Charles Caldas, Merlin CEO Guest Post: A Gaping Hole in the Clouds -- Indies
Charles Caldas, Merlin CEO Guest Post: A Gaping Hole in the Clouds -- Indies

(Charles Caldas is CEO of Merlin, a global rights body for independent labels. He was formerly the CEO of Shock Records before starting Merlin in 2007. He has also been on the boards of ARIA, AIR and WIN)

Services that are serious about providing their customers a compelling product would do well to understand the new dynamic for independents in the digital market

In all of the coverage surrounding the seismic developments in the digital music market over recent weeks, including all of the speculation about how the major labels are dealing with the licensing of the new cloud-based models, there is a gaping hole. Very few, it seems, are taking the time to properly explore and understand the vital role played by the substantial, and growing, portion of the market represented by independent labels in the success of these services, and the satisfaction of their users.

This highlights two key issues which act as impediments to the success of new digital music services; the first being a fundamental misunderstanding of the actual value of independent repertoire in the market (and a lack of credible market data to properly quantify that value); and the second being the fact that in all of these debates about the future of the digital market, very little attention seems to be paid to what repertoire the active digital music consumer actually wants to hear.

Last week we released the results of a survey (, May 23) we conducted amongst the Merlin membership. The survey showed that our members are enjoying unprecedented mainstream chart success, with over 65 artists reaching the top 5 in National Album and Single charts across the major music markets surveyed over the past year, 20 of those at # 1. In themselves these figures shatter the myth that the independent sector represents "long-tail" specialist repertoire that is somehow of inferior value in the market.

Additionally, according to Nielsen statistics for 2009 and 2010, independents achieved market shares that were 57% greater in the digital world as compared to the physical world (15.5% for digital as compared to 10% for physical). Although we believe these numbers significantly under represent the true shares for independents (due to the methodology employed), they in any event underline the fact that in a market with limitless shelf space and freedom of choice, and free of the tightly controlled store fronts of physical retail, mainstream music consumers are increasingly discovering and purchasing independent music.

Finally, in analyzing our own reporting from services employing "new-generation" streaming and subscription models, we additionally see that Merlin members' usage shares are significantly higher on paid-for tiers than on free or ad-funded tiers. Merlin members' combined share of streams on free/limited tiers on these services was 10.5% of all streams. However, moving to premium tiers, Merlin's share rose from 10.5% to 12.25% (a 17% increase). This clearly illustrates that users who pay for subscription services - serious music fans by definition - are even more likely to be found listening to independent music.

Yet much of the press and the pundits are unerring in their failure to spot this. Partly this is because of the erroneous perception of where the value in the industry actually lies (and the fact that this erroneous perception suits the largest record companies very well) and partly this is because of the lack of comprehensive data accurately quantifying the value that independent repertoire brings to the market. (Regarding the latter I wholeheartedly support Rich Bengloff of A2IM's position taken in his recent post in these pages, where he argued for more transparent, and more accurate reporting of industry statistics.).

It seems absurd that in an age where data is easier than ever to compile and obtain, we still don't have readily available, and transparent data on the digital market. Services need better information about the value breakdown of the market when constructing their offerings, and to materially recognize where that value comes from.

Without this understanding, the danger is that services will continue to build their offerings around false value constructs, and expect independent repertoire by definition to come cheaply. Clearly, from Merlin's perspective, we cannot support the notion that the price for the rights we represent is determined via a false construct and we would certainly not license any service on that basis. And where services launch without independents on board, the early active consumers will be the first to spot these gaps, and the service will fail. With more choice than ever available to them, they will move to those services (legal or not) where the repertoire offering actually satisfies their needs. Consumers are not going to spend money on a service that doesn't give them the repertoire they want.

On the other hand we do see encouraging signs of services that understand the changed market, value our members' repertoire accordingly and by offering their customers the best possible choice of music, maximize their chance of success. For the sake of the consumer, for a healthy digital market and for their own survival, let's hope that the next generation of music services follow this path too.

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