Beggars belief

15 September 2007

The Beggars Group office in South West London feels exactly how you would want a record company headquarters to feel: piles of obscure vinyl litter the corridors, music blasts from the stereo and the walls are a patchwork of gold discs and gig posters.

Externally, however, the office, located in Alma Road, Wandsworth, does not look a particularly big deal, with just a small blue sign alerting passers by to the fact that this innocuous building on a residential road is, in fact, the nerve centre of one of the world’s most important independent record label groups.

But important it certainly is. Beggars’ recent purchase of Sanctuary’s 49% stake in Rough Trade Records may have pricked up ears, but away from the media glare, Beggars Group has long been quietly building an independent empire, to the point where chairman Martin Mills can confidently remark, “In terms of being a supplier of alternative music, no one can be without us.”

It is a remarkable boast – but it is certainly no empty rhetoric. For which retailer could claim to truly represent the alternative scene without music from The White Stripes, The Pixies, The Prodigy or the early Gary Numan/Tubeway Army catalogue on their radar? And that is without mentioning The Strokes, Belle And Sebastian and Super Furry Animals – all of whom reside on the newly-acquired Rough Trade.

“I don’t see anyone like us,” says Mills, relaxing on a sofa in an upstairs room at the Beggars office as he reflects on the group’s long and sometimes difficult history. The room itself used to house Too Pure’s office, but now plays host to a couple of sofas and an old table. It looks for all the world like an out-of-favour guest room.

“We are independent, we have offices around the world,” Mills continues. “We are the independent that can offer wholly-owned representation around the world, but also the best possible interaction with the digital market. In terms of structure, we are quite well positioned.”

Indeed, the issue of structure is an important one for Beggars – the group is home to seven labels, which it either wholly- or part-owns: 4AD, Beggars Banquet, Matador, Playlouder, Rough Trade, Too Pure and, crucially, XL – home to many of the group’s best-known acts (see breakout, below).

Key to the Beggars success is creating a structure which is not dictatorial. “The whole model of it is that it is a very light touch,” Mills says. “We have a structure but it is very un-hierarchical and very loose. Essentially, the labels deal with the making of the music and the primary relationships with the artists and the group gets the music to market and runs the back end of the business.”

Essentially, this means the group looks after PR, marketing, stock control, digital and physical sales and business affairs, while individual labels handle the thorny issue of talent development, or A&R. XL for example recently announced plans to launch a new PR company, Technique Publicity, headed by former Darling Department head of press Jon Wilkinson.

“The structure that we have invented gives collective strengths and economics of scale. It is the best of both worlds,” Mills adds. “As strong as a major when that is necessary and familial as an independent.”

However, the particular ingenuity of Beggars’ structure is that it allows each label to draw on as much, or as little, support as it needs, as the group can put together a bespoke team to work on each project. The result is that each of Beggars’ labels can work with – and turn a profit – on artists at every level. So, while XL can make money on a cult act such as Ratatat – an artist with a “defined audience” as Mills puts it, which might sell around 35,000 copies of their latest album around the world – it can also release global chart-topping albums from The White Stripes or Thom Yorke.

“We can bring the heavy artillery when the moment is right and also we can bring the fine tuning,” explains Beggars’ managing director John Holborow. “Learning how to make smaller projects profitable is key to the group.

“We are not fixated with profit, though,” he adds. “We work with a lot of bands who are orientated towards the smallest of profits or even breaking even.”

The free-floating nature of the structure also means that a label like XL, with its roots in dance music, can sign a US-based singer-songwriter such as Elvis Perkins and benefit from a team that has worked on similar releases. Equally, Playlouder can run a roster as forcefully eclectic as its own, which comprises one French house act (Black Strobe), a US indie act reminiscent of The Smiths (Voxtrot) and Norwegian shoegazers Serena-Maneesh.

Another notable feature of the Beggars Group is its international standing: the group has offices in most leading international territories including the US, Japan, France and Germany and, rather than licensing the rights to its releases around the world, the group signs distribution deals in each territory. It is a move which allows Beggars to control its own destiny, while enabling the group to keep a close eye on what is happening internationally.

