Seagram’s Losses, Indies’ Gains?

Is the next big thing about to get axed in the Universal Music blood bath?

Independent label owners hope so. They are circling the carnage like buzzards, scrambling to identify which recording acts will be slashed as Seagram Co. combines its Universal Music Group with PolyGram, which it purchased last year for $10.4 billion.

With nearly 250 acts headed for the chopping block, it is inevitable that at least a few of the artists discarded by Seagram will resurface and make a splash elsewhere. Independent labels are lining up to exploit Seagram’s mistakes.

“There is a lot of talk about how this consolidation is going to destroy the independent spirit of the music business, but I don’t buy it,” said Jeff Matlow, owner of tiny Santa Monica-based Crank Records. “The merger creates a fantastic opportunity for indie labels and is a blessing in disguise for bands getting cut.

“Seagram has so many stars on its roster now it can no longer afford to focus resources on acts that don’t deliver big numbers. That opens the door for indies like us, who can devote the time and energy it takes to develop a baby band without worrying about Wall Street breathing down our necks.”

Independent labels, which account for nearly 16% of records sold in the U.S., are the proving grounds for scores of musicians--including such stars as R.E.M. and Nirvana--whose talents and vision did not initially fit into mainstream companies. Because independent labels need to sell far fewer albums to turn a profit, they are in a better position to encourage artists to take the time to hone their writing and performance skills over the course of several albums.

Major labels, by contrast, typically invest between $500,000 and $1 million in an act before the first album hits the street, so the pressure on artists to deliver immediate results is immense. Because majors need to sell more than 100,000 copies of an album to break even, the priority at Seagram and other publicly owned record companies has shifted from building long-term artistic careers to harvesting quick-turnaround blockbusters, critics say.

Universal recording executives say acts are being evaluated primarily on the merits of musical potential. Sources inside several Universal labels say that many of the bands being purged from the rosters are not only sluggish sellers but lackluster talents. Still, executives privately concede that some unrecognized talent could slip through the cracks during the downsizing.

Most of the acts being cut, such as Pitchshifter, are little known, but sources said the list may include several high-profile stars who aren’t selling well, including Morrissey and Paula Abdul.

Dislocated artists aren’t the only booty suddenly available to independent labels. Last month, Universal fired 500 record-label employees--including several top executives--when it began consolidating 15 labels into four major U.S. music groups. Before the year is over, about 1,200 laid-off music employees are expected to flood the U.S. job market.

For music companies, one anticipated benefit of the downsizing is its impact on the price of talent for both artists and employees.

“It’s going to turn into a buyer’s market out there,” said TVT Records President Steve Gottleib, who hopes to scoop up a dozen new employees and an act or two.

“We’ve been out scouting for executives and artists since the first day the news leaked about the merger,” Gottleib said. “And this is just the beginning. There’s going to be enormous shareholder pressure on Seagram’s competitors to develop similar economies of scale in their operations. That will cause more dislocation, which in turn, will drive prices down even further.”

The primary reason independent labels can profit by selling fewer albums is that they are notoriously cheap.

Unlike major companies, independents do not typically allocate money to produce videos or market records to radio stations and retail outlets. Nor do they budget liberally for studio costs and tour support. And while indies often offer artists higher royalty rates, they rarely underwrite cash advances to help artists survive while they try to build a following.

That’s how a company such as Crank--home to such budding acts as Vitreous Humor and Mineral--can sell a fraction of what a major sells and still turn a profit.

Crank, which last year generated about $300,000 in revenue, operates with three employees out of a 1,000-square-foot office on Pico Boulevard. Crank has released about 30 recordings over the last five years through retail and mail-order, none of which has sold more than 20,000 copies.

Keeping a lid on costs has also benefited Fish of Death, a 4-year-old indie label run by three employees in a cramped, 500-square-foot office in Hollywood. Owner Michael Andelman said the company makes more than $200,000 a year selling recordings, managing bands and discovering talent for such major labels as Geffen Records.

“Acts that can sell between 10,000 and 20,000 records slip right under the radar of the major labels,” said Andelman, whose label discovered Jude, Five Easy Pieces and Andy Prieboy, composer of the musical “White Trash Wins Lotto.” “That’s why the trickle-down effect from this shake-up should be fantastic for the indies.”

Allen Kovach, owner of the recently launched Beyond Records in Los Angeles, said he plans to snap up a handful of acts dropped by Universal in the months ahead.

“The consolidation gives indie labels the chance to sign dropped artists with small fan bases that can generate cash flow to give you time to build your roster,” Kovach said. “If you can pick up six artists who each sell about 100,000 units, that will give you about $6 million in billing and instantly ignite your company.”

Some industry critics question why an artist dumped by a major would sign with an independent, when there is a growing possibility that the traditional record business will become obsolete.

Thanks to recent advances in digital technology, artists can record state-of-the-art music cheaply and deliver recordings directly to fans’ homes via the Internet or mail-order. Successful folk singer Ani DiFranco has already proved that an artist can form her own label and earn twice what she would be paid elsewhere.

“It’s true that a number of artists will probably launch their own labels in the future, but I don’t necessarily think that’s a good idea,” Fish of Death’s Andelman said. “Musicians tend to be more artistically driven and art and commerce frequently butt heads. There’s a lot of grunt work involved in running a label that most artists would not want to do. In the end, it’s usually better for artists to focus on what they do best: making music.

“That’s why labels that stay small and independent will benefit big-time from all this consolidation. We offer a real alternative not just to the artists who are getting dropped, but to brand-new, unsigned artists who are nervous about getting chewed up in the emerging corporate order.”