Blitz Magazine, July 1998
To most of us, the music industry is an inky labyrinth of promoters and payola, percentages and publicists, studios and sharks. ‘Not an industry for the faint of heart. But three Vancouverites have successfully navigated their way through this maze to build one of North America’s top independent record labels — Nettwerk Records.
In 1983, Mark Jowett and Terry McBride, both 22, were working at Odyssey Imports, then Vancouver’s source for imported music — most of it eclectic or ‘alternative’. At night, McBride worked as a DJ at Vancouver’s pre-eminent alternative music club, Luv Affair, while Jowett played bass in an avant garde syntho-rock band called Moev.
McBride became Moev’s manager, and they quickly realized that the only way to get its music released was by doing it themselves. They borrowed $5,000.00 and, in 1984, opened Nettwerk Records, with McBride’s living room as head office.
While they were recording Moev’s debut album, they heard a demo by Kelowna’s folk-oriented Grapes of Wrath. Then they found Vancouver’s Skinny Puppy, a gothic-rock band which wanted to record its first album. McBride and Jowett signed the two bands and released all three albums. Economies of scale aside, there was no money left for marketing, so Jowett and McBride devised their own ‘organic’ marketing method.
“If you’re innovative, you can do it inexpensively,” says Jowett. “We marketed the three albums together, through the alternative press, through the clubs, through performances — nothing dramatically different from how we market records now. Also, from Odyssey, we knew the UK and European labels, we knew who released what kinds of music and we knew who to contact. From them, we learned about building a strong identity for the label — that was important in the early stages.”
Nettwerk licensed its first releases to Brussels’ Play It Again Sam Records. With licensing agreements, the label/owner sends the master to the licensee, who bears all marketing and distribution responsibilities. The licensee pays the label a royalty — usually 20-25% of sales, which is shared with the artist/s and writer/s for the life of the release. In this case, Nettwerk was able to get a small advance — luckily.
“The Catch 22 was when the product sold and distributors wanted more but wouldn’t pay for ninety days,” continues Jowett. “We had to keep coming up with more money to produce more product and we had difficulty raising it. So our success was potentially our failure.”
Failure was averted because one big market for alternative music is the North American universities, and Nettwerk releases were soon making regular appearances on US college radio, then Billboard’s alternative charts. Moev and Skinny Puppy became cult bands, but Grapes of Wrath had commercial appeal, and this led to a 1986 distribution deal with Capitol-EMI. Not only did this increase sales, but EMI paid in 30 days, alleviating cash-flow problems and allowing Nettwerk to sign more bands — and not just local bands.
One reason for Nettwerk’s success is its global approach. Nettwerk now has offices in New York and London, and representatives and/or distributors in Australia, Mexico, Japan, Western Europe and the Scandinavian countries. It has not only marketed its music to the underground urban dance culture, and licensed its music to international labels, but it has sought out international acts, brought them here and marketed them continent-wide. It brought Severed Heads and Single Gun Theory from Australia, The Tear Garden from Holland, Chris and Cosey from the UK, Bel Canto from Norway. With the goal of building a roster of varied, quality music, it also signed folk-pop acts like Lava Hay, and hard-core bands like Consolidated, MC 900 FT Jesus and SPK — bands you may have never heard of, but who produce the type of music for which Jowett and McBride knew there was a large, eager audience.
Today, the term ‘alternative’ could mean almost anything — shock-rock, industrial rock, electro-rock, electro-rap, hip hop, acid jazz. Pre-Nettwerk, it was music which no other label would touch. But Nettwerk knew it would catch on. Today, no self-respecting dance club would be without it and the major labels seek it out.
“The industry wasn’t always into alternative music,” says Ric Arboit, the former sound technician and Skinny Puppy tour manager who is now Nettwerk’s President. “In the early days, there were many records which we were told were ‘too alternative’. Now, there’s a whole industry of US stations which play strictly alternative. We take no credit, but when Nirvana hit Billboard’s number one in 1992, I knew there was a God.”
While industry experts credit Nettwerk for the legitimization of alternative music, and for the industrial-dance boom of the ‘80s, Arboit says this was not strategy.
“Alternative is who we are. We believed in what we were doing and did what we wanted to do. We surrounded ourselves with people who understood our goals, worked hard and put every dime back into the company.”
Sound fiscal management is another reason for Nettwerk’s success.
While the major labels spend $250,000.00 on first releases by new acts, Nettwerk spends $25,000.00. It releases no more than one CD every six weeks and releases music only when it can afford to. Of course, this was moot at the beginning — 1985 sales were $70,000.00.
