U.S. government is helping push a different kind of export: rock music.

Uncle Sam Helps Indie-Rock Bands Drum Up Fans Abroad

As U.S. Sales Shrink, Small Labels Look Abroad for Revenue; Seeking Countries Where Listeners Still Pay for CDs

By HANNAH KARP, The Wall Street Journal

The federal government has helped American exporters sell telecommunication systems to Macedonia, tractors to Chad, and elevators to Japan.

Now, the U.S. government is helping push a different kind of export: rock music.

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EFE/Zuma PressAmerican music’s share of the global market has waned to 27% from 38% since 1990.

For the first time, the U.S. government’s trade arm is stepping in to help the music business, funding trade missions to Brazil and Asia in recent months for the heads of a dozen independent music labels, which make up one-third of the U.S. music market and represent acts such as the Black Keys and Sonic Youth.

It is a departure for the International Trade Administration, which has been spending $2 million annually to boost exports for the past two decades under its Market Development Cooperator Program but has never before given one of its $300,000 grants to the music industry, instead favoring sectors like machinery, technology and engineering services.

Until last year the agency hadn’t received a music-industry application worthy of the award, an ITA spokesman said. Indeed, it hadn’t received an application at all.

“We need to find new revenue streams,” said Rich Bengloff, president of the American Association of Independent Music, whose idea it was to apply for the grant. He led the trips and arranged meetings with local distributors, mobile-phone carriers, booking agents and ad agencies. “We now need to adjust to a smaller monetization at home.”

Indie labels see big opportunities in Latin America and Asia—and visiting in person pays off, especially in markets such as Japan, where fans favor foreign artists that spend time in their country engaging with locals and making TV appearances.

Many of the independent label heads that visited Seoul, Shanghai and Hong Kong this fall as part of the ITA grant program have since signed foreign distribution and licensing deals that will generate hundreds of thousands of dollars a year, Mr. Bengloff said. The deals could represent as much as a quarter of a small independent label’s revenue, he said.

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Alec Bemis, managing partner for the New York indie label Brassland, said as a result of a government-subsidized trade mission, he recently signed digital distribution deals in Korea and Hong Kong, began negotiations to license a song for an Hyundai Motors005380.SE +2.28% commercial and booked festival shows in Hong Kong and Taiwan that will pay five-figure fees.

Exports are part of a survival plan as the music industry struggles to adapt to sweeping transformations in technology. For independent labels, which lack the resources and reach of bigger labels, exports are even more crucial to growth. Moreover, American music’s share of the global market has waned to 27% from 38% since 1990.

U.S. music sales—both digital and physical—totaled $7.1 billion last year, according to the Recording Industry Association of America, down from $11.8 billion 10 years ago.

The music industry has been besieged by growing availability and quality of free music from YouTube, streaming services such as Spotify and Pandora, and illegal pirating. All of those things are pushing down prices of downloads and paid streaming subscriptions, shrinking domestic sales, Mr. Bengloff said.

While those forces are squeezing markets world-wide, the pressure has been far more pronounced in the U.S., where digital sales account for 58% of the music market, according to the International Federation of the Phonographic Industry. Germany, by contrast, buys only 19% of its music in digital format.

Japan, which was half the size of the U.S. market in 1990, could become the world’s No. 1 music market next year, analysts say, thanks to its robust appetite for records and CDs often packaged at premium prices with memorabilia. Digital music accounts for just 17% of Japanese music sales, according to IFPI.

Meantime, such countries as Australia, Canada, France and Britain have been far more pushing their music overseas, cutting into both the domestic and foreign market share of U.S. companies. Those governments have sponsored trade missions and marketing campaigns of their own.

The three major labels—Sony Corp.’s SNE +2.20% Sony Music Entertainment, Warner Music Group and Vivendi SA’s VIV.FR -0.79% Universal Music Group—are well entrenched in most foreign markets because their scale has allowed them to compete in small countries without much appetite for international tunes, said Mark Mulligan analyst at MIDiA Consulting.

But now the majors are focused on expanding their reach in Africa, aggressively signing and developing artists across the continent, which has a vibrant music scene but little musical infrastructure, Mr. Mulligan said. They are also competing to sign artists popular in countries where fans still pay for CDs. Universal, for example, said in April it was joining with Shawn “Jay-Z” Carter to distribute his Roc Nation label, in part because of the rapper’s global appeal.

Brassland’s Mr. Bemis, who returned from the mission to Brazil recently, says after comparing the record stores, club districts and facial expressions of locals at the mention of his bands, he thinks Brazil may prove to be even more lucrative than Asia. In Brazil, “lots of kids are into in Goth rock and hard-core, underground rock forms,” says Mr. Bemis, who spent a day strolling through a six-story São Paulo mall of tiny mom-and-pop shops devoted to rock music, posters and fashion.

Mr. Bemis didn’t ink any deals, but the market research, he says, was invaluable. “I thought, ‘Oh, this could work.'”

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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