PRESENTS DISTRIBUTION REVOLUTION
MAPPING THE 21ST CENTURY DIGITAL MUSIC SUPPLY CHAIN
DISTRIBUTION THE ASSOCIATIONREVOLUTION OF INDEPENDENT MUSIC 1 AIM.ORG.UK AIM & CMU INSIGHTS
‘Distribution from artists including AJ Tracey, Arctic Monkeys, Aphex Twin, Blood Orange, Revolution’ is a new Bonobo, Danny Brown, Hot Chip, High report based on Contrast, Little Simz, New Order, research undertaken Radiohead and many, many more. by CMU Insights More at aim.org.uk on behalf of the the Association Of ABOUT CMU INSIGHTS Independent Music. CMU helps people navigate and understand the music business through ABOUT AIM media, education, research and events. CMU Insights is the company’s AIM is the not-for-profit trade body business intelligence unit. exclusively representing the UK’s independent music sector, which now CMU shares its insights with thousands makes up a quarter of the recorded of music industry professionals every music market. year through its own programme of seminars and masterclasses; the Now in its 20th year, AIM’s members training courses it delivers for music range from the largest, most respected companies and organisations; the record labels and associated speed briefings it presents at music music businesses in the world to conferences around the world; and self-releasing artists and the next the three full-day conferences it generation of entrepreneurs in music. curates as part of The Great Escape AIM promotes and supports this showcase festival in Brighton each exciting and diverse sector globally May. and provides a range of services, CMU also supports grass roots commercial opportunities and artists and future industry talent practical help to members; enabling through partnerships with the likes them to innovate, grow and break into of the Featured Artist Coalition and new markets. the Roundhouse; the Pathways Into At the larger end, AIM member Music guides and courses for music businesses include companies such educators; and by delivering guest as Beggars Group, Domino Records, lectures at a range of music schools Warp Records, Mute Records, Ninja and colleges. Tune and [PIAS]. They release music More at cmuinsights.com
DISTRIBUTION 2 REVOLUTION CONTENTS
EXECUTIVE SUMMARY p04
1. THE DIGITAL MUSIC SUPPLY CHAIN p09
2. THE PHYSICAL DISTRIBUTION BUSINESS p14
3. THE EVOLUTION OF DIGITAL DISTRIBUTION p16
4. DIGITAL DISTRIBUTION TODAY p19
5. EXPANSION OF SERVICES & CLIENTS p25
6. THE MENU OF SERVICES p28
7. CHOOSING A PARTNER p41
8. CHALLENGES & ISSUES p51
9. CONCLUSION & RECOMMENDATIONS p57
DISTRIBUTION REVOLUTION 3 EXECUTIVE SUMMARY
As the digital music DISTRIBUTION market has grown REVOLUTION over the last two With this in mind, AIM commissioned CMU Insights to undertake an in depth decades most review of the music distribution sector. attention has been We wanted to provide an overview given to the evolution of how music distribution works of the consumer- today, while also summarising the key trends and developments of the last facing digital two decades, to better understand platforms. why distributors have evolved their businesses in the way that they have.
But behind the We also wanted to gather in one place a menu of the many different services scenes the a music distribution partner may now companies that help offer, and to explain the different ways different rights-holders might access labels and artists those services, and the pros and cons deliver their music to of the different approaches now those platforms have regularly employed. also been evolving In doing so, we can help rights-holders their businesses. make more informed decisions when choosing a partner, by ensuring that they ask the right questions and In particular, the role of the music consider all the key factors. distributor has changed considerably during that time. Distribution partners Finally, AIM wanted to identify what will now usually offer a much wider issues have been posed by the range of services and work with a evolution of music distribution, to help more diverse range of clients, including inform debate within the independent those artists who self-release their music community - between both recordings, usually via single-artist- rights-holders and distribution partners labels. This means rights-holders now - as to how individual artists, labels have much more choice when picking and distributors, and the community at a distribution partner. large, can deal with those challenges.
