Newsmaker: Independent music: The mouse is roaring

As the dust clears from the music industry's chaotic past few years, one of the emerging winners may be an increasingly strong, united independent music sector.

Despite accounting for close to a quarter of the U.S. music market--between $2.5 billion and $3 billion, at a rough estimate--the indie sector's direct influence over the record business as a whole has long been minimal. But signs of a change in the wind are growing.

Last week, a new indie-label trade group called the American Association of Independent Music formed, promising to wield new collective clout for its members, particularly when dealing with online services.

One person with some experience with this idea is Kevin Arnold, who runs the Independent Online Distribution Alliance. One of the first of a handful of indie label "aggregators," Arnold's company represents a growing number of independent music labels who want their music to be available through Apple Computer's iTunes or RealNetworks' Rhapsody service.

Arnold has been a familiar face in independent music circles for years, as co-founder of San Francisco's 13-year-old Noise Pop music festival and a stalwart supporter of that city's live music scene. Before starting IODA, he worked at Listen.com, leaving the music start-up shortly before its sale to RealNetworks.

His company handles negotiations with the digital music services, giving small labels more negotiating power by grouping them together, as well as providing legal and technology support. It has been an uphill push, but now two years into the business, he says he's seeing indies gain traction.

In part, this is a recognition among the big music services of the importance of the "long tail"--the idea that virtually all back catalog and independent releases will draw a few fans, and that the aggregate consumption of all these obscurities can rival the value of hits. That means the independent labels, which often sell just a few thousand copies of a title, are gaining critical importance online.

CNET News.com talked with Arnold about how the role of independent music is changing in the digital age.

Q: You've been working on behalf of independents for two years now. What have you seen in terms of independent labels being able to negotiate with the big music services?
Arnold: There's a really wide range. It's going to start from "You're not worth it--just sign this contract, if we let you have the opportunity at all." A lot of services are now referring labels and artists to services like ours, or CD Baby. But in general, there hasn't been that much opportunity for indies to negotiate.

I do think subscription services are a good disincentive to going out to peer-to-peer networks and getting music illegitimately.

Still, when people talk about negotiations, they always talk about rates right off the bat. That's something that's a pretty hard nut to crack across the entire industry. There are other areas that can be pushed and pulled on a little more.

If they work through you, or any of the other aggregators, do indies get the same basic rate as the majors?
Arnold: In general, no, they don't.

Is it a substantial difference?
Arnold: It's not like it might have been back in the early days, when there were cases where a small indie might get 20 percent of what a major (label) or even a large indie might have gotten. There were some really obscene types of inequity. These days it's pennies. But pennies count.

What's responsible for that gap closing? Is it the rise of the aggregators, or the fact that indies are speaking up more and their music is viewed as more important?
Arnold: Without wanting to be too crass about it, I think it's partly an acknowledgment from some of the industry that some more fair treatment is deserved. It's partly an attempt to get some of this content on the services and put a friendly face on it. But it's something that still needs to be worked on.

What does the new indies trade association mean for the business?
Arnold: I think largely it remains to be seen. For indies, it has to be a good thing if someone's out there addressing their interests in a proactive and public way. There's certainly potential for it to benefit everyone. To what extent and how far it goes, that's the big question.

Financially, what kind of revenues are independents seeing from digital download services like iTunes?
Arnold: It could range from someone who earns a few dollars to a couple dozen dollars, to midsize indies who earn thousands or tens of thousands a month, to certainly some of the large guys. You have to take into consideration the range of labels. It goes from V2 and TVT all the way down to your girlfriend's brother's band. Some of them probably make as much as some of the majors.

Are small labels making up online what they're giving up in physical sales or what they're losing to peer-to-peer downloads?
Arnold: I don't think you can answer that question extremely

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