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NEW YORK (Reuters) - In the summer of 1987, 19-year-old Mac McCaughan and his bandmates stumbled on an idea as old as rock 'n' roll itself.
Rather than sending demo tapes to major record companies, they followed in the do-it-yourself footsteps of punk-rock idols such as the Buzzcocks and Minor Threat and started their own label. But more than promote their own band, they wanted to document the local music in the college town of Chapel Hill, North Carolina.
That label evolved into Merge Records, which is celebrating its 20th anniversary. Along the way, the label has garnered mainstream hits by Arcade Fire and Spoon, attracted critical praise for bands like Magnetic Fields, and enjoyed smaller successes with Lambchop and McCaughan's own band Superchunk.
Its history was been documented in "Our Noise: The Story Of Merge Records" (Algonquin Books), which McCaughan wrote with Merge co-owner and Superchunk bassist Laura Ballance and Gawker.com scribe John Cook.
In an industry where success is measured in the millions of records sold -- or used to be, until sales starting slumping a decade ago -- Merge has thrived with sales figures in the thousands. The label's biggest seller, Arcade Fire's 2007 album "Neon Bible," sold 420,000 copies in the United States. Spoon's Merge label debut, "Girls Can Tell," sold more copies in six weeks than the band's previous album sold for a major label in a year.
Guided by McCaughan and Ballance's eclectic tastes and fiscal discipline, the label has succeeded where many others -- independent and major -- have failed.
"We operate in a conservative way," Ballance told Reuters from her office in Chapel Hill. "We were never in a position where we've had to say, 'We need a hit' or 'Oh crap, we have to sell some records really quick.'"
Consequently, they have managed to sign and retain their favorite acts even as major labels offered deals that seemed more generous.
Merge eschews large upfront advances in favor of generous royalty rates, and allows bands own their master tapes. Acts on big labels often stay indebted to their record companies for years, because the money lavished on advances, marketing and distribution is all recoupable from the band's royalties.
For its first 10 years, Merge operated only on a handshake basis. There were no contracts. It was a model that several indie labels used, such as Factory Records and Touch & Go Records. But after a couple of such deals turned sour, the label had to go the more-conventional route.
The handshake model backfired for Merge when a band wanted to jump to a major label. ... And You Will Know Us By The Trail Of The Dead ... had a verbal agreement with Merge to record two albums.
After recording the critically-lauded "Madonna," they signed with Jimmy Iovine's Interscope Records (owned by Universal Music Group) without delivering Merge a second album.
"We started to feel like a farm league," Ballance said. "We always had an emotional attachment to bands when we start working with them. People don't necessarily have the loyalty you thought they did."
Some of the label's roster were simply friends of McCaughan and Ballance's. Canadian alternative band Arcade Fire was introduced to Merge because its drummer at the time, Howard Bilerman, allowed McCaughan to crash at his place while on tour.
The label pressed 10,000 copies of the band's full-length 2004 debut "Funeral." After a favorable review on the Pitchfork website, the first pressing sold out in a week and the album went on to sell 400,000 copies. The band's 2007 follow-up "Neon Bible" debuted at No. 2 on the U.S. pop chart.
Asked if the label has received any buyout offers, McCaughan said, "People have intimated that they would be interested, but it's never clear what they're interested in. So discussions never really get too far.
"It's usually couched in this language of, 'How can we work together?' And you just know they don't have any idea about the label," he said. "Because if they had, they would know that it's not going to be as simple as, 'Hey, how can we work together?' It's not insulting, as much as it is ignorant."
Editing by Dean Goodman and Bob Tourtellotte