Record Labels! Beware of Fake Independence!

Giant corporate groups are a fairly recent development in the music industry. The most extraordinary and wonderful music has always been produced outside the city walls by innovative and committed independent record labels.

Around 40% of recorded music industry value is created by independent record labels, but 65% of that independent music is captured by major label owned distributors. Only 14% is truly independent all the way through the supply chain.

This is not really so surprising. Scale is very important, and bigger platforms can provide global coordination between digital and physical products that is not available to the flock of indie distributors. That is an active choice and is fair enough. Much music migrates into major label systems by default though, and much is there despite the preferences of the indie labels.

How does it get there? Some labels see themselves as incubators of talent, intending to pass successful artists up to the layers above for a price, and for them the relationship with a major label is valuable. Many labels get bought, or do a deal for financial support which locks them in.

Probably the biggest factor is that many distributors start independent, but either run out of cash or have investors who want to get a return on their money. The Orchard, for example, started out as a beacon for independence, took investors’ money, and sold out to Sony Music. On its way it took other potential icons with it into the corporate belly, a migration taken by IODA, IRIS, DRA, Essential, and others. Feeding the beast seems to be a Sisyphean task. It’s not just Sony; the other global music behemoths are just as hungry.

Here’s what this looks like from a drone:

If music distribution was as simple and transparent as it should be these major label owned, pretend independent distributors would be a great adornment to the commonwealth. For many reasons they are a blight. Here’s why

One: Stealing by stealth from the famous black box

Fake indie distributors provide a very easy way to funnel unattributable revenue – the famous ‘black box’ – into central corporate bank accounts. Other benefits too, such as delivery fees, deal fees, marketing and promotion opportunities – all these are essentially stolen and allocated to global priorities and corporate profits.

Two: Gatekeeping the label’s own metadata and music

Labels and artists have many reasons for wanting access to their metadata and files, from public performance to promotion and synch opportunities. Understandably the effort of preparing digital releases and data is not something they want to go through twice. Instead of sticking to their service ethos, some distributors (and not just the fake indies) forget where the value comes from and end up acting as a gatekeeper to a label’s own catalogue and assets, or worse, trying to herd them into rights admin deals instead of letting them collect directly where they can.

Three: Sitting on sales and analytics data

All distributors act as a conduit for sales and other analytical data. But beyond feeding some selected parts into a pretty dashboard, many don’t pass it through to the label, and so end up with more insight into the music and artists than the label is able to get for themselves.

A fair tradeoff?

These might by themselves be a fair tradeoff for the services and scale that bigger companies can offer in the marketplace, and the advantages of access to some major label deals might well balance out some leakage. But more recent developments are highlighting just how pernicious fake indy distribution can be for genuine indie labels.

So What’s New?

A major label buy out was always a reasonable exit for an indie label owner wanting a quieter life. That is how the majors ended up so big in the first place. But digital distribution has almost certainly accelerated this as new dependencies make that sell out happen sooner. And given the data asymmetry, the buyer now has much more information than the seller about what a catalogue is worth. So from being that indie beacon, The Orchard is now one of the biggest acquirers of catalogues and labels in the market, on behalf of its corporate master, Sony.

What this means is that with each acquisition there is more internal competition between owned catalogue and distributed catalogue, and you don’t need to be a genius to guess which will win.

And back to that data asymmetry, which sets up a very bad incentive for the distributor and its owner by giving insights into artist development way ahead of when a label might be thinking it’s time for an artist to move up to a bigger home. Anecdotally some distributed labels have already seen artists getting targeted by the corporate owner of their fake indie distributor. The fact that major labels are buying sales report processing companies, such as RoyaltyShare and Korrect, shows you how strategically valuable this data is.

Again this might be a fair and reasonable tradeoff for the scale, service, and access provided. But it might also be a toxic mixture of foreclosure and unfair competition. And if the latter what can be done about it?

Prevention is better than cure…

Starting with the basics, it helps to know who owns a distributor, and what their long term intentions might be. As a rule of thumb, the major labels are gatekeeping the more profitable revenue lines and trying to commoditise the rest, as well as ensuring as far as they can that there is less competition to sign the most promising new artists. Any distributor with venture capital or private equity funding – no matter how much they protest their indie credentials – will be looking to sell itself at some point, and will have given up to the financiers the right to decide who the buyer is.

Oliver - Light Opera Works - 12/20/12 Photo by Chris Ocken Copyright 2012 - http://www.ockenphotography.com/

Oliver – Light Opera Works – 12/20/12
Photo by Chris Ocken
Copyright 2012 – http://www.ockenphotography.com/

Next, read the contract! Carefully!! It’s normal in many contracts where there are potential future conflicts of interest to include ‘change of control’ clauses in case you don’t like the new owners after a sale. But at the very least it helps to know what rights and privileges are changing hands before it becomes an issue, and what you can expect not to be provided as well as what is being offered. And any gotchas, like the right to use your sales data without your knowledge or permission.

And the practical steps. Keep your metadata and assets where you can use them without interference from your distributor. Those web based product uploaders might be convenient, but you can end up with no organised metadata at all about your releases and recordings. Store your sales and trends data too where you can use them yourself if you need to.

Of course the best defence against being sold up the river is to remain independent, and only work with partners who value independence as much as you do.

This entry was posted in markets, strategy, technology. Bookmark the permalink.