Presented by: Stewart Henderson (MD, Chemikal Underground – Independent Record Label )
Chemikal Underground is a small independent record label – one of Scotland’s most enduring. Established in the mid-nineties, the label was essentially ‘artist-owned’ as the four directors (myself and the three other founders) were also in a band called The Delgados who enjoyed modest international success for ten years. The period since Chemikal Underground’s inception has coincided with the most unprecedented upheaval in the music industry we’ve ever seen: in how music is created, how it’s accessed, valued, retailed, consumed … the list goes on.
Some Chemikal Underground figures: from 2008 through to 2010 we found our digital revenue to be holding (in relation to our physical sales) around the 20% mark, and then it started to increase. In 2011 it was up to 33%, in 2012: 44%. Crucially, the value of that digital revenue had actually plateaued, so what was pushing our share of digital revenue up was the precipitant fall in physical revenues, a process which seems to be, for us anyway, inexorable. Given the sustained decline that we’re seeing in high street retail in particular, and the ‘levelling-off’ we’re experiencing in digital revenue, we obviously have a serious problem to address.
If you’re a record label like Chemikal Underground, not buoyed by high-volume unit sales, then the digital ‘consumption’ of our music is unlikely to be the answer for us commercially.
One of the important things to bear in mind when we discuss the music industry is how extraordinarily diffuse it is. While underpinned by many common principles, there are widely differing business models at play, Chemikal Underground being one of them. The margins in digital retail are very small whether that’s through the sale of albums or songs; in terms of streaming, those margins become almost infinitesimal. So, if you’re a record label like Chemikal Underground, not buoyed by high-volume unit sales, then the digital ‘consumption’ of our music is unlikely to be the answer for us commercially. The really attractive margins are still found in analogue and that’s why we continue to see the resilience of vinyl, albeit within a very niche market.
While we’re not entirely reliant upon them, we find our business model increasingly buoyed by the retail of deluxe vinyl products and box sets. As a small label, if you can conquer the fear of incurring a £25 unit cost on a product you know you can sell 1,000 of at £70 each, then the economics are a no-brainer. The margin in that single product is enormous and, with CDs and download codes included in the package, we find ourselves turning to digital-analogue ‘hybrids’. Selling vinyl with the CD included or with a download code allows people to enjoy the aesthetic satisfaction of a vinyl record without compromising their desire to consume that music on the hoof, with their iplayer or what have you.
That being said, I think the larger challenge we face as a label is that retail, and certainly high street retail, is unlikely to sustain us on its own moving forward; we have to look towards diversifying our portfolio of products and services, maybe moving the label into areas that would previously have been unthinkable for us, ten or twenty years ago: consultancy, publishing, events promotion etc. It’s clear that we’ll have to mitigate the effects of an over-reliance on retail if we’re going to have any hope of surviving.