The Beggars Group office in a suburban street in Wandsworth doesn’t look much like a media corporation. There’s no chocolate ice sculpture in reception, and no giant video screens or inspirational slogans. It does look a lot like you’d expect a real independent record company to look, though: behind the receptionist’s desk is the kitchen sink. Boxes of records are strewn everywhere. Chairman and founder Martin Mills sits in the cramped, buzzing open-plan office, along with everyone else.

And there’s something else unusual. Here’s a group of record companies that are doing well, both critically and commercially, which think the internet has helped them to this success, and can’t wait for the future to get here.

Beggars’ four labels XL, Rough Trade, 4AD and US stalwart Matador Records scooped up a fifth of the Times Top 100 records of the decade. The company recently scored the first indie number one for twenty years (Vampire Weekend), looks to have the critics choice for 2010 sewn up (Gil Scott Heron), and with The Xx has a band whose music suddenly seems ubiquitous, sprouting from every trailer and advert, as well as the BBC’s Election coverage.

Mills himself resigned from the BPI “years ago” and helped set up two powerful industry groups as a counterweight to the major labels: the Association for Independent Music (AIM) and Impala, a Brussels-based business network of companies and trade associations. Impala was crucial in persuading the Courts to overturn the European Commission’s decision to bless the Sony BMG merger. The collective licensing group Merlin, sometimes called a ‘fifth major’, also owes much to Mills’ desire to give more strength to the indies at the bargaining table.

The Beggars setup is also quite unusual, a bag of apparent contradictions. Mills still signs every cheque, and watches the weekly cashflow, but the labels, such as Richard Russell’s XL, have a lot of freedom. The core of the Beggars Group is an operations unit for the labels, but he doesn’t do budgets or ask the labels to do them for him. It’s impossible to predict how music will sell, he says, so why waste the time? In a business that became increasingly populated by suits in the 1990s, this is very unusual.

Mills spends a lot of time thinking about how to make money, but his distaste for “music corporations” is matched by concern about the “corporatisation of the individual”. You can’t imagine a New Media Strategist setting foot in the place, or surviving very long if they did. People work at Beggars for the love of music, and are good at finding it and promoting it.

So there’s a lot of reasons to pay attention to Beggars, and Mills’ thoughts on the future of music. We had a very wide-ranging interview last week covering everything from digital marketing to the Digital Economy Act. A few facts first, though.

The Beggars Banquet label grew out of an Earl’s Court record shop in 1976. Three years later it had picked up Tubeway Army, and found itself with a global pop star. But unlike other indies of the era it didn’t embark on overnight global expansion. This may be why unlike other contemporaries such as Stiff, Rough Trade or Factory, it survived. 4AD was launched in 1979, XL a decade later. It picked up Matador in 2002 and Rough Trade three years ago.

The group now employs around 130 staff worldwide. Between them, the labels invest in 20 new acts a year. Digital revenues are around 50 per cent of the total, far higher than the industry average. The Vampire Weekend number one sold 126,000 in its first weekend, of which 70,000 were digital downloads. In the UK digital is about 20 per cent (up to 30 for new releases, says Mills) while in Europe the ratio is much lower.

There’s also a distinctive profile to the success: Beggars’ labels are much better at selling full-length albums.

“We are four times as likely to convert a fan into an album buyer, rather than a track buyer. It makes a fan that we engage worth ten times as much to us. If you look at The Xx album, they’re selling three tracks for every album, a 1:3 ratio. The industry average is more like 1:10 or 1:12.”

The internet has improved things radically for independents, something borne out by the US success, with its more mature digital market.

“There’s fewer gatekeepers now. We don’t have to knock on a TV station’s door or a radio station’s door and it’s made us far more competitive. We released the MIA film yesterday and within minutes, it was everywhere. We didn’t have to go through a process to try and persuade someone to give it an exclusive. Our ability to get the message out without intermediaries is unencumbered,” he says.

“There’s a wide highway in front of us we can go speeding down, and it wasn’t there even two years ago. It means the majors are looking at a world where only 35 Gold Albums a year are certified compared to ten times that recently. But going above Gold in the US is not a problem for us.”