DISTRIBUTION 4 REVOLUTION THE DIGITAL MUSIC The digital music service providers are the consumer facing digital SUPPLY CHAIN music platforms, including download Between the artists who make the stores and streaming services. There music and the fans who consume it are various different kinds of DSPs are a number of entities who together with different business models and make up the digital music supply chain. consumer offerings. The main three entities involved in this process are the rights-holders, Today streaming services generally distribution partners and digital music have by far the biggest user-numbers, service providers (or DSPs). while premium streaming platforms bring in the most money. The rights-holder is the entity which controls the copyright in any one sound EVOLUTION OF recording. It may own the copyright or alternatively represent it on behalf of DIGITAL DISTRIBUTION the actual owner. This group includes The first digital distributors appeared in what we traditionally call record the very early days of the digital music companies or record labels, but also market. artists releasing their own recordings, possibly in partnership with their In many ways they were the digital version producer or manager, via a ‘single- of the physical product distributors that artist-label’. already existed, although the initial digital distribution companies tended The distribution partner sits between to be start-up enterprises. The physical the rights-holder and the DSP and is distribution companies subsequently the main focus of this report. The key moved into digital distribution, while role of the distribution partner is the some of the new digital distributors delivery of music to the DSP and the added physical product services as their processing of the money and the data businesses grew. that flows back. When the first digital music services But the distribution partner may also came to market they generally wanted provide a wide range of other services to secure as much content as possible to the rights-holder. Depending on what by doing as few a deals as possible. services they offer, these companies This gave the major record companies may be variously called an aggregator, an advantage as they could bring a distributor, a label services provider bigger catalogues to the negotiating or an artist services provider. table.
DISTRIBUTION REVOLUTION 5 This in turn provided a gap in the market Even if a rights-holder can negotiate a for companies which aggregated the direct deal, there is then the challenge catalogues of independent labels and of providing content according to each which, as a result of that aggregation, DSP’s requirements and processing the had sufficiently sized catalogues to be money and data that is returned. Many of interest to the digital start-ups. rights-holders who do secure direct deals will still look for a distribution Though aggregation wasn’t the only partner to help with that process. approach for protecting the interests of independent music businesses in a The other two options are the modern digital market where the DSPs wanted equivalents of the two main approaches to do as few deals as possible. Some that emerged in the 2000s. Which is to indies came together to collectively say, become a member of Merlin and negotiate deals meaning that, while utilise the deals it has negotiated with each label was in theory securing a each DSP (and probably again hire the direct deal with the DSP, they could services of a distribution partner to command better terms by bringing a facilitate content delivery). much bigger catalogue to the deal- making process. Or sign up with an aggregator, or what we’d know more likely call a distributor. This approach ultimately led to the This company may have its own direct creation of Merlin, a more formal deals or may be utilising a Merlin deal. globally focused organisation that now Either way, it will have systems in place negotiates DSP deals on behalf of 800+ to deliver the content and process the labels and distributors. money and data. DIGITAL DISTRIBUTION EXPANSION OF TODAY SERVICES & CLIENTS Today a rights-holder basically has The key trend in the music distribution three options when seeking to make sector over the last two decades is their music available via the digital that the range of services distributors music services. offer has increased. Partly to deal with new tasks that have emerged as the They can seek to negotiate direct deals digital market has matured. But also in with each DSP. Whether they can do a way that sees distributors increasingly that - and secure favourable terms undertaking tasks that previously would - will still often depend on the size of have been handled by the label itself or their catalogue. a specialist agency.
DISTRIBUTION 6 REVOLUTION This expansion of services has partly THE MENU OF SERVICES occurred because of the evolution of Many distributors now offer an digital music, partly because labels extensive menu of services, usually with have requested additional services, and some kind of pick and mix flexibility. You partly because of music distribution can organise these services into four becoming an incredibly competitive main groups market place. Arguably not all of those services With the majors expanding their are strictly ‘distribution’, and once distribution divisions and a number distribution partners start providing of well-funded start-ups entering them they could be said to be operating the sector, rights-holders have often more in the label or artist services sought more favourable financial domain. arrangements with their distribution partners. One way that distributors The four groups of services are as have sought to justify keeping their follows: existing rates in place is by providing other services. Or, if a distributor needs to be more competively priced when AGGREGATION: offering basic distribution, it can get DSP deals, content delivery, content involved and share in other related checking, content identifiers, data revenue streams. feeds, payment processing.
In addition to distributors offering DISTRIBUTION: more services, another key change has been in the range of clients. Whereas Sales and B2B marketing, analytics. many distribution companies previously worked primarily for traditional record MARKETING SERVICES: labels, many now also work for self- Consumer marketing, creative and releasing artists and their single-artist- content services. labels. Some distributors have made the latter type of client their primary concern. ADDITIONAL SERVICES: Physical distribution, direct-to-fan, This has started to blur the lines between catalogue management, channel labels and distributors, and might mean management, neighbouring rights that a rights-holder’s trusted business management, royalty administration, partner is also potentially a competitor. sync, anti-piracy activity.
