Major success in a minor key

Laura Ballance and Mac McCaughan made Merge Records a hit with artists who don’t believe bigger is always better.
By Mark Kemp

Barbra Streisand seemed a bit flustered. Wearing a majestic necklace with shiny black stones and a flowing maroon dress, the veteran actress and pop star was standing at the podium during the Grammy ceremony in Los Angeles Feb. 13. Next to her, in a dashing black suit, was Streisand’s grizzled costar in the 1976 blockbuster A Star Is Born, country singer/songwriter Kris Kristofferson. The venerable pair had just announced the nominees for the coveted 2010 Album of the Year award.

Leaning into the microphone to read the name of the winner, the normally chatty Streisand was suddenly tongue-tied. “And the Grammy goes to ...” She paused, apparently unable to distinguish the artist’s name from the album title, then continued with a stutter. “The ssssSuburbs — Arcade Fire!”

To longtime North Carolina punk-rockers Mac McCaughan and Laura Ballance — founders and co-presidents of Durham-based record company Merge Media Ltd. — the win was a glorious surprise. Merge had released Arcade Fire’s third album, The Suburbs, six months earlier, and artists on independent labels don’t normally win Grammys. “To get the Arcade Fire’s name out there to all these people who don’t care about Merge and don’t care about alternative music is big,” McCaughan says. “You rarely have an opportunity like this to get in front of these people.” To many of “these people” — mainstream pop fans unfamiliar with the critically acclaimed Canadian band or its Carolina-based label — Arcade Fire’s win was a shock.

Television personality Rosie O’Donnell took to her Twitter account and immediately addressed it in a snarky tweet: “album of the year? ummm never heard of them ever.” Her comment kicked up a firestorm among fans of the more famous nominees, including rapper Eminem and pop singers Lady Gaga and Katy Perry. “Who the hell is Arcade Fire” became a mantra in flame wars on blogs such as Tumblr.com, where someone posted a page called whoisarcadefire. In France, a tongue-in-cheek line of T-shirts appeared emblazoned with the phrase “Who The F*** Is Arcade Fire?”

 

You can’t buy that kind of publicity on an indie label’s budget, McCaughan says. The 44-year-old musician and entrepreneur is sitting with Ballance at a window table in a small coffee shop near Merge Records headquarters, a blond-brick building tucked between an alleyway and a furniture store on Chapel Hill Street in downtown Durham. McCaughan is dressed in casual indie-geek chic: a blue sweater, jeans and sneakers. Ballance, also 44, is more stylishly hip: designer glasses, a brown RLX Polo Sport hoodie, muted-green shirt and turquoise necklace. They come here often to sip coffee, nibble on croissants, discuss business or — in today’s case — talk to a reporter about the surprise success of their little record label that could.

Over the past two decades, Merge has grown from a tiny punk-rock label operated out of Ballance’s Chapel Hill bedroom into one of the longest-lasting and most well-respected independent music companies. Not bad for two people who never expected to become record executives. “We didn’t start out with any expectations at all,” McCaughan says, his high-pitched and somewhat squeaky voice sounding like it belongs more to the president of a computer software company than to that of a record label. “Our ambitions were pretty small in terms of what we thought we could do.” In fact, McCaughan and Ballance were barely out of their teens when they started Merge. Romantically involved, they were only interested in starting a label to put out singles by their own Triangle-based band, Superchunk, and some of their friends’ bands. The only reason to start an indie label, McCaughan says, is to release fringe music that mainstream labels wouldn’t consider economically viable. Indie labels depend more on fan loyalty and conservative budgeting than big record sales for their survival. “If someone starts up an indie label and it fails because of lack of record sales, then that person started it with strange expectations.” He and Ballance declined to talk about the private company’s finances.

