The Hot Seat: Charles Caldas, CEO, Merlin

by Lars Brandle

Charles Caldas

Charles Caldas is something of an indie magician. Back in 2007, the one-time Shock Records CEO pulled Merlin out of thin air, creating what was described at the time as the world’s “virtual fifth major.” More than five years on, Merlin seemingly has some new tricks to show off. The global rights body for independent labels has negotiated a range of deals, including licensing arrangements with Spotify, YouTube and Rdio. In recent months, Merlin sued and settled on behalf of its members with the likes of XM Satellite Radio, Grooveshark and LimeWire, recouping “millions and millions of dollars that were not going to be in the hands of our members,” Caldas says.

We’re expecting European regulatory news any day now on the Universal and EMI merger. What effect do you expect the deal to have on the digital biz?

Merlin has been very vocal about the negative impact we think the transaction will have on the digital markets, specifically. We think Universal is the only company likely to try and shape new music services to its own advantage, and replicate the advantage it holds in the physical world. We think that holds back innovation and investment and certainly holds back the ability of the independents to compete in those environments.

We maintain the position that the best thing for the market overall is that this be blocked outright. Clearly the regulatory authorities are looking at the levels of divestments that would be acceptable. It would have to be a global set of divestments, that made sure that nowhere was Universal able to increase its influence in the digital sphere.

Are there any standouts among the “problem” digital services?

The “red flags” to us are services where the major labels have equity stakes and the independents don’t. And we’re always conscious of services that are using music without licenses to build their businesses or services that are looking to suck that value back out. In the broadest possible terms, that seems to be the biggest challenge ahead of us. We’re certainly looking commercially at where we can protect our members’ rights and deliver them revenues back where their rights have been infringed. That was the important thing with cases like Limewire, XM, Sirius and Grooveshare, where the majors had sued and successfully extracted large payments.

One of the reasons for the formation of Merlin was because that kind of activity had gone from the auspices of the IFPI and RIAA into the hands of largest labels themselves, and the independents were effectively excluded from being protected in those instances. Kazaa is probably the worst example of that, where a settlement that was painted as an industry settlement. It was actually a victory on behalf of four companies. And the independents got zero out of that, even though their rights had been infringed.

There was a lean spell when Merlin was formed, but now the organization is getting loads of traction. What was the turning point?

The starting phase was really about shaping the organisation and making sure that we constructed it in a way that presented maximum benefit to our members. The second part is about positioning ourselves so we’re at the centre of these services, not at the periphery. By bringing global efficiencies to these digital music services, we actually become an integral part of their business and we’re able to negotiate deals which reflect that efficiency and hopefully everyone benefits.

Membership continues to grow. The revenues continue to grow. The number of deals continue to grow. It certainly feels like Merlin’s arrived as a stable presence within the independent community.

Australia’s digital market is literally exploding at the moment. Are we past that tipping point where digital revenue outweighs physical?

Australia is unique in that no market has had so many services come in so quickly. Australia is an economically stable, technologically developed and music conscious culture. These kinds of services make sense in the broadest sense. Globally we can say we’ve reached the tipping point in that the digital market in terms of value is showing only signs of increasing and growth. The best part of that is its not just one model that’s emerging.

Part of the reason I’m coming down to Bigsound is to get a sense of how this is playing out. And maybe share some of what we’ve seen with our independent label members down there in terms of how these markets develop and what the keys are for how to maximize revenues under these new models, the differences we see from the access models and download models. It’s all positive news this time. Which is not something we’ve seen for a while.

Australia is also unique in that most of the majors here host their own bespoke digital music retailers. Is that problematic?

It’s certainly problematic for us. While we are in business with JB Hi-Fi, Rdio and Spotify and Deezer and Rara, we’re not in business with those major-label ventures. For us, the real sticking point is we don’t want to be in a situation where our competitors are not only our competitors but are also our retailers. These kinds of services go back to the issues we had with MySpace Music, when it launched.

Any services where our competitors stand to benefit from the value of our repertoire without us having equal access to that benefit is not something that we think is healthy. And it’s not something that we would support.

On a personal level, are there any plans for you to relocate back to Australia?

I’d never rule it out. I feel really close and strongly about the market where I had another amazing ride with a company (Shock) which started with six of us in a little room and became an incredibly successful independent label. But it’s a question that will hang around until the time is right.

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