Merge Records: A Q&A looking back at two decades in the guitar-hero industry

Long before real estate and Wall Street collapsed, the music industry was already swooning. Executives were in a panic as consumers deserted the megastores and stayed home to download files illegally. But even as the biggest recording labels endured wrenching pain, a small label in North Carolina existed in a parallel universe: a topsy-turvy world where advances stretched into the four figures, where successful artists routinely got paid, where feasible budgets and modest revenues made the business of making music something resembling a traditional enterprise.

For 20 years, Merge Records, based in Chapel Hill, has been one of the favorite independent rock-music labels in the U.S., a home to such artistically cherished artists as Magnetic Fields, the Arcade Fire, Lambchop, Spoon and M. Ward. It's no coincidence that its founders, Mac McCaughan and Laura Ballance (pictured), were musicians before they were label execs. Singer-guitarist McCaughan and bassist Ballance comprised half of a hard-driving quartet called Superchunk, a favorite among critics and fans who followed the indie-rock stampede of the 1990s that was set off by Nirvana.
Superchunk, though, seemed to be fueled not by heroin but coffee. Where Kurt Cobain's band was nihilistic and morose, McCaughan's band was upbeat and melodic. Cobain howled and growled with suicidal psychic pain; McCaughan screamed, too, but only to project his high-pitched yelp over his own raucous guitar, so fans could hear him singing about being in love or mowing the lawn. It had a great beat, and you could mosh to it.

Superchunk still plays and records -- it's working, slowly, on a new album -- and Merge is celebrating its 20th anniversary with the publication of Our Noise, of a fascinating oral history of a small business that's survived a gyrating industry by following impulses more artistic than economic. Here, Mac McCaughan and Laura Ballance speak with DailyFinance about their business.

Q: Kids obsessed with music generally fantasize about being rock stars, not about heading music labels. I'm guessing you guys didn't have Clive Davis posters on your bedroom walls.

MM: I don't think I would've known what the head of a music label even was.

LB: I wanted to be a veterinarian. I was definitely not dreaming of profit-sharing statements.

MM: Merge really started because I was in this band, Bricks, that had all this stuff recorded on a four-track, and putting out a cassette tape seemed like the best way to get our music out. Even putting out an LP was beyond how we were thinking.

Q: Mac attended Columbia University; Laura went to the University of North Carolina in Chapel Hill. Neither of you had much of a business background.

LB: We had to learn it gradually: Oops, we shouldn't have let that distributor go so long without paying us -- it was obvious they were going to go out of business! We had to learn from small mistakes. The first time I got a check from our distributor, I just said "Hooray," and turned around and did profit-sharing statements and cut checks -- I didn't realize you had to have a return reserve for the records that wouldn't sell. It was a valuable learning experience.

Q: Did being in Chapel Hill, instead of New York or L.A., help Merge survive?

LB: I'd imagine so. It's a lot easier to survive here when you're not making a lot of money. Mac and I didn't take a salary for ages -- we were living off Superchunk -- and rent in this area was cheap.

It's been an advantage. It's much easier to start small and grow this way.

Q: Being a small label with just a handful of staffers, Merge has twice experienced the dilemma of having a sudden smash that catches you off-guard. When you released Magnetic Fields' 69 Love Songs in 1999, and the Arcade Fire's Funeral in 2004, you hadn't pressed anywhere near the number of copies you needed to meet the surge of demand.

LB: Fortunately, people still wanted Funeral by the time we got more copies into stores a couple weeks later.

Q: But that problem wouldn't happen today, right? Anyone who couldn't buy a copy at a store could just buy the digital files online.

LB: 2004 doesn't sound that long ago, but fewer people were using the iTunes store then. Digital sales were gravy, not the bread-and-butter that it's coming to be viewed as. It's "flipping" . . . I can't believe Mac just let me say that.

MM: We're still pretty obsessed with selling physical records.

Q: So has packaging become more important or less?

MM: To us, it's gotten more important. You have to make it nice, to give people a reason to want to buy a physical object. Our digital sales are increasing, but I think there'll still be a core of music fans who'll always want to buy records.

Q: Can a small label have a fan-base, the way a band can? Are there fans of Merge Records?

