For our annual look at independent and DIY artists and businesses, Billboard uncovered the best (and worst) advice to follow -- starting with indie godparents Superchunk and Merge Records.

The first tropical storm of the season is closing in on Chapel Hill, N.C., on this June night, but Mac McCaughan is safe inside, singing about the summer sun. It's actually the running theme of the second half of his June 8 set opening for New Zealand band the Bats. He closes with "Noisy Night" from his group Portastatic's 2003 release "Summer of the Shark" — something of a concept album about the blissfully innocent, slow-news summer that preceded 9/11.

As co-founder of indie-rock institutions Merge Records and the band Superchunk, McCaughan, along with partner Laura Ballance, has made a nearly 25-year career out of finding light at the edge of dimming circumstances. Everything we know about the music industry, rock'n'roll and relationships suggests that Merge and Superchunk should not exist in essentially the same forms as when they began in 1989. That's when McCaughan convinced Ballance, his then-girlfriend, to play bass in his band. Neither of them had any business experience, but they started a label in her apartment, out of which they released 7-inch singles by Superchunk and their friends' bands. Superchunk toured relentlessly as the next big thing that never quite was, the 7-inches turned into CDs by the Magnetic Fields and Neutral Milk Hotel, the label bought a building, then the bottom fell out of the '90s indie-rock gold rush and the record store-based music industry; McCaughan and Ballance broke up.

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And yet, in 2013, Merge is putting out more music than ever — 32 releases this year, compared with 22 five years ago, all without ever selling a stake or even retaining long-term rights to its bands' masters. The label has earned an album of the year Grammy and a No. 1 on the Billboard 200 thanks to Arcade Fire, and top 10s from Spoon and She & Him. Merge's year-to-date current-album market share through June 16 of 0.19% is a fraction of the biggest indies like Glassnote (1.96%), but higher than peers like Sub Pop (0.15%), which sold a 49% share to Warner Bros. in 1995.

Superchunk's primary lineup — McCaughan, Ballance, guitarist Jim Wilbur and drummer Jon Wurster — is still intact, and will release its 10th studio album, "I Hate Music," on Aug. 20. And McCaughan and Ballance, now both married to other people, still work together daily in Merge's airy, honey-toned two-story Durham, N.C., storefront. The story of what McCaughan and Ballance and their collaborators have done to endure and thrive is as much about what they haven't done, especially when everyone else was doing it.

From the beginning, Merge's plan wasn't about plans — it was about rational decisions that kept the label operational and rewarding from one day to the next, even when human nature would suggest implosion. "In the earlier days, when we had personality conflicts, like when we decided to break up, what kept it together was that the label and the band were separate projects that had a lot of value on their own," Ballance says. "Independent of our relationship, they had artistic and intrinsic value not just to us but to other people." In their case, McCaughan says, that has been enough to push through personal conflict, because "with Laura and me, and also Jon and Jim in terms of the band, there aren't any super volatile personalities involved. There's no crazy person leading the way."

Financially, when Merge launched, "there wouldn't have been anything to fall apart," McCaughan says. "It was in Laura's house. There was no overhead—it was like, 'Press these records, sell these records, and pay for the next records.' In the time where there was the least money, there didn't need to be any more money than that."

"Also the fact that we stayed here and didn't move to New York," Ballance adds. "Everybody was like, 'You're a record label. Why aren't you in New York?'"

This relative isolation may also have had long-term benefits beyond keeping down costs. "We don't have too much contact with other music industry people at all, which it seems has turned out to be more of a plus than a minus," says 20-year Merge employee Stacy Philpott, better-known as Spott, the label's de facto GM who has done everything from radio promotion to artist relations. Instead of following the lead of other companies or creating a business plan based on projected growth, Merge has tended to meet its current needs one at a time. Spott contrasts Merge with Minneapolis label Twin/Tone Records, which had big success in the '80s and early '90s with acts like the Replacements, Soul Asylum and Ween. "They hired like 11 new people at once, and then they imploded. Whereas we have added one employee because something wasn't getting done," he says. "We put out [the Magnetic Fields'] 69 Love Songs"—Merge's first big hit in 1999, a 69-song triple album that has sold 201,000 copies (including its boxed set and individual volumes), according to Nielsen SoundScan—"and we bought a building and hired maybe two people.

"We're definitely resistant to change, but maybe in a way that's good," McCaughan says. "It's more like letting stuff happen and saying, 'OK, here's the change we maybe need to make in order to keep doing what we're doing.'

"They have a great business sense and it comes from a real place instead of a five-year plan," Spott says of McCaughan and Ballance. "They play off each other well, which is a good way of saying he says 'yes' and she says 'no.'" Spott has plenty of examples of Merge's pragmatic culture, including its early practice of reusing incoming bubble mailers to send out their own records, or forgoing standard big-label spending efforts like tour advertising, which, as it learned when experimenting with a mid-'90s Guv'ner tour, didn't pay for itself in ticket or album sales. Spott himself was hired to do press and radio when Superchunk was getting ready to release 1994's Foolish, and McCaughan and Ballance were looking for a way to offset the percentage that then-distribution partner Touch and Go was taking for promotion costs. Eventually, in 2005, Merge parted ways with Touch and Go entirely to pursue its own distribution deal with Alternative Distribution Alliance and keep more from each release for the label and bands.

