The music industry is globally facing several challenges—CD sales are down, LPs have seen a certain revival but how do you find ways to keep revenues up when such a large amount of music is being shared or distributed over internet, between and among users in both legitimate and illegitimate ways?
We sat down with Arthur Herman of ZIP Records to get some inside information on what it means to run a record company during these days of uncertainty and transitions.
Where your average record company CEO is a guy with silly colored glasses, a haircut from hell, and a background in music, Herman immediately breaks the pattern. With a law degree and several years in maritime law, maybe you wouldn't have expected him to move into the music industry when his employer, a cruise company, chose to move its business to New Orleans from San Francisco 12 years ago. But that's exactly what happened.
Herman had always wanted to get involved in the music industry and saw the perfect opportunity.
During a trip to Tokyo, Herman found himself listening to a CD that a friend had made for him. After listening to it some ten times in a row, he could only conclude that he loved the music he heard — by The Merry Makers.
Maybe it was faith, an act of God, or just a coincidence, but in the lobby of his hotel in Japan, Herman found himself standing face to face with The Merry Makers; they happened to visit Japan at the same time. In the same hotel. At that moment he realized, “it all makes sense.”
Herman quickly made friends with The Merry Makers who were there to sign a deal with Virgin Japan (the band went on to achieve a great deal of success in Japan with their album). Herman never came to put out an album by The Merry Makers, but through them he connected with the band Dorian Grey which was in L.A. doing a gig for a pop festival. Dorian Grey became the first group to be signed onto Herman 's newly found label – ZIP Records. The Merry Makers helped produce Dorian Grey's first album which sold between 2,000 and 3,000 copies worldwide, a fairly good number considering ZIP Records didn't have a distribution deal by then.
Around this time Herman was traveling to Sweden once or twice a year, affirming his love of the Swedish sound. “Initially the focus was supposed to be on Swedish music exclusively, as the Swedish pop sound always had attracted me.”
Herman wanted to focus solely on Swedish music but soon found himself working with British bands as well. Among the many bands ZIP Records worked with early on were Safari Season, Pineforest Crunch (remember “Cup Noodle Song” anyone?) and The Virtues. In 1999 ZIP Records took over an Australian label and renamed it ZIP Records Australia. This allowed for a smoother introduction of Swedish acts onto the Australian market.
A unique thing about ZIP Records was that it established recording deals with foreign artists, meaning that ZIP Records owned the masters, rather than licensing the distribution rights to a certain release. This allowed ZIP Records to distribute worldwide instead of keeping to a certain market.
Herman never did any A&R (an acronym standing for “Artists and Repertoire,” the act of talent scouting and artist development), either. All bands he has come into contact with are almost exclusively known to him through family or earlier projects. “It's been more of a friend-making process,” reflects Herman. This has meant challenges for him and ZIP Records, and therefore the company only works with independent acts with realistic expectations. This generally isn't a problem, however, as the Swedish music market is a real tough one, he says. “The public radio in Sweden [doesn’t] do much for independent artists; the artists receive some initial support and airplay but nothing more. It's very hard for an independent act to build up a local audience without more airplay and support. The tendency seems to be that only a few 'super groups' such as The Hives or The Cardigans steal all the attention. They gave a high profile to the scene but the income has not been spread among the whole industry.”
Today ZIP Records is still working with all the groups it initially worked with, The Virtues and Dorian Gray in particular. Fresh acts are being signed, though -- for example, an act that was recently signed is Little Red Snapper, formed by two group members of Dorian Gray with an album coming out in 2009. Another steaming hot project is the collaboration between the Swedish production camp Ghost and the soul singer Sanne, given the name Ghost vs. Sanne. With a new distributor in New York (Sony BMG RED), Ghost vs. Sanne is going to be a top priority for ZIP Records and the distributor. Given the benefit of a sneak-peek, also known as a promotional copy, you can do nothing but agree that Ghost vs. Sanne just might make some noise in the industry.

So why is Arthur Herman a member of the Swedish-American Chamber of Commerce in San Francisco?
- ZIP Records became a member of SACC as soon as the label was formed in order to get a pulse of the Swedish business community and also to investigate ways to involve the members in supporting Swedish music in the Bay Area. It has also proven to be a very good association for supporting some of the artists that have to come to San Francisco. For the first 8 years the first three assistants working at ZIP Records were Swedish, and by taking advantage of the trainee program ZIP Records also had a Swedish trainee for 6 months which was very fruitful.

How does Herman run a small record label these days when the music industry is facing the challenges of changing their ways of distribution and marketing?
- It's tougher as we haven't really ventured into the new way of distributing over the Internet. Doing things the old-fashioned way is still working out ok though, but CD-sales are definitely down from what they used to be. The advantage of the new model is that digital sales are easy to set up overseas; marketing over the Internet, however, is a real mystery to me and record business these days is 90% about marketing the acts. So I'm personally not sold on the possibilities.

Is Herman in some way a part of the “Big Four” (Sony BMG, EMI, Universal, Warner)?
- No, we are completely independent/indie. The only connection we have with the Big Four is through Sony BMG RED, our distribution partner in New York.

Is ZIP Records, as a small label, affected less than the big record labels by the current turmoil in the music industry?
- I'd say that the major businesses are better off than we are. The reason why is that even though almost all artists these days have their own web page to market themselves through, the major labels still can get an artist seen or heard so much easier through connections with film placements, TV-appearances, and such. The major labels many times have common ownership with other media channels which gives them a huge advantage. It's not so much about hurting sales but more of being able to get the word out through the huge cloud of information that's out there.

So is the CD dead?
- The CD is dying, but it's not dead like cassettes or 8-tracks. People of my generation keep buying CD’s out of habit – it's a generation-thing. It's also a genre-thing. Urban music tends to be slower to catch up with the Internet.

What's Herman’s opinion on illegal downloads? Good for promotion? Bad for business?
- It's good for business if the artist is touring on a regular basis because it generates a buzz about seeing the artist perform live. Free downloads are also good for a major artist who selectively can make certain tracks free to create attention (and thereby sell merchandise). For a typical indie artist it's not good, however, because people will enjoy the music but no revenue will be generated.

The ZIP Record label sells its own music directly over the Internet without any middle man. Is this an ongoing trend? What is keeping artists from doing the same thing – cutting out the labels and selling their own music directly over the Internet? Do you think labels will vanish completely over the years or do they still have a function to fill?
- There's definitely a future for record labels since the music business is almost all about marketing these days. It seems likely that the artists will need a third party to do the marketing in the future as well. This third party doesn't necessarily have to be a traditional record label, though -- it might just as well be a major corporation such as Nike or Pepsi. Almost every record label makes their products available over the Internet these days and there are some clear advantages with having an outside distributor. There are disadvantages as well, however -- “return policies” being one of them -- if there isn't a quick sale or a contemporary massive tour by the artist, unsold records are returned to the label and the label is charged for each unsold record being returned. For example we would be able to get the Little Red Snappers album up for sale in major retail stores like Wal-Mart and Best Buy, but with the current return policies employed it would be such a gamble so we rather not.
In the old days the goal of the label was to have a real powerful distribution relationship, but now it's coming into question whether it's just better to do distribution yourself.