DISTRIBUTION REVOLUTION 7 CHOOSING A issues for the rights-holder community to PARTNER consider and tackle: Through this research we have identified • Transparency issues around DSP deals. twelve criteria that rights-holders should consider before choosing a distribution • Questions around the sharing of value partner: from DSP deals. Price. • Balancing upfront and long-term • benefits of each approach. Advance. • • The allure of the advance. Commitment and reach. • • The need for a clear exit strategy. Platform or portal. • • The risk of distribution partners • Range of services. becoming competitors. • DSP deal specifics. • The short and long term impact of new • Genre or regional expertise. competition in the market. B2B marketing abilities. • CONCLUSION & Physical distribution abilities. • RECOMMENDATIONS Scale. • Finally, based on the research we have • Independence. made three main recommendations, including that the independent music Key people. • community should: • Agree on codes of practice for CHALLENGES & distribution partnerships. ISSUES Identify the whole digital supply chain. Through this research we have also • identified eight specific challenges and • Promote a distribution checklist.
DISTRIBUTION 8 REVOLUTION 1. THE DIGITAL MUSIC SUPPLY CHAIN
The digital music markets, the song rights are usually licensed separately from this supply chain. supply chain begins with the artists, The rights-holder may actually own the copyright in any one recording. This may be songwriters, musicians, because this entity is the default owner of record producers the sound recording copyright according to the default or presumed ownership and sound engineers rules of the local copyright system. So, in who make recorded the UK, that would mean that the rights- music and ends holder organised the studio session where the recording was created. Alternatively, with the music fans it may have been assigned the copyright who consume their through an assignment deal. In that case the default, or another previous, owner recordings. transfers ownership of the copyright to the rights-holder through contract. In between there are a number of businesses involved in the delivery of the Alternatively, the rights-holder may control music from artist to fan. The exact number a sound recording copyright on behalf of of businesses will vary from artist to artist the actual owner via a licence agreement. and release to release, though there are Licensing agreements of this kind often have three key categories of partners involved in a lot in common with the aforementioned the process. assignment deals, except ownership of the copyright isn’t actually transferred. 1.1 BREAKING DOWN THE Nevertheless, the rights-holder will often act as if it is the copyright owner until the point SUPPLY CHAIN at which its licensing agreement with the As a starting point, we will briefly introduce actual owner expires. each of these three categories of businesses that sit between the artist and In the music industry we would traditionally the fan. call this kind of rights-holder a record company or a record label, and in many THE RIGHTS-HOLDER cases that term is still used. The rights-holder is the entity which controls Though the rights-holder might also be an the copyright in any one sound recording. artist who has chosen to self-release their This entity probably won’t control the music. Depending on their level, they may accompanying song copyright (ie the do this on their own, or in partnership with lyrical and musical copyrights) and, in most a producer or artist manager, or a studio
DISTRIBUTION REVOLUTION 9 KEY STAGES ON THE DIGITAL SUPPLY CHAIN
ARTIST
RIGHTS-HOLDER
DISTRIBUTION PARTNER
DIGITAL MUSIC SERVICE PROVIDER
FAN
CONTENT MONEY DATA
DISTRIBUTIONDISTRIBUTION 10 REVOLUTIONREVOLUTION or artist management company. As part of music service provider, or DSP, there are this process they may formally or informally often distribution partners. These are the set up a standalone single-artist-label companies that are the main focus of this that their recordings will be released under. report.
When it comes to record labels, it is The digital music distribution process common to distinguish between major involves brokering DSP deals, content labels and independent labels. Today, the checking and delivery, managing data term ‘major’ usually refers to any record feeds, payment processing, B2B marketing label majority owned by one of the big and analytics. A rights-holder may three music rights groups: undertake some or all of these activities itself, but most will rely on a distribution • Sony Music (owned by Sony Corp). partner to handle at least some of these • Warner Music (owned by Access tasks. The distribution partner may also Industries). provide other services to the rights-holder, • Universal Music (owned by Vivendi). all of which we will discuss later.
