Indie Record Labels Form Unified Digital-Licensing Agency

Independent record labels behind artists like The White Stripes, Deep Purple and Arctic Monkeys announced a global deal Saturday to pool access to their catalogs, seeking to grab a bigger share of digital music sales from the major record companies.

Indies and their trade groups from more than a dozen countries signed on to Merlin, a nonprofit licensing agency that will cut deals on their behalf with download sites and mobile services, under the terms of the agreement unveiled at Midem, a music industry gathering in the French Riviera town of Cannes.

Smaller record companies with just a handful of successful artists fear being left behind in fast-growing digital music markets, where the majors — Universal Music, Sony BMG, EMI and Warner Music (WMG) — enjoy a clear advantage in negotiations with online retailers such as Napster and Apple Computer Inc.'s (AAPL) iTunes.

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"Merlin may be the most important move we as independents will ever undertake to secure our mutual prosperity in this rapidly changing business landscape," said Brett Gurewitz, owner of U.S.-based Epitaph Records, whose artists include Tom Waits.

Indie labels account for some 80 percent of new music releases in major markets but only about 30 percent of total revenues, according to industry data for 2005, partly because the majors spend more on marketing and have — until recently — maintained tight control over distribution channels.

That is already changing with the inexorable rise of online and mobile music sales, analysts say, as more artists achieve success and celebrity through independent record companies, bypassing the top four.

"While you don't get the benefit of their marketing capabilities, the reality is that the majority of good new music being adopted by younger people is mostly spread through social networking and personal recommendations," said Tim Bajarin, president of California-based consulting firm Creative Strategies.

"The indies are where we see some of the fastest growth in the next generation of music adoption," he said.

Billed as a "one-stop licensing shop," Merlin will allow online stores and other digital platforms to access its members' music in one deal, rather than the thousands of separate contracts they would otherwise have to negotiate. Labels will also be able to continue selling independently through their existing distribution networks.

Martin Mills, chairman of The Beggars Group — which produces Basement Jaxx, The White Stripes and the Pixies — said the new Netherlands-based agency would create a "virtual fifth major" from its combined catalog.

"Merlin will license collectively the individually unlicensable," he said.

The scheme is backed by indie labels and associations from countries including Australia, Brazil, Britain, Canada, Denmark, France, Germany, Israel, Japan, New Zealand, South Africa, Spain, Sweden and the United States.

According to Ted Schadler, an analyst with U.S.-based Forrester Research, the licensing deal could alter the balance of power within the music industry.

Providing it's backed up with efficient management of payments and distribution, it would make it viable for even the smallest labels to sell music through popular digital services by removing the cost of negotiating and managing an individual contract with each one.

"What this does is level the playing field between indies and majors," Schadler said.