The internet has revived interest in music, thinks Mills, by encouraging people to experiment.

“It’s made so much more possible – a greater and deeper love of music. It’s re-stimulated my own involvement in music generally, rather than just my business. The links people send you allow you to go off down a path and discover something great.

“People who in their 30s a few years ago who may have stopped listening to new music, or were listening to iterations of music they heard in their late teens or early twenties, are now able to discover entirely new things. You’ve got new artists being discovered by 30, 40, 50 and 60 year olds. You’ll now have a group of friends talking about music and sending links. I think that comes from the integration of the laptop into both our working and our personal lives, the internet is so great at spreading the word.”

It’s also made production cheaper.

“The scale of our investment has changed. Recording is cheaper these days. Film making is cheaper. You can make the raw materials that we invest in miles more cheaply. The excesses of record deals largely disappeared, so we much more able to invest at a realistic level, rather than an insane level, which we sometimes had to do, and sometimes we still do. But we’re probably signing 20 new artists a year across the 4 labels, and investing significantly in all of them. We still spend 20-30 per cent of our turnover on artists. So although it’s at a level more sensible than it was, it’s still very significant, and it’s what we do.”

In recent years, the Beggars labels have had established acts knocking on their door, such as Radiohead. I wondered if this altered the investment pattern?

The artists we’ve done we thought were truly exceptional. We’ve no desire to be where Sanctuary were in their heyday. We’re all about getting a band to a stage where you can see it’s working.”

The reason for the independents singing a different tune to the majors, he suggests, is quite interesting.

“You read the industry is 60 per cent of the size it was ten years ago. But that 40 per cent that has gone is almost entirely the cream at the top. Records that sold two million now sell 500,000 – that’s where that’s gone. At the same time it’s easier to sell those slightly smaller levels.

“What’s called pejoratively ‘the new middle class’ is someone like, say, Calexico or Midlake, who can sell 100,000 plus records every time they put out a record; they can play to 3-4,000 people in 30 or 40 cities around the world. And they can make a pretty good living out of that, doing what they love doing, and can do it on their own terms, and that’s fantastic. We’ve got a bunch of bands like that, they’re not necessarily seeking stardom or riches. That’s incredibly healthy.”

But it’s still recorded music that drives the success, most of the time.

“99 per cent of what you hear about artists who can survive on their own playing live is crap. It’s recorded music that drives success in other areas. Something like Enter Shikari was clearly a contrary example, and Mumford and Sons are something of an exception too – they built a large live following before putting out records – but there are very few exceptions.”
Radical Reforms needed

Despite the sunny outlook, and his belief that its “probably bottomed out, the onslaught of free music is retreating”, Mills says the industry needs to reform itself radically, and lose its fear of commercial experiments. The future is in new services we haven’t seen yet – but it’s still too hard for these services to start selling music.

Some kind of statutory licensing would help the next Spotify or We7, he thinks. Not an open-to-all statutory, where punters could come and help themselves to all the world’s music for a fiver a month – but a B2B experiment – something to help intermediaries obtain licenses.

“We have to make licensing easier and faster, not necessarily cheaper, but easier. We’d like to see some kind of short-term government-endorsed trial structure that we could experiment with for 12 or 24 months, and see the impact of it.”

What would stop some joker turning up, who had no business plan, or maybe even no intention of ever paying for the licenses?

It would need some kind of government agency to approve licensees. But regulators already decide who can run a TV station, or call themselves a bank – there is a threshold. “You’d have a validation process so not everybody who turned up got one.”

Mills says the flat-fee collective licensing of ISPs, touted by some as a panacea with a zeal bordering on the religious, doesn’t have much industry support.

“Peter Jenner has been very vocal about that for a long time. He likes to characterise himself as a crazy eccentric. He’s a lovely guy but there isn’t a huge amount of support in the music industry for something that radical, and it’s not needed. A lot of markets are working quite well. Look at the growth of the download market, it’s pretty healthy. We have 5 to 10 per cent growth a year in digital albums, it’s heading to 30 per cent of the market now.

