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Indie Musician Advocate

Marking CD Baby's first decade, founder Derek Sivers and his company continue their ascent.

By Mark Small

 
  Photos by Anthony Pidgeon

Derek Sivers never set out to become the largest distributor of independent music in the world. Back in 1997, he simply wanted a way to sell his own CD from his website, which few artists were able to do at that time. Then a full-time musician, Sivers agreed to help a few of his friends sell their CDs through his site. Soon word spread, and other artists approached him about carrying their CDs on the site. By 1998, Sivers had brought 100 artists into the fold and hired an employee to help him handle the volume. As the number of artists releasing independent CDs exploded, Sivers realized that there was a large, unserved clientele out there. He quit performing and created a musician-friendly Internet distribution service that turned prevailing music-business practices upside down.

In contrast to traditional record labels and distributors that have always paid meager artist royalties, CD Baby has a relatively unique goal: to maximize an artist's take. After an artist pays a $35 setup fee to get a title into the system, a page is launched on the CD Baby website with album art, artist bio, and sound clips. Then, for a flat $4 fee per mailing, CD Baby bags and ships each disc purchased via the Internet to any location in the world. If the artist sets a price of $15 per disc, he nets $11 per sale. If a disc sells 1,000 copies (a figure that would get you dropped from most record labels), CD Baby pays the artist $11,000.

 
Left to right: CD Baby staff members Chris Robley, Lindsey Collins, and Craig Hennecke in the aisles of the Portland warehouse complex that houses more than one million CDs by independent artists.  

Ten years after launching the business from his bedroom in Woodstock, New York, Sivers now employs 100 people at the large CD Baby warehouse complex in Portland, Oregon, which holds a million-plus CDs by more than 200,000 indie artists. In addition to physical sales, the CD Baby catalog is available for download through iTunes and 150 other digital distributors. Sivers also offers other musician services such as Host Baby (Web hosting for musicians) and Promo Baby (basic promotion services) as well as Film Baby (distribution for independent filmmakers). In the future, he plans to further expand on CD Baby with branch offices across the globe to serve local musicians in their home countries.

From the grass roots to the elite, the music industry has taken notice of Sivers, who has rejected lucrative offers to sell his company and declined payments to give preferential placement of an artist's disc on the site. It's never been about the money for Sivers; it's always been about helping musicians. This ethos prompted Esquire magazine to dub him "one of the last music-business folk heroes."

As we talked during an early-December stroll on the beach near his Southern California home, Sivers told me he doesn't lament his decision to stop playing and producing his own songs and devote himself to constantly refining his company's systems. "The interesting thing is that it feels like I am making more music than ever," he says. "That's because I'm helping everybody else sell their music, which enables them to make more. I'm in the background, but this feels as creative as anything I've ever done."

 
  Singer/songwriter and CD Baby client Teri Untalan '90: "My CDs have sold to people in Japan, Norway, Italy, the Czech Republic, and elsewhere that I would never have been able to reach on my own."

How did you get started in music?

I was a musician from the age of six. At 14 I knew that music was all I wanted to do. I had no other interests or hobbies. I entered Berklee as a guitarist but came out an "everything guy." I was a professional music major and loved studying harmony, ear training, composition, piano, songwriting, voice, music synthesis, and production. My focus became putting it all together and making my own music more than becoming a skilled guitarist.

Did you take any music business classes at Berklee?

I did, but there were only a few at the time. Rob Rose had a music business class that changed my career. He told us to read the book Positioning [Positioning: The Battle for Your Mind by Al Ries and Jack Trout.] It has nothing to do with music. It's about finding a specific niche in the marketplace and owning it rather than trying to be everything to everyone. Rob told us to think about positioning ourselves in the marketplace. Some of the most successful grads I've seen coming out of Berklee have done this. Those who become specialists make a name for themselves.

There are also many Berklee musicians who have a broad base of skills and do a lot of different things. I've met some rock stars that didn't have real musical knowledge. They got where they were by being in the right place at the right time singing a song that people liked. When people didn't want to hear that song anymore, they had no legs to stand on for a career in music. One of my favorite things about Berklee is that you can get a broad base of musical knowledge that becomes your security. You can make a living in music for decades if you know how to do a lot of things.

"It's a little-known fact that CD Baby has the largest digital distribution catalog in the world." -Derek Sivers  

After you left Berklee, how did your career unfold?

Things grew out of something that happened in a songwriting class. Mark Fried from BMI was a guest speaker. As he walked into the class, I heard him say to the teacher, "I thought we were going to eat first." She said, "No, I thought you'd already eaten." It was a three-hour class, so I ran out to the pay phone and ordered four large pizzas from Supreme and had them delivered. When they arrived, Fried said to me, "I owe you one, kid!"

When I told him I wanted to move to New York after graduation, he told me to send him my résumé and he'd get me a job. I did, and soon I got a call in my dorm room from someone at Warner/Chappell Music publishing asking if I could start the following Monday. I took a job for $20,000 a year working in their tape room. It was a great way to understand things inside of the music industry that you can't get from reading books. I highly recommend that any graduating student who needs a day job get one on the receiving end of music. It was enlightening to work at a record label where everyone was sending their music saying it's good and they think it will sell. It changes the way you approach others with your music once you've been on the receiving end.

