hmm, something’s happening here…’ Today, we are 60 percent vinyl sales—the biggest vinyl store in America and probably the world. CDs have dropped from that high of 90 percent down to 12 percent, two-to-three percent is digital sales, and the rest is merch, turntables, and books.

I think 360 deals are a necessary step for the industry, because the artist’s direct-to-consumer relationship is going to be a bigger part of the artist revenue stream. Artists will require labels or other companies to shepherd that business. Some artists can do DIY stuff, but if you’re talking about millions and millions of dollars a year… artists didn’t get into music to run the best artist web store or the most streamlined t-shirt printing company. They’re going to need help doing that. And I don’t believe that perception that major label artists don’t get royalties, it doesn’t apply to indie artists very well. I see that many major label artists don’t recoup their advances, but that’s because they get enormous advances! And advances basically are royalties paid before they’ve even recorded anything. The idea that the artist isn’t getting any money is a fallacy, total fallacy. That’s especially true for indie bands who don’t get those big advances.

Insound used to own an indie label called Tigerstyle Records until 2000, and we cut royalty checks to bands to this day! We gave very small advances, so if one of our bands sold a few thousand copies they could be recouped against the advance very quickly. Historically, especially in the ‘50s and ‘60s, there were fly-by-night labels who wrote onerous contracts or just flat out never paid artists, but record companies today are public companies so they get audited and have a responsibility to their investors. Royalty administration is incredibly important. There is definitely a perception that record companies are bloated, overspending and overstaffed. They are easy targets. A lot of their expenses can be recouped against royalties, so in the ‘80s and ‘90s when videos were expensive, radio was expensive, getting a record into retail was very expensive…. The cost base was so high that it was very hard for an artist to recoup.

But the industry has changed. Thousands of people have lost their jobs, MTV and the role of the music video is nowhere near what it used to be… so you don’t see those million dollar videos anymore unless a corporation is sponsoring it. I know so many indie managers where the most important relationship they have is with advertisers.

And look, if the advance is big it takes longer to recoup—period. Without royalties and without label advances the future generations of bands’ careers in music become a lot more suspect. Again, most musicians don’t decide to form a band so they can run their own LLC.