So what is indie rock, and what does it mean to the popular-music industry when a band such as Arcade Fire, on a little-known label run out of a nondescript building in Durham, wins a Grammy? For one thing, it means that Internet-era indie rock — once a network of small, regionally based labels featuring adventurous musical styles connected by underground print music magazines and low-budget touring — has exploded. Today, any kid in his bedroom can not only read about bands from obscure music scenes on indie websites such as Pitchfork.com or Stereogum.com but can instantly listen to and download their music, often for free. That levels the playing field between major labels under corporate umbrellas and tiny mom-and-pop indies such as Merge or Saddle Creek Records, the Nebraska label of singer/songwriter Conor Oberst, whose I’m Wide Awake, It’s Morning album with the group Bright Eyes reached the Billboard Top 10 in 2005.

“We’re now able to promote smaller bands online in ways that you never could before,” McCaughan says. “When there was just print media, we couldn’t even afford to take out ads in [indie-music magazines like] Option at a certain point, and we certainly couldn’t afford to take out ads in Spin or Rolling Stone. We still can’t afford that for most of our releases. But we can afford to take out ads on blogs, and we also can email advance music to journalists that we couldn’t have afforded to send out when we had to print up 500 review copies of a record that would only sell 2,000 copies in the first place.”

Merge’s success did not come overnight, and it is not solely the result of Arcade Fire record sales. The label’s first band — McCaughan and Ballance’s Superchunk — was a critical success early on and in the ’90s sold more albums than most of its indie-rock peers.

Merge and Superchunk both officially formed in 1989, and Merge has established itself over the years by consistently signing reputable artists — bands such as Texas-based Spoon and popular New England singer/songwriter Stephin Merritt, who puts out electronic-based folk music under the name Magnetic Fields. Among mainstream record executives, McCaughan is seen as a sort of taste-making indie-music guru. “A recording with the name Merge on it is listened to promptly and seriously by anyone in the alternative-rock world, both in the United States and around the world,” Danny Goldberg says. He’s president of New York-based artist-management company Gold Village Entertainment Inc. and in his 40-plus-year career has been president of Atlantic Records and chairman and CEO of Warner Bros. Records and Mercury Records. Goldberg, who has worked with bands ranging from Led Zeppelin to Nirvana, attributes McCaughan and Ballance’s Midas touch to instinct rather than calculating business sense. “It’s palpable that every release on Merge is an expression of their artistic taste, without regard to transient commercial trends,” he says.

To McCaughan and Ballance, Merge’s success is more a combination of instinct, timing and luck. As a teenager growing up in Durham in the early ’80s, McCaughan followed bands on early indie-punk labels. After graduating from high school, he left North Carolina for New York to study history at Columbia University. During a break between his sophomore and junior years in 1987, he got a job at Pepper’s Pizza in Chapel Hill, where, scruffy and dreadlocked, he met a fellow musical misfit who dyed her hair black, wore dark makeup and clothing and listened to Goth rock. Born in Charlotte and reared in Atlanta and Raleigh, Ballance was studying anthropology at Carolina. After they formed Merge to put out Superchunk singles, they quickly found that the band was outgrowing the label and decided to sign it to New York-based Matador Records.

They borrowed money wherever they could to pay for Merge’s earliest singles — friends pitched in $200 here; family members, $500 there — and after the records were sold, normally at punk shows, they would pay off the loans and start recording another one. Merge’s first official release, on June 1, 1989, was a cassette by a band called Bricks. Over the next 12 years, the label’s success was in direct proportion to Superchunk’s. By 1994, after three successful albums on Matador and several singles on Merge, the band parted ways with the larger label. By then, Superchunk had become big enough to land a performance on Late Night with Conan O’Brien, and Merge had moved out of Ballance’s home. When they released Foolish that year, it sold a respectable 40,000 copies.

The label’s growing stable of artists had come to include North Carolina alternative-rock bands Archers of Loaf and Polvo, Nashville alt-country band Lambchop and such nonregional acts as New Zealand’s The 3Ds. Though the company was not able to offer big advances, its growing reputation for signing good bands was a powerful lure. “We were like, ‘Here are the other bands on our label — Superchunk, Polvo, Lambchop — and we’ll get your record out,’” McCaughan recalls. Merge had tapped one of the biggest independent-label distributors, Chicago-based Touch and Go Records. “It’s one thing to tell someone you’ll put their record out and another thing to say that it will actually be in stores. We could say that.”