And then there's the budget taxidermy. Ballance is amused, baffled and proud about a bit of office décor that an employee has just ordered off of eBay: an absurd yet hypnotic stuffed coyote head, teeth and tongue bared in menace. It seems like a ridiculous use of label resources — until Ballance shares that she looked up the eBay listing and "it said it was like $3.54." The most prominent art elsewhere in the building is a large series of Merge-inspired paintings by prolific Brooklyn artist Steve Keene, known for his cover for Pavement's 1995 album Wowee Zowee, but also to young apartment-dwellers everywhere as the guy who charges $30 online for five random paintings.

Of course, smart spending only does so much unless you're also selling records. It's hard to describe a "Merge sound," but what many Merge artists have in common is a delicate balance between musical ambition and engaging accessibility. They've had runaway hits — Arcade Fire's three albums since 2004 have sold a combined 2 million copies, according to SoundScan, with 2010's "The Suburbs" earning Merge its first No. 1 on the Billboard 200. But Merge also puts out a steady stream of releases from artists that are known for having modest but dedicated fan bases that pay for music—like the Mountain Goats and post-riot grrrl supergroup Wild Flag, whose first albums with Merge, both in 2011, have sold 28,000 and 50,000, respectively.

And, as McCaughan says, there's always the next big thing — before Arcade Fire were the Magnetic Fields and Neutral Milk Hotel, whose 1998 album, "In the Aeroplane Over the Sea," is a perennial seller, especially on vinyl, and likely to get a boost when the band reunites to tour this fall. "We were around for 14 years before we put out Arcade Fire," McCaughan says. "The label has certainly grown since the band has been on the label, but that also has to do with Spoon, She & Him [fronted by actress/singer Zooey Deschanel], M. Ward and the volume of releases we put out."

"Merge knows what they're doing," says Spoon frontman Britt Daniel, whose band's commercial rise began after it was dropped from Elektra and signed to Merge in 2000. Spoon's most recent album, 2010's Transference, hit No. 4 on the Billboard 200 and has sold 183,000 copies. Daniel says it was a major shift going from a label at 75 Rockefeller Plaza to a house in Durham, but Spoon took a chance because Merge did. "Most importantly, Merge wanted to work with Spoon. Not a lot of labels wanted to at that time. No one was beating down our door."

Arcade Fire: 2013 Album Preview

Merge's approach to A&R is as organic as record companies get, with McCaughan and Ballance, who together make the final decisions on signings, deliberating over demos sent to them by trusted friends or colleagues, or other word-of-mouth. "The process is highly unscientific," Ballance says. "We both listen and if it sticks with one of us, we go back and forth and decide 'yes' or 'no': 'Do we have time? Is it going to fit with everything else going on? When do they want their album to come out?'" Merge's six new signings in 2013 include Mount Moriah, William Tyler and Mikal Cronin; the label's seven new artists in 2012 included Hospitality, Daphni and solo work by Hüsker Dü/Sugar veteran Bob Mould.

When asked about the label's feeling toward research-based A&R — wherein record companies analyze existing statistics like social media engagement, sales, touring and other metrics before signing a band—McCaughan is genuinely perplexed. "I don't even know what that is." Even Arcade Fire's success was such a surprise that Merge didn't produce enough copies of 2004 release Funeral to meet demand, and couldn't manufacture more fast enough, which caused initial tension between the act and label. The process of signing the band was described in "Our Noise: The Story of Merge Records," an oral history released for the label's 20th anniversary in 2009, as something that McCaughan and Ballance took almost too long to decide on, offering a contract only after the band had decided to go elsewhere, and based only on their gut feeling about the unknown Montreal group's demo.

If Merge's dominant business philosophy is doing what feels right at the time, it has also worked for Superchunk. During the post-Nirvana alt-rock land grab of the early '90s, the band turned down major-label deals, figuring it was better off with what was working. When "Our Noise" was published, the book's conclusion was that 2001's "Here's to Shutting Up" was likely the last Superchunk album, as the group had been on an extended hiatus, content with playing the occasional show or releasing a single. There was the label to run; McCaughan was spending more time with Portastatic; Wurster had become a sought-after session and touring drummer, joining the Mountain Goats and A.C. Newman's band.

So 2010's "Majesty Shredding" came more or less out of nowhere, a blast of almost forgotten joy. Its high-energy, instantly singable tunes earned the band its first spots on the Billboard 200 (No. 85), Rock Albums (No. 33) and Independent Albums (No. 17), with 23,000 copies sold to date.

"We were happy with how it came out, but if we had made "Majesty Shredding" and no one cared and the shows weren't good, then I don't think we would have made another one so soon," McCaughan says of the new album. "I Hate Music" is a very different record from "Majesty Shredding." It has the Superchunk combination of loud punk fire and deeper-than-power-pop fuzz, but comes from a much more serious place that requires closer attention. "The last record was more about music, and nostalgia," says McCaughan, who wrote every song. "And the new one is . . . I hate to say this, because no one's going to want to buy a record if it's like, 'It's about getting old!'" He adds that it's about "death, loss . . . friends. And also music still. What is the role of music in your life at this point?"

 

This is an excerpt. For the complete story, buy this week's issue of Billboard.

 

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