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[09 January 2007] [fr. Nashville Tennessean 26 Dec 06]
SONY EXECUTIVE GOES INDIE - AS CD SALES DIVE, MONTAGE CHIEF SAYS HE CAN BEAT THE ODDS
In an era when a major music company executive like EMI's Alain Levy declares that the CD "is dead" — as he did before a London audience in late October — it might seem like a terrible time to start a new record company.
But for Allen Butler, who had served as Sony Music Nashville's president and CEO for nearly a decade before getting downsized in 2003, the overall weakness in the music industry has presented an alluring opportunity to start a record label and jump into the Music Row fray.
"When the blood's in the street, that's usually a good time to get into something," said Butler, who in June announced the launch of Montage Music Group, a 10-person, investor-backed record label in Nashville. About a dozen other viable independent country labels, including success stories such as Broken Bow Records, Dualtone and Equity Music Group, have cropped up on Music Row in recent years. In the latest Billboard country radio chart, for example, five of the top 15 songs are from independents.
Butler's experience with Montage typifies the daunting challenges — as well as the potential rewards — that come with trying to establish a new company in an industry whose future direction isn't clear. It was tough for Butler to secure an investor, especially since his potential artist roster didn't include any household names and he doesn't expect to turn a profit for at least three years. But starting a label gives Butler and his team the freedom to develop artists that Montage feels passionate about, while possibly setting the company up for a lucrative sale at some point, or at least healthy returns if all goes according to plan.
Music sales in decline: Recent music sales statistics should be enough to scare off all but the most steel-stomached entrepreneurs. Annual music sales in the United States, including digital, have dropped by about $2 billion, or roughly 15 percent, since 2000, according to the Recording Industry Association of America. Meanwhile, Nielsen SoundScan's latest figures indicate that 2006 will see overall album sales drop about 5 percent from the previous year.
For Butler, numbers like those served as a sort of cold, stiff wind in the face over the course of a two-year, cross-country sojourn to pitch investors on the idea of starting a new Nashville label. "Every time I'd walk in and do a presentation, these guys would pull out a Wall Street Journal and just kill me," he said. "They'd start beating me over the head with it — well, what about this?"
Worse, Butler said, very few of the people he met had any idea of how the music industry operated, asking things like whether they could sign blockbuster acts such as Garth Brooks, Dolly Parton or Toby Keith to gain instant credibility. "I was running out of energy and running out of money. Plus, I was tired of running to Kinko's to make copies of a business plan that most people never read," he said. "We were starting the company from brick one, and we didn't even have a brick yet."
Then, in April, Butler was asked to a lunch with representatives from Hedgewood International, an off-the-radar investment company in suburban St. Louis, whose owner, an attorney named John Simmons, was interested in getting involved with the music business. A week after that meeting, Butler received a call from Simmons himself, who did not attend the earlier meeting, saying that he would like to take him to a Cardinals baseball game. Simmons invited Butler to spend the night at his house in Illinois, just across the river from St. Louis.
"We sat in his kitchen and talked all night," Butler said. "I told him everything I knew and everything I had done in the music business. Then, about 4 o'clock in the morning, he said: 'What's this going to cost?' I threw out a number and he said, 'OK, let's get into business together.' "
Payoff could take years: Butler declined to say how much money Simmons invested in the label, although he indicated that it was significantly higher than the $5 million that the first version of his business plan called for. It's also been enough to pay $1.6 million for the former Hamstein Publishing Building on 18th Avenue South on Music Row, to hire a staff of 10 that's expected to grow to 14 or so, and to sign three acts — Little Texas, Andy Griggs and Minnie Murphy.
Beyond simply making and selling records, Montage will handle publishing and artist management services as well, which Butler said should generate some early returns while the artist roster develops. Still, he doesn't expect Montage to make a profit for at least three years.
"It's not like you're going to write me a check and six months later, you'll be getting a return on your investment," Butler said. "If you're really lucky, you'll be getting a return in three to five years, but it won't be that much. What you're doing, though, is building up equity in the company through the catalog and the publishing."
Success at a startup label is hardly guaranteed. Broken Bow, the label home to chart-toppers Craig Morgan and Jason Aldean, opened its doors in 1997, although it did not have a real breakthrough hit until Morgan scored a top 10 single in 2003 with "Almost Home." Since then, the label has been "firing on all cylinders," as Butler said.
At Equity Music Group, president Mike Kraski, who worked under Butler at Sony, acknowledged in a 2005 interview with Billboard that Equity faced significant financial difficulties after launching in 2003. This year, one of the label's hottest acts, Little Big Town, was nominated for two CMA Awards.
Failure rate expected: While Butler knows what can happen to a record label — big or small — when the business cycle takes a nosedive, he thinks the time is right for a wave of new independent labels to have an impact here. "Nobody in their right mind expects all these labels to make it. That won't happen. There has to be some kind of failure rate," Butler said. "But independents in country music are way overdue. There should be a lot more of them."
Although definitive market share numbers are hard to come by, country music sales have traditionally been dominated by the major labels. Overall, though, independents account for about 30 percent of U.S. record sales, according to the American Association of Independent Music. Butler said the talent pool of artists and industry executives is only now large enough to sustain successful independents. "Plus, the money," he said. "The major labels just had control of the industry and didn't want to see independents succeed."
Indies feed the majors: Butler and others noted that in the worlds of pop and hip-hop, independent labels serve as a kind of farm team, feeding the majors pre-packaged stars.
John Beiter, an entertainment attorney in the Nashville office of law firm Loeb & Loeb, said independents have begun to hold so much sway in the rock world that it's sometimes a toss-up when advising clients whether to sign with a major label. "Not that long ago, that was never a question. Of course, you wanted to see a deal with a major label happen," said Beiter, explaining that hot upstart groups now tend to work their credibility with an independent label before signing a more lucrative deal with a larger record company.
Music Row has not reached that level, he said, although radio and sales charts are reflecting the growing influence of independents in Nashville. As Beiter puts it, "I no longer tell my county music clients that indies are a dead end."
[ed. McTrow Ltd. 09 Jan 07. By RYAN UNDERWOOD Staff Writer, Nashville Tennessean]
[c. McTrow Ltd. 09 Jan 07]
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