“With licensing deals, you are fighting for labels to spend money on your acts and you’re competing against local artists,” says international managing director Paul Redding. “With distribution, we effectively control everything, from spending to marketing.”

Redding explains that, by hiring office space from the distributors, the group is able to keep costs down with no need to invest in IT or office space. This innovative attitude extends to the digital arena: the group was one of only a handful of labels to have digitised its entire catalogue before the turn of the century and has now reconfigured its promotional structure to put new media at the heart of how it presents new music.

“As a band, pretty much the second thing you do after your first rehearsal is to put up a MySpace site. We are developing the next steps for that,” says Mills. “We have a big new media team [comprising 11 people across promotion, sales, design and development] at the forefront of what we do. Most record companies are still structured like it is 1974. That is nuts.”

“If you look at the traditional media landscape, radio is becoming more playlist-driven, it is harder and harder to get artists on there. TV has a limited role and, as for press, the people who used to support us have gone online,” adds Beggars director of digital Simon Wheeler.

“A new passionate community has sprung up in social networking, blogging… we are trying to make sure that our bands are promoted in grassroots ways. That is predominantly online. That is where we have got to be targeting the audience.”

Nevertheless, Wheeler admits that promoting Beggars acts among the notoriously finicky online audience can be difficult and requires more of a softly, softly approach than traditional media.

“You can’t plug them on blogs and you can’t PR to blogs,” he says. “But being part of that community is important. You have got to give them some way of leading the discovery on for themselves. It’s an inexact science.”

Yet it is a science that Beggars appears to be mastering – 49% of first-week sales in the US of Beggars Banquet act The National’s album Boxer, for example, were digital. Wheeler adds that sales of digital albums in the US represent 60% of total digital sales.

This forward-looking approach, together with a prudent attitude to finance and notoriously tightly constructed contracts, has allowed Beggars to weather the music industry storm better than most: although its turnover for the year to December 31 2005 fell dramatically from £28.5m to £15.6m, it nevertheless managed to grow profits to £2.2m, the largest annual profits since 1997, when it made £4.8m.

“What has allowed us to succeed is the combination of dealing with great music and running the business in a responsible manner, being prudent and being prepared to take risks when needed,” says Mills.

“There are some huge issues right now,” he adds. “The biggest one is the decline of the top part of the market. We are clearly seeing the age of the two-million album-seller in the UK has gone. The top slice of sales seems to be disappearing - the impulse buy, the supermarket slice. There is less money in the music economy and in retail.”

Nevertheless, Mills remains positive. He firmly believes that there is a future for physical product and is confident the nature of the music Beggars releases – essentially alternative, fan-based artists, or “the kind of music people don’t steal as much as they steal blockbuster pop music” – will protect his company from the copying storm.

What is more, despite the growing influence and market share of the few majors – and particularly Universal – he believes indies can continue to thrive – if they stick together.

“If you are big enough you can stand on your own feet,” Mills says of his involvement with both Aim (of which he is vice chairman) and Impala (of which he is chairman). “But there are benefits to the community and the music industry for the independents to act collectively. The driver for that: 10 years ago there were 15 or so major record companies. There was a much broader music community and no one was dominant. Now there are only four.”

As for the future, Mills predicts that Beggars will be able to return Rough Trade to profitability by the end of next year, thanks to the economics of scale the group offers, and says that he hopes to continue Beggars’ record of artist-driven growth.

“I have always been keen that growth should be driven by artists,” he says. “Our expansion has been driven by the success of artists like The Prodigy and The White Stripes. We exist to service the needs of our artists and build a profitable business from that. To do that you need a degree of scale.”

And if a major should come knocking with a zero-laden cheque?

“I have never been tempted to sell up,” he concludes firmly. “You only really get tempted when you need the money or support. We have been able to grow organically. We have had a million offers. But we have the company where we want it. We don’t want to be under somebody’s control.”

And with that, Mills disappears down the rabbit warren of the Beggars office, swerving past piles of CDs as he goes.