Creating Culture Around Music... Not Profit
Representatives from two Independent record labels say their futures look bright despite the pressures larger labels might be feeling from Wal-Mart. 
Wal-Mart currently controls roughly 22 percent of the retail music market making it the largest in the industry, until now. According to a study released by the market research firm NPD group, iTunes is now the largest music retailer in the U.S. without selling one piece of physical merchandise.
In response, Wal-Mart is now putting pressure on its music suppliers to reduce their wholesale prices so that they are able to sell compact discs for an average of $10.
Although the effects of this new pricing system have yet to be determined, independent record labels say their business will most likely go unaffected.
Eric Mast, owner of the independent record label Audio Dregs, which is stationed in Portland, Oregon, said since digital distribution like iTunes is growing, it’s easier for smaller labels to become widely known, which is attractive to many audiences.
Mast says he is not concerned with losing audience because independent labels satisfy a totally different audience than larger labels that are sold in Wal-Mart warehouses.
“They’re way more inclusive,” Mast said. “They carry more labels that a big distributor won’t deal with because it’s not worth their time. They’re not going to ship physical product around if they’re not going to turn a big profit.”
Since iTunes reaches consumers directly, their cost of distribution is minimal. Mast said this makes it easier for them to provide unlimited content thus reaching a larger audience.
According to Billboard, iTunes' music download revenue at $1.9 billion last year and $2.7 billion in 2007. Its profit margin is reportedly 30 percent.
Maggie Vail, vice president of the independent label KillRockStars, which is also out of Portland, said her label has tried to get artists’ albums sold at Wal-Mart but their attempts were not successful.
“We couldn’t seem to get their attention,” Vail said chuckling.
Her label does however do business with iTunes, Amazon.com, Best Buy, etc. She said they have felt some pressure to reduce their profit margins from the larger retailers with the exception of iTunes.
“iTunes doesn’t give any pressure at all,” she said. “ And I don’t think (larger retailers) understand that dollar or two is our profit. What they’re asking us to eat is any money that the bands or label would make.”
While larger retailers are pushing labels and distributors to reduce their profits, Vail said these corporations will be retaining their own profits.
“They must be because why else would they keep space for music if it wasn’t profitable,” she said. “They’re huge corporations, they don’t do thinks just to be nice.”
Vail said digital sales are becoming a larger part of there business, which she says is a good thing. She says in the future digital sales will also reduce the labels operating costs as well.
“We haven’t yet adjusted for that,” she said. “In the past six months, we’ve seen a trend in new artists having a larger digital portion.”
She said eventually the label will reduce the amount of cds they will have pressed but details are not being discussed as of now.
Mast said there is a cultural rift between corporate labels and small independent labels. One of the major differences is the distribution of profits. Both Mast and Vail’s labels work on a 50-50 profit split scheme with their artists. Artists on larger labels typically see less than 3 percent of the profit from their music, according to Vail.
“We’re not in the business for monetary reasons,” Mast said. “We do it because we’re into music.”
Both Vail and Mast have been in the music industry beyond owning and operating their labels for more than a decade. Mast’s brother, Evan, is a member of the group Ratatat, which has gained a large “cult” following over recent years. Ratatat began on Audio Dregs, with Eric producing and mixing. They have now gone on to a larger label.
Vail said in addition to being vice president of the label, she is also musician as is her husband.