For the next few years, Fried introduced me to people and gave me advice on my music. All it took was one kind gesture. We have remained friends for years. As I look back on my career, I see that big opportunities usually come from someone you know.

What contributed to your decision to found a company that is a champion for independent musicians?

I was making my living as a full-time musician. I lived in Woodstock, New York, in a house I'd bought from what I earned touring, playing on other people's records, and writing for TV projects. I didn't need or want to start a business. At that time, PayPal didn't exist, and it was hard to get a credit-card merchant account. I got one to sell my own CDs and then a few friends asked if I could help them sell theirs. They started telling their friends, and soon I was getting calls from people I didn't know.

When I realized that it was becoming a business, I decided to take a utopian approach, because I didn't care if it earned money. I thought of four things for distribution that would be really important from a musician's point of view. They became the DNA of CD Baby. First, musicians want to be paid every week instead of once a year or never, as was the case with other distributors. Second, they need the names and addresses of everyone who buys their music, because those are their customers, not the label's or the store's. Third, there should be no paid placement so that artists with more money come up first in a site search. Paid placement puts those who can't afford it at a disadvantage. Fourth, no one should be kicked out for not selling enough. If someone wants to put out obscure or weird music and only one copy sells every three years, the perfect distributor would keep it in the system. These days, a lot of these things have become standard policy, but just 10 years ago, no distributors were doing them.

When you hear that CD Baby has changed the music business, what goes through your mind?

I love the fact that my four ideals seem to be taken for granted by other companies now. Most online companies pay their artists weekly or monthly and won't kick you out for not selling. In the 10 years since I started CD Baby, there have been dozens of imitators. Some have even taken the wording off of our site [for use on their site]. It feels good to have created a business model that helps musicians. Before this, people weren't designing systems to help musicians.

  "What I love about this business model is that someone can be a success selling 1,000 CDs."

In the music business, everyone says, "We're all about the music; we love music." The industry loves music as a product, but not the musicians. For me, CD Baby is all about the musicians. I have companies call that ask us to send a list of our 10 or 20 best records.

But we won't; we refuse to play favorites. It's like music school. You have to treat everyone equally because it's all about development, growing, and learning. Someone could send us three bad albums and then send a fourth that is amazing. It would be wrong to shut the door too early for that person. I try to create an environment like a music school, where everyone is encouraged to be the best they can be at whatever stage they're at. That's the difference between being all about the musician rather than the music.

You've had people offer to buy your company but you've never taken the deal. How come?

I didn't get into this for the money, so I'm not going to get out of it for the money. That was never the point for me. In the dot-com boom, you saw people start a business with good intentions, but the investors wanted bigger returns, so owners began to compromise their original intentions and started mildly screwing people. Once that happens, they have to shut down because people know they are getting screwed, or the owner sells the business and becomes miserable because what started as a golden egg turned into a rotten egg. To me it's failure when what you set out to create becomes corrupted-even if you are making a lot of money.

It's the same with a musical career. There are some people who feel they have to do whatever pays, and it makes them miserable. People can tell when what you're doing isn't your forte. The thing you want to do the most is what you do best. If you are doing something you love and you're great at, people will love being around you, and the money seems to come. When you make calculated decisions to try to make more money, you fail. To me, CD Baby immediately felt like my unique offering to the world. There are people who can write a better song or play guitar better than me, but no one could do CD Baby better than me.

Are some of your artists selling lots of CDs?

We pay out about a million dollars a week. This goes directly to independent musicians for their sales through cdbaby.com and 150 digital retailors that have our catalog. That includes Apple iTunes, Rhapsody, Napster, and even walmart.com. It's a little-known fact that CD Baby has the largest digital distribution catalog in the world.

Surprisingly, most of the money goes to places you wouldn't expect; it's not going to pop singers. It may be to someone doing a gospel record to benefit the soldiers in Iraq or using hip-hop music to teach multiplication. We have a woman named Eileen Quinn who is a sailor and only writes songs about sailing. Sailors everywhere want her music. She's got her niche.

Some of the most grateful artists we have are those who used to be on a big label and are now doing everything themselves. They appreciate being directly in touch with their fans. Grant-Lee Phillips was in Grant Lee Buffalo on Warner Bros. He was one of our first name artists. His manager told us that selling 10,000 records through us earned him more money than he got from selling a half-million records with Warner.

What I love about this business model is that someone can be a success selling 1,000 CDs. That can pay all of your expenses. Some people put out a few CDs per year, and if they can make $10,000 doing that, they are making a living in music if they add in teaching and gigs. There are a lot of surprise sales. Some people figure when they put an album on CD Baby, just their friends will buy it. Then they find in the first week or two that they've sold two in the Netherlands, three in Japan, and five in the United States to people they've never heard of. By starting this as a favor for my friends, I accidentally created a place that is a destination for people to shop. I never expected that. It wasn't meant to be a store, I was running the back-end processing. On the side, it was an online store where all these artists could be found. People started coming back and browsing for music they'd never heard before.

