Label changes its own tempo

Talk about a peculiar way of celebrating a worldwide smash hit.

In 2006, Downtown Records was just a scrappy indie start-up label with a skeletal staff of four working out of the chief executive’s downtown Manhattan apartment. Enter hip-hop-rock-soul duo Gnarls Barkley, whose work was Downtown’s first release. Inside of a few months, the group’s infectious single “Crazy” had become the feel-good hit of summer, hitting No. 1 in the U.K. on the strength of downloads alone and landing simultaneously on more charts than any song in Billboard history. Its album “St. Elsewhere” went platinum, ultimately netting Gnarls two Grammys.

Then reality, for Downtown executives, set in.

“We knew the architecture of the music business had to change,” said Josh Deutsch, the label’s chairman and co-founder. “Even under the best start-up conditions possible, we foresaw terrible stress and challenges. So we imagined what a music company should look like amid a fast-changing business climate and rapidly evolving consumption patterns.”

Today, in an increasingly desolate music industry landscape, at a time when slumping sales have decimated the number and ranks of record labels, Downtown Records provides a rare bit of sunlight. The New York-based label boasts one of the densest concentrations of hipster-friendly, blog-anointed artists of any roster in modern music -- French electronica superstar Justice, genre-splicing hip-hop/electro rocker Santogold and Angeleno buzz band Cold War Kids among them -- and is branching out into creative partnerships with ad agencies and movie companies in ways unthinkable a generation ago. Moreover, Downtown is growing by subverting the standard business model: by giving music away for free.

The self-described “major indie” is certainly turning a tidy profit, with gross revenues north of $25 million annually, according to industry sources. And to hear it from industry observers, talent managers and Downtown recording artists, the label’s digital distribution methods and emphasis on leveraging its acts’ publishing rights has shifted the proverbial paradigm.

“More than any other label, Downtown has created this buzz about itself,” said Josh Eells, senior editor for Blender magazine. “They’ve carved out a niche as a taste-making label.”

--

Publishing rights

Time was when sales of recorded music and the administration of musical publishing rights were as separate as church and state. Within a system in place for more than four decades, labels like Interscope or Warner Bros. made outrageous fortunes selling musical recordings, while publishing firms like Warner/Chapell Music or Hitco Music Publishing controlled the rights to the songwriters’ underlying compositions. And seldom did corporate entities with a common interest -- maximizing song sales -- ever cooperate.

After being in business together just six months, Deutsch and Downtown co-founders Terence Lam and John Josephson set to work tearing down the walls. Their big idea: not only to manage artists’ recorded music but also its publishing to create new synergy.

“We realized being in the recorded music business was not enough,” said Josephson, managing director of the investment banking firm Allen & Co. who plunked down his own cash into Downtown’s start-up. “We knew we had to broaden the rights stream.”

In an era when radio airplay is hard to come by -- but when the quantity of songs licensed for television and the movies has gone through the roof -- Downtown signs every one of its acts to publishing sharing agreements. For now, this lucrative infrastructure remains unique in the industry, insofar as most labels gave up the practice of demanding publishing during the Age of Aquarius.

Add to that Downtown Music Publishing’s catalog of some 3,000 songs, including compositions from “High School Musical 2” and “Hannah Montana/Meet Miley Cyrus” as well as ownership or control over songs by Aretha Franklin, 50 Cent, Mary J. Blige and Kanye West, among others. “It allows us to capture a source of revenue in a market where recorded music is declining by about 20% a year but publishing and licensing is increasing at about the same rate,” Deutsch pointed out.

--

Creative partnership

When it came time for buzzworthy Chicago rapper Kid Sister to choose from among three labels maneuvering to sign her, her manager, Peter Katsis of the Firm, was forced to consider several so-called 360 deals -- which obligate an artist to share revenues from touring, merchandise and fan clubs with the label (as opposed to simply allowing it to sell music) in exchange for a more concerted marketing push.

Then Downtown stepped in with a counter offer they couldn’t refuse. “Downtown doesn’t take what rightfully belongs to the artists,” Katsis said. “The major labels want 30% of your income but they won’t do anything for it. “

Likewise, the imprint’s thinking-outside-the-bun marketing strategies persuaded Santogold to sign with the “major indie” over a major label. “I’m signed with a major, Atlantic, in the U.K. . . . and their approach is very calculated,” Santogold explained in an e-mail. “Downtown’s approach is a lot more loose and organic. The plan seems to be to let the project grow more organically, from the ground up, so that it really takes root and earns a real audience.”

Exhibit A: Through an informal creative partnership with ad firm DDB, Downtown managed to place Santogold’s music in several ads for Bud Light Lime that began to air just days before the singer’s album came out.

--

A label like a blog

Downtown executives’ entrepreneurial epiphany No. 2: Fans are going to share files and avoid paying for music one way or another. Why not try to monetize the experience?

Toward that end, the label created RCRD LBL, a joint venture with Peter Rojas, founder of the popular online community Engadget. The site offers free MP3 downloads from up and coming acts, label signees and such high profile, non-Downtown affiliated artists as Arcade Fire, Spoon and Lee “Scratch” Perry in exchange for having its Web audience sit through short commercials by corporate sponsors. “That seems to be the smartest thing [Downtown] is doing,” said Blender’s Eells. “Blogs are killing labels. Music fans have decided they’re not going to pay for music. So [the label] decided the best thing to do was have a label that functions like a blog. They seemed to jump on that early.”

Earlier this month, Downtown Music Publishing struck up a partnership with the Film Department, a movie production company operated by former Warner Independent Pictures president Mark Gill, to place music in films. And now the label is hooking up “The Rebound” (starring Catherine Zeta-Jones) and “Law Abiding Citizen” (with Gerald Butler) with cutting-edge sounds.

--

chris.lee@latimes.com