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Label changes its own tempo

As recorded-music revenue drops, Downtown Records reinvents marketing.

July 25, 2008|Chris Lee | Times Staff Writer

Talk about a peculiar way of celebrating a worldwide smash hit.

In 2006, Downtown Records was just a scrappy indie start-up label with a skeletal staff of four working out of the chief executive's downtown Manhattan apartment. Enter hip-hop-rock-soul duo Gnarls Barkley, whose work was Downtown's first release. Inside of a few months, the group's infectious single "Crazy" had become the feel-good hit of summer, hitting No. 1 in the U.K. on the strength of downloads alone and landing simultaneously on more charts than any song in Billboard history. Its album "St. Elsewhere" went platinum, ultimately netting Gnarls two Grammys.

For The Record
Los Angeles Times Saturday, July 26, 2008 Home Edition Main News Part A Page 2 National Desk 1 inches; 36 words Type of Material: Correction
Downtown Records: An article about Downtown Records in Friday's Calendar section said that the website rcrdlbl.com offers free music downloads in exchange for users watching short commercials. The site does not require users to view commercials.

Then reality, for Downtown executives, set in.

"We knew the architecture of the music business had to change," said Josh Deutsch, the label's chairman and co-founder. "Even under the best start-up conditions possible, we foresaw terrible stress and challenges. So we imagined what a music company should look like amid a fast-changing business climate and rapidly evolving consumption patterns."

Today, in an increasingly desolate music industry landscape, at a time when slumping sales have decimated the number and ranks of record labels, Downtown Records provides a rare bit of sunlight. The New York-based label boasts one of the densest concentrations of hipster-friendly, blog-anointed artists of any roster in modern music -- French electronica superstar Justice, genre-splicing hip-hop/electro rocker Santogold and Angeleno buzz band Cold War Kids among them -- and is branching out into creative partnerships with ad agencies and movie companies in ways unthinkable a generation ago. Moreover, Downtown is growing by subverting the standard business model: by giving music away for free.

The self-described "major indie" is certainly turning a tidy profit, with gross revenues north of $25 million annually, according to industry sources. And to hear it from industry observers, talent managers and Downtown recording artists, the label's digital distribution methods and emphasis on leveraging its acts' publishing rights has shifted the proverbial paradigm.

"More than any other label, Downtown has created this buzz about itself," said Josh Eells, senior editor for Blender magazine. "They've carved out a niche as a taste-making label."

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Publishing rights

Time was when sales of recorded music and the administration of musical publishing rights were as separate as church and state. Within a system in place for more than four decades, labels like Interscope or Warner Bros. made outrageous fortunes selling musical recordings, while publishing firms like Warner/Chapell Music or Hitco Music Publishing controlled the rights to the songwriters' underlying compositions. And seldom did corporate entities with a common interest -- maximizing song sales -- ever cooperate.

After being in business together just six months, Deutsch and Downtown co-founders Terence Lam and John Josephson set to work tearing down the walls. Their big idea: not only to manage artists' recorded music but also its publishing to create new synergy.

"We realized being in the recorded music business was not enough," said Josephson, managing director of the investment banking firm Allen & Co. who plunked down his own cash into Downtown's start-up. "We knew we had to broaden the rights stream."

In an era when radio airplay is hard to come by -- but when the quantity of songs licensed for television and the movies has gone through the roof -- Downtown signs every one of its acts to publishing sharing agreements. For now, this lucrative infrastructure remains unique in the industry, insofar as most labels gave up the practice of demanding publishing during the Age of Aquarius.

Add to that Downtown Music Publishing's catalog of some 3,000 songs, including compositions from "High School Musical 2" and "Hannah Montana/Meet Miley Cyrus" as well as ownership or control over songs by Aretha Franklin, 50 Cent, Mary J. Blige and Kanye West, among others. "It allows us to capture a source of revenue in a market where recorded music is declining by about 20% a year but publishing and licensing is increasing at about the same rate," Deutsch pointed out.

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Creative partnership

When it came time for buzzworthy Chicago rapper Kid Sister to choose from among three labels maneuvering to sign her, her manager, Peter Katsis of the Firm, was forced to consider several so-called 360 deals -- which obligate an artist to share revenues from touring, merchandise and fan clubs with the label (as opposed to simply allowing it to sell music) in exchange for a more concerted marketing push.

Then Downtown stepped in with a counter offer they couldn't refuse. "Downtown doesn't take what rightfully belongs to the artists," Katsis said. "The major labels want 30% of your income but they won't do anything for it. "

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