Record companies gamble on digital labels

Tuesday, December 27, 2005

Even in today's iPod music scene, it's hard to say how far the all-digital strategy might take an artist.

LOS ANGELES -- In 1978, Devo frontman Gerald Casale spotted his band's debut LP in a record store bin for the first time. He was struck by an undeniable thought: the band had made it.

"It's what you've been busting your butt for and finally, it happens," Casale said.

Seeing the latest release by his new group hit a virtual bin as a digital file on Apple Computer Inc.'s iTunes Music Store was less than exciting by comparison.

"This time it's like window shopping," said Casale. His new music is distributed by Cordless Recordings, a new breed of label that has dumped CDs and other traditional formats in favor of offering music only online.

The strategy is meant to cut the cost of catapulting a new artist to fortune and fame by tapping the medium where young fans are finding music -- online.

"When you look at the cost of a major label signing an artist, it costs about a half-million dollars," said Jac Holzman, who founded Elektra Records in 1950 and now oversees Cordless, a unit of Warner Music Group. He said Cordless does it for "significantly less," but wouldn't be more specific.

Even in today's iPod-centered music scene, it's hard to say how far the all-digital strategy might take an artist. There's no CD box, no liner notes and little in the way of traditional promotion.

But one thing's for sure, digital music sales are growing.

They are projected to double in the United States this year from the $189 million generated in 2004, said Michael Goodman, senior analyst for the Yankee Group. The average number of tracks downloaded by each consumer has, however, stayed between seven and eight since the second quarter of 2005, he said.

CDs still account for 95 percent of all music sales. So it's no surprise that many artists consider online releases not a ticket to fame and fortune but rather a means to land a deal for a CD.

"In all practical purposes there hasn't been an artist that has only broken online, there has always been some sort of other tie-in," said Matt Kleinschmit, an analyst with the Ipsos Insight market research firm.

While a few major artists such as Prince and a number of independent bands have put their music on the Internet to lure fans, major labels have stuck to the CD as their main means of distribution.

With so many portable music players on the market, and blogs and music-oriented social networking sites such as MySpace.com and PureVolume.com proving key vehicles for music discovery these days, the industry saw an opportunity to buck that strategy.

Cordless has released online "clusters" of two or three tracks by each of its six artists. The label, launched last month, emphasizes speed to market and spending money to promote artists rather than the manufacture of CDs.

"When an artist is releasing an album, every two years would be amazingly speedy," Holzman said. "When you're coming out with a cluster every three to four months, the flow of money is fairly continuous, and I think that's better for an artist."

Artists signed to Cordless also get to keep the rights to their master recordings, a rarity for neophyte acts.

"In those old deals, record companies owned your masters in perpetuity," said Casale, whose new band is called Jihad Jerry & The Evildoers. "They were pretty nasty deals."

Since its launch a year ago, Universal Music Group's UMe Digital has put out several online albums, extended play recordings and singles by artists such as The Posies co-founder Ken Stringfellow and singer-songwriter Will Owsley.

"The philosophy is to get artists who have a fan base and continually tour and just give them an avenue where they can release music on their timetable," said Jay Gilbert, senior director of new media for the label.

Without having to pay to make or ship CDs, the label can focus on promoting artists.

In a sense, Cordless and UMe Digital function as incubators for artists who might someday get a shot with a traditional major label.

"We want to get to that level," said singer James Sparber of Brooklyn-based Breakup Breakdown, a rock band signed by Cordless.

Stringfellow, who built a following as an Indie rock pioneer, said the all-digital approach hasn't been a perfect match for him.

"Most folks don't know about it," Stringfellow said. "But I thought it was worth a shot, as I could direct my fans to it via my Web site."

UMe Digital and Cordless releases certainly aren't breaking any sales records. A cluster of three songs by Casale's band had been purchased 49 times as of Thursday, while Stringfellow's EP on UMe Digital were purchased 70 times, according to Nielsen SoundScan.

But that's not fazing executives who say the format is not meant to totally replace CDs -- at least not yet.

Gilbert says UMe Digital's expectations for sales were not high when it launched because some of its artists -- Stringfellow included -- were also selling CDs at their shows or elsewhere.

Executives at both e-labels say they are gauging success in other ways, such as how much online buzz an artist generates online.

For Casale, however, success is still defined by seeing his music on CDs in record store bins.

"That's the logical conclusion," he said. "People want objects. It's a fetish."


Cordless Recordings: http://www.cordless.com/

Universal Music Group: http://new.umusic.com/flash.aspx

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