I hear that these days you primarily write code and develop systems for the CD Baby site. Were you always computer savvy?

Never. I started by making a simple website doing basic HTML. As the site grew, I made it into a database-driven website because I couldn't keep making each individual page. I couldn't afford to hire a programmer, so I bought a book on programming and learned it. I heard a quote by a jazz musician who said that if you can learn music, you can learn anything.

How much time do you spend at CD Baby headquarters in Portland, Oregon?

People are amazed when they find out that I haven't been to the office in nine months and only call in for about 30 minutes per month. I have a laptop life now. I can be anywhere and stay in touch. It's not like I am out partying all the time, though. My friends still say I'm a workaholic. All I want to do is program and invent things for the business. After I come up with something and design it, I hand it off to the people who will run it. Then I turn my attention to the next thing.

I stay involved in the tech stuff. It feels similar to songwriting to me in that you get an idea for something that doesn't yet exist, and you sit down and work at it until it does exist. For instance, last week we overhauled the way we handle all incoming e-mail. I wrote a system that sends all incoming e-mails to a database where they are categorized. All of the e-mails are joined in the database to specific clients, albums, customers, and invoices. Now we can pull up a client's file and get the whole history and see which employees responded.

Are you operating on the assumption that the CD will remain an important format?

Yes, but you can tell that CDs will go away someday. Our physical CD sales are 35 percent higher than they were at this time last year. Ten percent of music fans buy all of their music as digital files, while 90 percent still get their music on CD. It surprises me when I hear a musician say, "I'm not going to make CDs anymore; I'm going to be digital only." It makes me want to ask, "Are you at the point in your career where you can shut out 90 percent of your audience?" It's still worth it to make a CD. Artists have so much more sales potential if they have both formats available.

Can you describe your plans for growing the company internationally?

I envision international branches of the company that will allow a musician in Japan to sign up with CD Baby online in Japanese, then mail his or her CDs to our person in Tokyo. A day later, the disc is up on the site. Someone in Brazil reads about it on the site in Portuguese, hears the album, likes it, and orders it. We plan to have local warehouses in various locations that ship internationally, just like we do in Portland.

I realized that I could have someone be CD Baby Italy working out of a bedroom in Florence and, likewise, CD Baby Japan from a bedroom in Osaka. Dozens of countries could have a person representing CD Baby, Host Baby, and Promo Baby for their country in the local language. It would be a cool job for a musician who wants a day job helping local musicians get their music out there. My challenge is to set up a system that allows dozens of people from around the world to represent their local music market in their own languages while working from home. To me that's inspiring. We've started in England as a central point for Europe. We will establish others in Asia and maybe one in Australia. This will make it easier for musicians in those regions to ship their CDs to a central place.

How has the music business changed over the decade since you began operating CD Baby?

For years success in the music business was like a one-inch bull's-eye on a target. You had to hit it dead center with universal appeal or your arrow fell to the ground and you had nothing. Now we're in a world of niches. The target has become 100 feet wide, so it's pretty easy to hit something. The tricky part is that there's no center anymore; everyone has gone to the edges. If you are trying to shoot for the center and have a giant hit, there is nothing there. People are making a moody acoustic record or a complex jazz record or an angry, aggressive hip-hop record.

Regina Spektor was an artist who started out on CD Baby. Her music was pretty normal, piano-based singer/songwriter material. Her records did OK, but then her music started getting weirder. The lyrics got strange, and she started playing piano with one hand and hitting a drumstick on the piano bench with the other. The weirder she got, the more people became interested, and that record sold thousands of copies. This got the attention of Warner Bros., who signed her to a big contract because they saw that she had the confidence to be herself. The world is a big, thick attention fog. If you try to be everything to everybody, you won't get through the fog. Well rounded doesn't cut through; you have to be sharply defined. In the age of YouTube, MySpace, and niche websites, you need to turn up the volume on what is unique about yourself.

What's the most important lesson you've learned through all of this that you would like to share?

The hardest lesson I've learned is that you have to work at what's exciting to you. The things that excite you most and keep you awake long after you should have gone to bed and then make you jump out of bed early are what you should be doing as much as possible. For years I listened to people who were telling me the things I should do. Most of the time I just took their word because I thought they were smarter than me. I'd slump my shoulders and say, "OK, I guess I'll do that even though it's not exciting to me." I've learned that whatever part of the business I hate doing, there will be someone out there who loves doing that.

I've met too many people who got into music because they loved playing drums, but well-meaning people tell them they need to read some huge book about the business of music and negotiating contracts, cross-collateralization, and points on the agreement. Feeling guilty, they try to go through it but find it boring. Then they start copyrighting all of their songs and trademark their name and set up an LLC. Someone else says they need to have a website, so they try to learn HTML, but someone else says they need to have flash on the site. Then they try to learn flash. The truth is that while all of those things are important, nothing is more important than maintaining your full excitement for what you are doing. If you lose your enthusiasm along the way, things will fail no matter how flashy your site is or if your band name is trademarked. Pay close attention to the compass in your gut. Do the work that's most exciting to you, because that's what you will do best.