LB: There are. I'm aware of a certain set of people who have been ordering, directly from us, every single record we've put out since 1990. There are a few people that bought our first records, and we're still sending them packages. It's a cool link.

Q: When Merge was founded 20 years ago, it was trying to sell individual songs. Now you can theoretically return to that model, selling digital files of individual songs.

LB: We're still trying to sell albums.

MM: Yeah, we still think in terms of albums. When we started Merge, the industry at large was already a singles-driven industry because of MTV. So for a while, the major-label approach was to put everything into one single, and then people would have to buy the album. But people started going down this road where they were excited to hear a Britney Spears single but didn't have to have the album. Whereas with artists on Merge, some songs could be "hits," but fans wouldn't think of the songs as replacements for the albums. So you can consume one song at a time, but we don't think of our records that way.

Q: Has file sharing hurt your label and artists, or helped out as a promotional tool?

MM: You can't stop illegal file sharing, but you hope that people who are fans of the music you're putting out will pay for it so the artists can keep making it. The people who really care about the music make the connection. People who don't care aren't thinking about that. Or maybe they are thinking about it, and they still don't care.

LB: As digital sales have grown, we've definitely seen Merge grow. The great thing about the "interwebs" is that more people can find a wider variety of music -- it doesn't matter where you live, or what's being sold at Walmart. That's why indie labels are taking a bigger portion of the market.

MM: But the other thing is that the more records you sell, the more illegal file sharing there is. Much more people illegally download an Arcade Fire or Spoon record than a record by Wye Oak. And when a major label says "File sharing is killing us," they're saying people are stealing the songs they've invested in heavily to promote. They're not worried about people downloading their flops.

Q: Could digital publishing eventually take cues from the advance of digital music distribution?

LB: Book promotion relies a lot on very specific, singular press events, like getting written up in The New York Times.

MM: But books also aren't shared in quite the same way as music. A book takes longer to share. With a record, you can listen to it once, and 45 minutes later -- or three minutes later -- you can tell a friend about it.

Q: Giant music labels, big book publishers, major movie studios -- how did these companies all wind up with this model where they have to rely on one smash hit to bankroll 99 flops? Why not just run the company like any normal business?

MM: I think a lot of majors are probably wondering the same thing right now. But I don't know if that'll change, because in their way of working, if they narrowed the field down, then they'd have to live by decisions they made. Merge is really fiscally conservative. We put out fewer records, and we think they're all good. But at a major label, the shareholders might not be willing to live with the ups and downs of the industry -- they always want up.

LB: The major labels pay their artists based on this really weird system of awarding points per unit sold, and they devise all sorts of ways to deduct units. I think our deal is more artist-friendly -- we operate on a profit-split basis, so once your record starts earning money, it's yours.

Q: In 1991, Nirvana unseated Michael Jackson from Billboard's No. 1 slot, and the major labels with huge budgets swarmed to independent rock bands like Superchunk. Weren't you ever tempted?

MM: Not really.

LB: The last time I remember anything remotely happening, I feel like it became pretty obvious that we weren't going to say yes, and then nobody approached us anymore. But more recently, the majors have been looking at the increasing success of independent labels like Merge to try to get a piece of the action.

MM: Right. People still approach Merge to "team up" -- "Heyyyy . . . how can we work together?"

Q: Have you ever signed a band that you didn't personally care for, but that you saw some merit in?

LB: You mean, like, We don't like this, but the kids will love it? No.

MM: Although we may have done the opposite -- signing people that appealed to us but no one else. But independent labels like us, or Sub Pop, or Matador -- we're after different things from the major labels. If your job is to make money for the label, then sure, you shouldn't be relying on your personal taste.

Are there any companies you admire? Anyone who's doing anything right?

LB: Occasionally, we'll notice someone doing something cool, but it's hard to think of an overarching --

MM: Google! I love what those guys are doing! They're going to be huge. You can take that one to the bank.

Our Noise: The Story of Merge Records, the Label That Got Big and Stayed Small (Algonquin Books, $18), by John Cook with Mac McCaughan and Laura Ballance, is in stores now.

Todd Pruzan is features editor of DailyFinance. You may follow him on Twitter at toddpruzan.

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