Arboit calls it ‘luck’, but the three partners knew what their market wanted. Moev and the Grapes of Wrath became very successful; Skinny Puppy’s sales hit 1,000,000 before it disbanded. While all releases aren’t huge sellers — 20,000 is about average — the important point is that few lose money.
Nettwerk doesn’t particularly care if an album doesn’t make a lot of money. The main criteria remains that the partners have to believe in the music — if one of them doesn’t like an act, it doesn’t get signed.
“It’s mostly instinct,” says Jowett. “The artist has to be powerful and unique — someone that moves us and will hopefully move other people. We’re not looking for hits — we’re looking for originality and vision. We sign bands we like and let them make the music they want to make. What’s most important to us is releasing great, cutting-edge music and finding a home for it, as opposed to looking for music that people might like. It’s harder to hang on to that now because we’re a much bigger organization. One of our biggest challenges is to keep that philosophy and integrity while being able to grow.”
There is a screening process which takes place before Nettwerk signs an act. “You have to explore an artist’s expectations and goals,” says Jowett. “If an artist has high expectations and you know that his music is important and has potential but is niche-based, then the artist’s expectations won’t be met and we’ll all be unhappy. Also, we look for centred people with a good work ethic, because it’s like a marriage — everybody has to get along and respect each other.”
Dozens of demos from hopefuls arrive daily. All are listened to and Nettwerkers keep their ears to the ground. While months can go by without anything inspiring coming along, they occasionally find an artist and just know.
In 1984, Moev was playing in Halifax. The opening act was a teen band with a lead singer named Sarah McLachlan. Jowett, recognizing a born singer-songwriter, tried to sign her on the spot. But she was still in school, so he kept in touch and, in 1986, she signed with Nettwerk and moved to Vancouver. She hadn’t yet written a song and it took her two years to build a repertoire but, in 1988, Nettwerk released her first album, Touch, which sold 19,000 copies.
McLachlan has since sold over 8,000,000 records and won two Grammy and five Juno awards — Arboit says he has to occasionally look at her Rolling Stone cover to realize it’s real. But her experience epitomizes Nettwerk’s philosophy of nurturing artists and allowing them to develop over time — and how that pays off, both creatively and financially.
“We don’t sign artists for overnight success — we’re in for the long haul,” says Arboit. “Remember that we’ve had Sarah under contract for ten years — and she’s just getting started. They’re all developing, every one.”
Nettwerk won’t compete on money for artists. What it offers is more important: the opportunity to develop on their own creative terms — something which isn’t always possible with the majors.
George Maniatis is Nettwerk’s VP Marketing and A&R (Artist and Repertoire). He is also an Odyssey and Luv Affair alumnus, but he left Vancouver in 1993 to spend three years in New York, at Polygram subsidiary London Records.
“With the big labels, the shareholders want to see a return right away. We’re easier to satisfy. We never tell an artist to hit a home run. We say, ‘Go to first, chill out on first. Take your time, people will catch up.’ And with each release, the artist’s audience does grow. In the early days with Sarah, we all had black eyes from rejection — from press people, radio people saying ‘This is derivative, she’s not talented.’ Then she went on tour, people saw her live and were convinced. As she grew as an artist, she toured more, attracted more fans, they bought records and so on. Some artists take off immediately. With others, you know they’re ahead of their time, but you see the potential, make the investment and stick with it.”
One current Nettwerk investment is Tara MacLean, a local singer/songwriter who was discovered singing to pass the time on a ferry. “We’re not trying to make money with Tara,” continues Maniatis. “She’s developing. But her audience will find her. It’s like hiding money under a rock — once they know it’s there, they’ll find it. The important thing is to never try to make records to suit the consumer climate. When you do that, it becomes about marketing and whether you can get the artist on lunch boxes. That doesn’t interest us. We’re not about market share and quarterly reports. We still have to be realistic, but our priority is the quality of the music.”
There is, obviously, a bottom line. And the goal is a win/win situation. Because a recording deal is a loan, an important point which artists must grasp. Every recording dollar spent is recoupable from sales — which means that the artist pays for the making of each release. Which is why it’s important for a record company to shepherd an artist through the process — and why we’re surprised when we hear that mega-stars are broke.
