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Indie record labels seeing gold

iTunes pay hike, major label's "payola" scandal leave indie music labels feeling like playing field is leveling at last.

When Don Rose stood to speak Monday night to the 75 independent record label executives gathered at Los Angeles' Knitting Factory club, he had almost an embarrassment of good news.

Earlier that day, New York Attorney General Eliot Spitzer had settled with Sony BMG Music Entertainment over charges of "payola"--essentially that the major label had paid radio stations to play its music. Independent labels had long complained that these under-the-table practices had kept their music disproportionately off the airwaves.

But Rose, who was addressing the first West Coast meeting of the American Association of Independent Music (A2IM), a new trade group for independent labels that he heads, also had more immediate news. After years of small labels being given less money than big labels for their products, both Apple Computer and Microsoft were at last agreeing to provide indies with a greater cut of the profits from online music sales, he said.

News.context

What's new:
Sony BMG's "payola" scandal, plus more money from iTunes and Microsoft, is leaving independent music feeling like the playing field is leveling at last.

Bottom line:
Critics of the payola scheme have said that major labels' ability to pay to have their music played has kept independent music off the air--and that indie labels are now in the best position they've been in for years.

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"Not to take any specific credit, but I think this does demonstrate the power of a collective approach," Rose, whose month-old group has barely begun work, said in an interview Tuesday morning.

The surge of headlines has left many in the independent label community feeling that they may be in the best position they've been in for years, with the playing fields both online and on the airwaves finally approaching something like level.

"I think we went from being invisible to being very quickly recognized in the market," said Peter Gordon, president of Thirsty Ear Recordings. "If you look at the confluence of factors in the market, you have the majors retreating and trying to develop a strategy, and you have indies being able to expand in the market."

With a direct effect on small labels' often-fragile bottom lines, the pay hikes from Microsoft and Apple's iTunes will be immediately welcomed. The news comes after years in which independent labels had complained about being treated as second-class citizens by the big digital music services. A2IM was formed in part to lobby for more equity with the big labels.

Rose and other sources in the independent music community said Apple was planning to raise indie labels' reimbursement for individual sales to 70 cents per song, up from 65 cents. Some of that money goes to pay publishers, as well as record labels and the artists themselves.

Details of Apple's contracts with individual labels are not made public, but big record labels are generally viewed as retaining a slight financial advantage over independents, due to their bigger bargaining power.

Microsoft has also agreed to bring small labels as close to parity with the majors as possible, both for its existing download service and the subscription service it plans to launch later this year, Rose said.

"The indie music sector represents much of the cultural diversity throughout numerous genres in the music industry," Mike Conte, general manager of MSN Music, said in a statement. "We're working with A2IM to resolve delivery and administrative issues in order to level the playing field for indies in relation to the larger music companies."

According to A2IM, independent labels account for 27.5 percent of music sales in the United States, and up to one-third of online listening on Internet radio and other venues. They've previously seen their reimbursement inch up as a result of working with content aggregators such as the Independent Online Distribution Alliance, The Orchard and the Digital Rights Agency.

Leveling the airwaves?
Sony BMG's settlement with Spitzer's office will have a less direct, but potentially valuable, effect for some independent labels that see their music as a candidate for exposure on mainstream radio stations. Critics have said that major labels' ability to pay to have their music played has kept indie music off the air.

"I think we went from being invisible to being very quickly recognized in the market."
--Peter Gordon, president, Thirsty Ear Recordings

Much of this criticism has been conjecture in the past. But the Sony BMG documents made public by Spitzer's office Monday expose a wide range of payoffs to stations, often in what seem to be trivial amounts for individual DJs, but amounting to potentially millions of dollars over time.

The payments often came in creative forms, such as providing the station with "contest prizes" such as digital cameras, laptop computers or concert tickets, which sometimes found their way to DJs. In one case, an executive suggested getting a DJ's shoe size, sending one Adidas sneaker right away, and sending the second shoe of the pair after a particular song had been played at least 10 times.

E-mails from Sony BMG and its subsidiary labels made it clear that executives were aware of the ongoing practices.

"Two weeks ago, it cost us over $4,000 to get Franz (Ferdinand) on WKSE," reads one e-mail released by Spitzer's office, talking about wooing a radio station program director named Dave Universal. "This is what the four trips to Miami and hotel cost."

Some of the practices outlined in the e-mails have already been curtailed in part by stations. Radio giants Clear Channel and Infinity Broadcasting have cut ties to independent promoters," a class of middlemen who are often accused of funneling payments between labels and radio stations.

Universal, the Buffalo radio executive cited in one of the Sony e-mails, was dismissed earlier this year for improperly receiving travel packages from label executives, according to a report in The New York Times.

Commissioner Jonathan Adelstein of the Federal Communications Commission called for federal scrutiny of the labels' practices.

"We've seen a lot of smoke around payola for a while, but now we know it's coming from a real fire," Adelstein said in a statement. "It's time to dump a bucket of cold water on it...We need an immediate investigation to determine whether these practices violate federal payola laws."