Ballance and McCaughan had carved out specific roles for themselves: He was the creative director with a golden ear and an eye for artistic presentation; she held the purse strings, making sure Merge didn’t spend money unwisely. It was the perfect match, though their romance began sinking with the rise of their record company and band. Ballance was particularly unhappy. “She just reached a point where working with him, playing with him and being his girlfriend was too much. And she cut out the part that drove her crazy,” McCaughan’s college roommate Brandon Holley recalls in the oral biography Our Noise: The Story of Merge Records, the Indie Label That Got Big and Stayed Small. Journalist John Cook wrote the book — published by Algonquin Books of Chapel Hill in 2009 — with Ballance and McCaughan. Many of the lyrics on Foolish revolved around their breakup, and for a few years afterward, things were shaky for both the band and Merge. “When we started the tour for Foolish, I asked for Mac’s vocals to be taken out of my monitor mix, because the words were making me cry,” she says in the book. “I would be on stage, playing these songs, and I would be crying. It was terrible.”

Even today, hints of dissonance appear when the partners, both now parents married to other people, discuss business, but it’s somehow clear that this yin and yang are part of what has made the company successful. Sitting in the Durham coffee shop, Ballance gently argues with McCaughan over the timing of Merge’s move from her apartment.

Ballance: “I don’t think we got an office before ’94.”

McCaughan: “It was definitely before ’94. I know that when Tossing Seeds and the Polvo record came out, we were in an office.”

Ballance: “It was in my house then.”

McCaughan: “Really?”

Ballance: “Yes.”

 

They soldiered on, building Merge’s reputation with each new artist signing and taking risks as they went. The label’s first big milestone came in 1999 with the release of Magnetic Fields’ 69 Love Songs, a project considered an anomaly in the music industry: a limited-edition, three-disc set that included costly artwork. To everyone’s surprise, it sold out immediately and received glowing reviews from The Village Voice and Rolling Stone. The box set went on to sell more than 60,000 copies; combined with sales of each disc, later released individually, it has sold about 150,000 copies. “It surprised us,” Ballance says. “I mean, Magnetic Fields were already a big band on Merge, but that release went nuts.”

Merge became an even hotter property to younger artists, and label loyalty reached a new high. It signed Louisiana psychedelic band Neutral Milk Hotel and then Spoon. Then, in 2003, Arcade Fire, already fans of Neutral Milk and Magnetic Fields, needed a drummer. According to Our Noise, a friend of the band suggested they approach Howard Bilerman to fill in. Bilerman, a Canadian recording engineer, wasn’t too impressed with what he had heard, but an impromptu live performance convinced him that the band had potential and persuaded him to join. Because of an early interest in Superchunk, Bilerman was friends with Ballance and McCaughan, and it turned out Merge was Arcade Fire founder Win Butler’s ideal label. Despite Bilerman’s reluctance to impose on the friendship, he sent Merge a letter and a CD.

After hearing it, their expectations were modest, Ballance says. “We were like, ‘This is great. I think maybe we could sell 40,000 copies.’” It sold 60,000 out of the box, more than the 50,000 it takes for an indie album to be considered a success nowadays. Arcade Fire, they figured, might one day be as big as Superchunk.

 

Inside the Merge office in Durham, exposed brick walls display lots of colorful, primitive artwork from one of indie rock’s patron saints, assembly-line artist Steve Keene. The basement is a maze of shelves housing the growing catalog of records and CDs of the more than 80 acts on the label. But the space is not overly ornate, in large part due to Ballance’s fiscal restraint. “We’ve always been able to turn a profit,” she says, “because we’ve never spent a lot of money on things we don’t need. And that’s only sensible: If you don’t have the money, you can’t spend it. That was particularly true in the early years, because it’s not like anybody was giving us a line of credit.” Big labels give executives expense accounts to court acts and rely heavily on record sales to remain afloat. Merge is a niche brand that signs acts who want to release records under Merge’s name. “If you ask someone who works for Sony, ‘Who do you want to sell records to?’ they’ll say they want to sell them to everyone who has access to a Best Buy. But for us — that’s great if those people want what we have. That’s awesome, and we want them to be able to get it. But we’re not swinging for the fences in that way,” McCaughan says in  Our Noise.