“You can financially support the artist while the record is being made but, by the time it’s released, the artist is deeply in debt,” says Jowett. “Or you do things cost-efficiently and have artists support themselves — Sarah, for example, worked as a waitress while she was writing Touch. There we get back to artist expectations. We sign niche acts. If an artist wants to hire U2’s last producer, we would point out that his fee would exceed the budget for the release. You can’t spend commercial money if you’re making music for a niche audience. If you spend $300,000.00 making your album, sell 50,000 records and generate $100,000.00 in royalties, you’re still $200,000.00 in the hole. And it will take longer for us to recoup our investment. Sometimes we don’t get it back, sometimes it takes two or three releases. It’s always a gamble. The group could break up, and we once had a band jump to another label just as it was about to take off. But we learn from our mistakes — now, we have long-term, multiple-release contracts.”
The profit-sharing formula is complicated, but it’s basically that the label owns the master, the artist gets a royalty of $1.00 – $2.00 from the sale of each CD, the songwriter gets a royalty and the label takes its margin, from which it pays for manufacturing, marketing and promotions. Marketing and promotions are unrecoupable costs, the artists pay tour costs, video costs are split 50/50.
Then there are licensing deals, which are necessary to help an artist reach full potential. McLachlan’s music, for example, is licensed to Arista for US distribution.
“We place artists with labels which have the facility to take artists further,” says Jowett. “Terry is Sarah’s manager and we handle her production and A&R, but the cost of marketing an artist like Sarah in the US is enormous. With an artist of her potential, you need a large, well-run organization with expertise and relationships in its market. Arista’s a commercial label, and one of the best. But it’s about mall culture — about reaching huge amounts of people. Many of our artists are about niche and they need that. So we work with smaller labels, and we have our own US label out of New York.”
Nettwerk also has a multi-media division in New York — Nettmedia. This is another area in which Nettwerk was ahead of its time. Nettwerk was the first label to have a website. A site carrying discographies, biographies, news releases, tour schedules, catalogues, merchandise and ordering information. Not only does this help sales, but it makes artists more accessible, widens the fan base, and gives new bands exposure.
In addition, in 1994, Nettwerk became the first label to release an Enhanced CD — Ginger’s Far Out. Shortly thereafter, McLachlan’s Freedom Sessions became the first Enhanced CD to debut on the Billboard 200 and then go gold. Enhanced CDs can be played on normal CD players or computers with a CD-ROM drives. In addition to music, they can include artist information, video clips, album covers, lyrics, interview transcripts or photographs. Enhanced CDs cost 20% more to produce and most labels pass that on to consumers. Nettwerk doesn’t, preferring to see it as added value for fans.
In New York, Nettmedia produces multi-media products for a variety of outside clients, who know of Nettwerk’s devotion to quality in presentation and packaging. Back in Vancouver, Nettwerk’s art department is larger than many design firms.
“It is unusual for a record label to have an art department to this extent,” says Jowett. “But it’s an extension of developing a strong look for the label and its artists. Design is so important for non-mainstream acts. It has to draw people in and say what the music’s about. If people are confused by a cover, they sub-consciously think of the product as confusing and they won’t buy it.
“With every release, we have to build a unique awareness of the music. We have to find the best approach to retail, the best way to approach the press, decide whether or not to do a video, whether or not to tour. All of this is precisely thought-out, and the artist is involved at every step.”
This artist-friendly approach is another area in which independent labels differ from the majors.
“Big labels can sometimes develop a mechanistic approach to releasing music,” says Jowett. “Music comes from the heart, and when it’s funneled through a heavily departmentalized company, the artist can lose control. There are very good people at the major labels and the majors don’t try to be intimidating, but when an organization becomes too big, it’s hard to remain in contact with the music’s source.
“That’s why we limit the number of acts we handle — we currently have sixteen. We don’t want to get to the point where we can’t make each release a priority. If a label has one hundred artists and fifty are pop acts putting out releases at the same time, who gets priority? That’s also why we keep our roster diverse. We never have a situation where two releases of the same type of music are trying to get attention at the same time.”
There is also Nettwerk Management, a separate division headed by McBride, who manages seven acts, including McLachlan, MacLean and Barenaked Ladies (which is signed to another label). An artist manager controls everything, from singles picks to artwork to videos, to marketing plans to promotional plans to tour schedules. McBride says that the most important components in the artist/manager relationship are trust and education.
“You’ve got to be able to trust your manager. This is a fast, sometimes brutal business and you have to have the confidence to deal with the sharks. And while many managers prefer to keep artists in the dark so they can focus on music, our artists know the business. When they go into a situation, they know the parameters — we don’t have to explain research, scan numbers, or the history of the marketplace. When artists understand the business, they make educated decisions.”