The independent labels are everyone else. There may be a single distribution partner As a result, the independent label community undertaking all of this work on behalf includes a very diverse range of companies of any one rights-holder or there may from global players with hundreds of be multiple partners involved in the employees to single person operations. distribution process. This may be because Self-releasing artists and their single-artist- a rights-holder appoints different partners labels would also often be included in this for different tasks or because one primary independent label community. distribution partner outsources some of the work to others. For the purposes of this report we will use ‘rights-holder’ as a neutral term for As for what we call this distribution partner, all of the above. Where we say ‘label’ we the terms aggregator, distributor, label specifically mean a company which works services provider and artist services with and releases music from multiple provider have all been variously used. artists. We will refer to ‘single-artist- labels’ where we specifically mean artists These terms are not necessarily synonyms, releasing their own music, with or without but instead describe different categories the support of a producer, manager, of distribution partner or different studio or management company. categories of services that a distribution partner might provide. However, there isn’t really an industry-wide consensus on how THE DISTRIBUTION PARTNERS these terms should be used, which we will Between the rights-holder and the digital come back to later.
DISTRIBUTION REVOLUTION 11 THE DIGITAL SERVICE Soundcloud, YouTube), whether that PROVIDERS UGC be music and mixes uploaded by amateur artists and DJs, or music The DSP is the consumer-facing digital that soundtracks other video content. music platform. There are a number of different kinds of DSPs, though a In the 2000s, download platforms common distinction is made between the generated the most digital music revenues, download platforms – like the iTunes with Apple’s iTunes Store dominating, Store and Beatport - that allow users to especially in markets like the UK. In download permanent copies of a track, more recent years download platforms and the streaming platforms - like have generally gone into decline while Spotify and Apple Music - that provide streaming services have experienced access to tracks that can be streamed. significant growth, so that since 2016 - on a global basis - streaming revenues Streaming services can be further broken have out-performed download revenues down by a number of different criteria (according to figures from the International including… Federation Of The Phonographic Industry).
• Whether the service offers fully Streaming alone became the global on-demand access to tracks (eg record industry’s single biggest revenue Spotify, Apple Music) versus a steam in 2017 and now accounts for personalised radio experience (eg about half of the recorded music sector’s Pandora, iHeartRadio). combined income.
Whether users pay to access music • In most countries fully on-demand (eg Spotify Premium) versus access streaming platforms dominate, both in being free to the user paid for by terms of users and revenue. The main advertising (eg Spotify Free). exception is the US where Pandora and iHeartRadio’s personalised radio services Whether the service offers a wide • are also major players, particularly in terms ranging catalogue of tens of of user numbers. millions of tracks (eg Amazon Music Unlimited) versus a smaller catalogue curated in some way (eg In most markets the free-to-access Amazon Prime Music). streaming services have more users but the premium streaming services generate • Whether the service only carries the most revenue. On a global basis, music content provided by labels premium streaming generated 37% of and distributors (eg Spotify, Apple total recorded music revenues in 2018, Music) versus those that encourage compared to 10% from free services. user-generated content (eg
DISTRIBUTION 12 REVOLUTION 1.2 THE SHIFT TO DIGITAL a sales model to a consumption model. In the physical market rights-holders received The shift to digital resulted in a number of whatever the consumer paid for their significant changes for rights-holders. physical product (minus any costs of sale). In digital, they share in a DSP’s revenue First, traditionally rights-holders generated based on how much of total consumption most of their income by directly exploiting their catalogue accounts for. This also their recording copyrights through the means that rights-holders earn tiny micro- process of pressing and selling physical payments every time their recordings are product like vinyl records, cassettes and streamed, rather than a one-off but larger CDs. In the digital domain, they have payment whenever a copy of one of their become licensing entities, granting recordings is sold to a fan. permission to DSPs which then exploit various elements of the sound recording copyright in order to deliver the music to Everyone in the wider music community is the fan. still adapting to the challenges that these changes have created. This includes the various supply chain challenges this report Second, with the shift to streaming, the discusses. recorded music business has moved from
DISTRIBUTION REVOLUTION 13 2. THE PHYSICAL DISTRIBUTION BUSINESS
Before reviewing The major record companies often built their own distribution networks, even if they the digital supply were ultimately utilising the warehouses chain in detail, it is and logistics expertise of third parties along the way. They would also employ worth considering sales teams to persuade retailers to stock the physical product their releases. supply chain that For most independent record labels building preceded it, and a network of this kind was not feasible. Instead they would rely on distribution which is still part of partners to provide a network for them. the recorded music The major record companies – keen to business today. justify the investments they had made in building their own networks – would often As explained in Section One, in the set up bespoke independent distribution traditional record industry, rights-holders divisions to sell distribution services to other would usually directly exploit their sound rights-holders. Meanwhile a number of truly recording rights by pressing physical copies independent distribution networks were of their master recordings. In making these also built. copies the rights-holder