The technological developments of the last decade have enabled Merge to save money on marketing, but records are harder than ever to sell, due to the blessing and curse that is the Internet. Now that fans can find music online and download it for free, the kinds of albums that once sold millions of copies often stall out at around 500,000. Despite the hubbub surrounding Arcade Fire’s first two albums — 2004’s Funeral and 2007’s Neon Bible, which sold 92,000 copies upon its release — last year’s The Suburbs had sold only 486,000 going into the Grammys. According to the music trade magazine Billboard, sales spiked 238% after it won, but Ballance calls that a “little bump,” not the kind of numbers one would expect for a band that packs arenas.

Still, McCaughan and Ballance say the digital age’s pros far outweigh its cons. After all, pre-Internet an indie-rock band would never have reached Arcade Fire’s popularity without moving to a major label. And that’s part of the reason the band has remained with Merge: They can release No. 1 records without a bunch of suits sticking their hands in the mix. On a major label, executives tend to mold young artists into hit-making machines, and if those artists don’t deliver, they’re dropped.

McCaughan and Ballance don’t think in those terms. When they first heard Arcade Fire’s demo, they didn’t hear top-10 pop potential or see a future Grammy winner. They saw and heard a good band. “It was obvious upon first listen what was good about them,” McCaughan says. “The music was appealing in a way that’s broad and emotional and all the things that make people like them. But it would be ridiculous to say, ‘Oh, this band is going to sell a million records.’ You just can’t think that way.” Ironically, that anti-mainstream approach is what has gained Merge respect from seasoned mainstream executives. “In the mainstream music business,” Danny Goldberg says, “Merge is widely respected not only because they signed Arcade Fire but because they held on to them.”

 

The art of the deal

 

With their smaller budgets and modest sales expectations, independent record labels can release music that’s more adventurous than most mainstream pop. But to do that, indie-label owners must think very differently than executives at corporate labels like Capitol or Warner Bros. Major labels expect records to sell well, and to that end, they offer new artists comparatively large advances — $150,000 to $300,000, typically. With those advances, artists are normally responsible for paying expenses such as producers’ fees, packaging, distribution, marketing and promotional materials. An advance is like a loan, and the label recoups the money by deducting it from the artist’s royalties, usually 10% to 13% of the retail price of the album.

Artists who fail to sell enough records to pay off their (sometimes extravagant) expenses are normally dropped from the label. Major labels typically retain ownership of an artist’s master tapes, so if the label decides not to put an album out, the music doesn’t go back to the artist, it goes into the label’s vaults, rarely ever to be heard by anyone except those who made it.

By contrast, indie labels generally offer much smaller advances or no advance at all, and they don’t normally retain ownership of the masters. Indie labels still recoup recording and other expenses before an artist is paid royalties, but the expenses are typically much lower for an indie record. Marketing of an indie record, for example, is targeted to specific fans rather than a mainstream audience. Merge offers very conservative advances but generous royalty rates, and Ballance and McCaughan have a reputation for encouraging bands not to spend money on unnecessary promotional stunts like videos. “Part of it is being realistic about stuff and not putting yourself in a hole after one record because you spent too much money on either recording it or making a video or whatever,” McCaughan told musician David Byrne (who also started an indie label, Luaka Bop) in a 2007 Wired magazine audio interview. “There are certain things in the business that even the bands we work with think are done in a certain way — like, oh, you have to hire a publicist, you have to do this, you have to do that. And we’re like, ‘Look, you can do that if you can afford to do that.’ But sometimes it just doesn’t make sense to do all the things that it seems like everyone does.’’

Mark Kemp is a Charlotte-based freelance writer.