“Terry is probably the most gifted artist manager in Canada,” says Maniatis. “He knows marketing, retail, he knows the road, the clubs. And he knows how to work a record company. He will go to the epicenter of a record company, get to know everyone, the politics, what works for them. This is not a test. The pilot has to know how the plane flies.”
Maniatis has the aggressive, pragmatic approach which is essential in dealing with said sharks — and in competing for chart and shelf space.
“There is huuuge competition at the marketing level. Our distributor, EMI, is very good at what it does and it does a great job for us. But we still have to fight for everything we get. We’re not its only client — it’s got Spice Girls and Janet Jackson, I’ve got Delirium and Tara. But we also have great relationships with our retailers. Retailers want records that sell, and they want to know that we support them. And I’m not just talking about the big guys — the Mom ‘n Pop stores are equally important. Their customers are avid consumers of eclectic music. Once you have those people on your side, you have a heartbeat.”
We would assume that videos are all-important. Maniatis says they’re a waste of money.
“Most of our acts don’t lend themselves to MuchMusic. And with the $50,000.00 you spend on a video, you could release another album. Videos add too much to the cost of a release. The key to success is keeping the front-end costs low.”
Maniatis prefers to put artists on the road. “I don’t have endless supplies of money. I can’t do blanket marketing and hope that something clicks. Marketing Sarah is one thing, but with developing artists, traditional marketing — where you put out ten thousand CDs, buy full-page ads, do a video — is an extreme waste of money. We create awareness at the regional level, conquering markets one by one. It’s organic marketing.
“That’s why touring is most important. People want something real, and touring allows them to see the artist’s natural side. So, for a new release, you set up a four-month tour, book soft-seat venues — so people sit and listen — plan your media relations and promotions, have the artists visit radio and TV stations, make in-store appearances. The artists have to make a presence for themselves and make their audience aware of their release. You can’t shove it down people’s throats with advertising. But if you let them know it’s there, and if they hear it — especially live — they’ll buy it.”
What about mainstream radio? Well, Nettwerk has succeeded, largely, without it.
“Radio is not the lifeblood of the music industry — it’s the lifeblood of certain acts,” explains Jowett. “Much of our music is avant garde and Canadian rock radio won’t play it. But our music still has a large audience. If you stay focused on your market, you can still take artists very far.”
Jowett says that Nettwerk never encourages artists to make radio-friendly music. “Often, labels will push an act to make its music appeal to the mainstream. But radio is very much of the moment and if you sculpt music around what radio wants, no one will react to it because it sounds like everything else being played at the time. The record will have a short life span and the artist will date quickly. It’s much better to release records with important songs, then work the artist through touring, press and retail.”
“Radio in Canada is not very exploratory,” says Maniatis. “Some stations have supported Nettwerk, but most programmers are afraid that alternative music will offend advertisers. We have a radio person here and his job is to stay on them and not give up. You can’t give up. Look at Sarah — she’d won four Junos before radio really took notice. They didn’t understand that she transcends demographics.”
McLachlan has certainly forced the music industry to look at things differently — it wasn’t long ago that radio stations wouldn’t play back-to-back female singles. Then she came up with the idea for an all-female concert tour — Lilith Fair.
“Lilith Fair was not a marketing idea,” says McBride. “In 1996, Sarah was trying to write and thought that playing live would help get her past a road block. But she didn’t want to head-line and she decided she wanted all female artists. We played four dates, saw the reaction and knew we had to do something bigger.”
Lilith Fair was the most successful musical tour of 1997, and its CD was recently released to critical acclaim and healthy sales. But it won’t be a permanent fixture. “It’s not about money,” says McBride. “It has to be fresh and feel right. When that changes, we’ll stop doing it.”
Well, really, it is about money. Nettwerk’s artists depend on Nettwerk for their livelihoods. Nettwerk needs to profit so it can continue to release important music. With the company’s growth — 1997 sales were $7.3 million, excluding Arista’s US sales — there is more pressure. Hundreds of releases later, McBride’s living room is a fond memory, replaced by an 11,000 square-foot office, where 50 employees work frantic, 70-hour weeks. And love it.
“This is fun for us,” says Maniatis. “And we all still have that hunger. When I lose that, I’ll go away.”
McBride says he’ll never do anything else. “Sometimes it wears me down. Then I see one of our artists play live and I get blown away. All I feel is huge pride.”