“Having a single way of consuming music for a fixed amount, that’s same for everyone around the world, is nuts I think. It’s not needed.”

It would also be bad for independent labels who cater to music lovers. By contrast, he’d welcome an offering of a fixed bundle of downloads, via an ISP.

“Unlimited all-you-can-eat offers would hurt us badly. Our market is dedicated high-spending music fans. If you’re Universal, sacrificing the few high-spending fans they have to get many more low-spending fans is probably a good bet. We’re on the other side of the mirror. Much as I would embrace it philosophically, I can’t embrace it practically. There has to be a limit or cap. It would hurt our artists.”

The industry also has to create a global database of repertoire, he says.

“We need a database to track and identify tracks properly and who the performers are. We should have had it ten years ago, it becomes a bigger task with each year. It’s a minefield of partially-attributed rights. When you license a song for a compilation in Australia, you don’t know where the money will end up.”

The Mandybill: was it necessary?

On to the subject of piracy then.

“We know some of our best purchasers are also pirates,” says Mills. “People consume our music in a mixture of ways. Some only pay for it, some pay for none of it, and some do both. We accept that, and don’t want to attack our own fans.

“You’re never going to get rid of free music, partly because we know you can’t, and any time you put a price on a copyable monopoly good, you’re going to get copied, but also because we’re in the business of circulating music for nothing. I can’t remember the last album we didn’t post one MP3 from. We’re using that in a controlled manner, as part of the process of making it available for sale. It’s managed, and it’s what the band wants to happen.”

The argument that P2P leads to purchases has a grain of truth to it, but it’s probably been over-emphasised:

“I think there’s certainly a percentage of file sharing usage, historically, which provided a discovery process that led to sales. There’s also a percentage which was a direct substitute for sales. Now, you’ve got the likes of Spotify and I think that it drives a coach and horses through that argument. You don’t need to file share to discover music now. If you want to discover things and listen to them you can do it legally, though I do think we should make tracks available for sale as soon as they’re being played on air.”

Other factors played their part in the decline of sales, he notes, not just P2P. “CD burning made the most immediate and obvious difference. I don’t believe swapping should remain outside copyright, we should enable private copying in return for a right to remuneration.”

Yet despite Mills’ long-running battles with majors, and a much more nuanced view of file sharing, he welcomed the passage of the Act.

“Your comment recently, that it was an astonishing result in the circumstances, was really right. The forces ranged against it happening were huge and well funded, and completely dwarfed the rights industries, not just the music industry. The government made it happen against the odds. There’s a long way to go, and a lot of it is still undecided, but the principle is now there, and the principle as now supported by Parliament – which is that creators have to be rewarded for their work. That has to be valuable.

“It was not perfect but it had to be done.

“I find it quite hard to understand the right to free music, or the right to an internet connection. If you don’t pay your water bill, you get cut off.

“The BPI doesn’t represent the whole industry. It represents the major record labels. I think that the creation of UK Music has helped – it’s given the industry a more moderate collective voice. The big record companies are hardliners, and they have every right to decide how they want to play the game, but the independents are bit different.

“That said, I think the BPI is more open to debate than it used to be.

“It’s not in anyone’s interests for the majors to do badly; they become defensive. We’re at the mercy of the market leaders, they frame the market, and we have to operate within it.”

Mills stresses that it’s now up to the industry to get better at selling music, in all kinds of ways:

“I’m still astounded that you need a credit card for iTunes, something beyond the reach of most teenagers, while you can’t buy music by text message.

“The last ten years shows the record industry is not able to provide its own solutions – you need an iTunes to do it.” He says the industry has to recognise the skills of retailers again. It’s never been very good at introducing these things, “perhaps understandably, because it’s not their business … majors tend to be about control”.

But he thinks even though music is digital, independent music stores will come back again, as places to discover music again.

It’s unusual to hear an optimistic view of selling music, but Beggars and the leading British Independents point the way to a revival.