Independent labels find a way to hang on to talent

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Major music companies already struggling to cope with declining CD sales and online piracy face a new threat in the form of Integral, a development company that enables independent labels to hold on to major new artists by providing marketing expertise and financial backing.

The Go! Team, a band on the cusp of widespread success, has spurned the financial security of a major music label and stuck with its independent backers to take it to the next level by using Integral's expertise. With the Pigeon Detectives, another band that stuck to its independent guns by using Integral's services, entering the charts at number three last week, some major labels will be viewing this emerging business model with trepidation.

The Go! Team's debut album, Thunder, Lightning, Strike, was nominated for a Mercury music prize in 2005 as the Brighton-based six-piece's action theme tunes and cheerleader chants caught the ear of music fans. The album sold 150,000 copies after it was released by the independent label Memphis in conjunction with the major label Sony BMG. The band's decision to stick with Memphis and spurn the major labels represents a coup for the independent sector, with Memphis set to fully benefit from The Go! Team's success.

Integral was established as the label development arm of the CD distributor Vital in January last year with a view to providing independent labels with the opportunity to keep hold of the artists that they had unearthed. The company has already achieved significant success after backing the campaign for Jose Gonzalez's platinum-selling album Veneer and gold-selling albums from the unsigned metal band Enter Shikari and The Gossip, the US band fronted by the ubiquitous Beth Ditto.

Small independent labels do not have the financial muscle to market breaking artists effectively due to the expense of making video clips and promoting the artist in the mainstream press. Such campaigns can cost upwards of £40,000, a massive financial risk that can ruin a label if an album fails to sell as hoped. As a result, prospective stars are usually picked up by major music companies better able to exploit the potential of the act, leaving the independent in a weaker position and needing to find another star in the making.

Integral aims to offer a one-stop shop for independent UK record labels and rights holders to market their acts directly to consumers by providing marketing services and financial backing for the campaign. Integral also looks to get the artist's music on compilations and used in television shows and films.

Peter Thompson, managing director of Vital Distribution, said that although some of the larger independents such as Beggar's Banquet and Domino have the financial clout to compete with the majors, smaller labels need assistance to exploit their rosters. "These labels are very talented at finding great artists, but they need an injection of experience, resource and guidance to get the acts out there," he said. "Before we established Integral, they had nowhere to go but to the majors."

Mr Thompson said that Vital has 15 years' experience working with independent labels and thus won't take the same expensive marketing risks that major record companies often do when promoting upcoming artists. "You have to be very, very careful. A lot of money is wasted in the music industry and although the reward is greater using this model, so is the risk. You have to remember that it is the label's money at the end of the day so if it goes wrong, you have to make sure it is not fatal," he said.

Integral's ability to keep costs to a minimum provides an insight into the changing nature of the recorded music industry. The troubled music major EMI has agreed to be taken over by the private equity company Terra Firma, which is keen to boost EMI's profit margins by slashing costs. EMI still employs over 6,000 people, substantially more than closest rival Warner Music. Integral has five staff.

Integral's success also reflects the increasing power of the musicians to build support by using websites such as MySpace. "Artists like the Pigeon Detectives and Enter Shikari know what they want and have done a lot of the hard work themselves," said Mr Thompson.

However he said that the model is likely to appeal predominantly to certain left-field artists. "The Go! Team may sell a lot of records but they're not a mainstream band," he said.