would also exploit the song copyright that is contained in These physical distribution networks any one recording. It didn’t usually control became all the more complex once you these rights, so would secure a licence go global. Separate networks were built in from whoever did, usually via the collective each key market and these were then linked licensing system at industry standard rates. up by distributors in one territory forming alliances with their counterparts in other The rights-holders would then rely on music territories. Some distributors – including the retailers to sell their discs. Getting the majors – had their own networks in multiple discs from pressing plant to each individual countries, but most would rely on third record shop was no small task. It required parties in at least some parts of the world. a network of warehouses – some run by the rights-holders and their distribution As an individual rights-holder, you could: partners, some by the retailers and their • Lock into one distribution network in your suppliers – and a considerable logistics home market and utilise any international operation moving product around the partnerships that distributor had entered network. In addition to all that, someone into. had to persuade each retailer to stock • Do separate deals with different each release, every record shop having regional distributors in each market relatively limited shelf and storage space. where you wished to sell your music. • License your recordings to another
DISTRIBUTION 14 REVOLUTION rights-holder in another territory and In addition to these high street and mail- utilise whatever distribution partnerships order retail operations, it is also worth it already had in place. mentioning the steady growth of direct- to-consumer - or direct-to-fan - sales of Of course, the sale of physical discs is physical product by both labels and artists still a sizeable revenue generator for the over the last two decades. record industry today, accounting for 25% of global recorded music revenues in This is where labels and artists sell product 2018. And while it is true that the German directly to fans via their own online stores, and especially Japanese markets – where often built on third party platforms. physical sales have remained particularly Depending on the platform a label or artist strong - skew the global figures to an uses for these direct-to-fan transactions, extent, physical also accounted for nearly these sales may or may not be counted 23% of UK revenues last year, according to in chart data and official record industry figures from the BPI and the Official Charts stats. Where labels and artists are selling Company. direct-to-fan they may set up their own logistics operation to fulfil sales, or they The vast majority of these physical sales may also rely on the traditional physical remain compact disc. Although, of course, distribution network. while CD sales have been in decline for nearly two decades, vinyl sales have seen Either way, the complicated global network significant growth in the last ten years. of local physical distribution networks joined up through alliances that we described The extent of the so called vinyl revival is above continues to operate today. often exaggerated, but many independent labels and record shops were the first to Though the steep decline in CD sales and capitalise on renewed consumer interest in the number of specialist retailers in the this format, and the labels and shops that 2000s resulted in a significant contraction did so have been key beneficiaries of the of the physical distribution market, with growing vinyl revenue stream. some distributors going out of business, others merging, and others outsourcing There are a lot less specialist music retailers increasing amounts of fulfilment to another in the UK today, of course, and Amazon’s player in the market. mail-order operation accounts for a not insignificant amount of physical music sales. This contraction and consolidation has resulted in a trend in many markets where Nevertheless, there remain significant just one single significant player still exists, numbers of high street retailers stocking with most other distributors then utilising both CD and vinyl overall, and Amazon and that player’s network. Even the majors have other mail-order operations also make use started to outsource some or all of the work of the music industry’s physical distribution to this ‘last man standing’ in some countries. networks.
DISTRIBUTION REVOLUTION 15 3. THE EVOLUTION OF DIGITAL DISTRIBUTION
It is tempting to see industry – and the major record companies in particular – which were still in the midst digital distribution as of the CD boom and saw digital music a natural evolution as a threat to that revenue stream. The push back only increased after Napster of the physical launched in 1999 – followed by a long line distribution sector of other popular file-sharing networks - meaning the digital music conversation described above. increasingly focused on piracy. After all, there are a number of parallels However, plenty of people in the music industry – and especially the independent between the physical sector – saw the opportunities digital music and digital distribution created. Meanwhile others recognised that the shift from physical product to businesses. digital services was inevitable even if they didn’t particularly welcome the change. Plus, many physical distribution companies moved into digital distribution as the Many of the early digital music start-ups digital music sector grew, while many were founded by tech entrepreneurs digital distributors subsequently started who struggled with the complexities of offering physical distribution as an add-on securing content. service. However, the digital distribution sector originally evolved in isolation from Even when services involved former record the world of physical distribution. The first label executives in their businesses, those players emerged in the late 1990s when people didn’t necessarily understand the initial digital music platforms started the ins and outs of the kinds of licensing to come to market and were therefore deals that would be required to launch a seeking content from the record industry. download or streaming platform. After all, most labels at this point were primarily in Between 1995 and 2005 there were a the business of pressing and selling discs, plethora of start-up businesses trying to not negotiating catalogue-wide licensing capitalise on the opportunities created deals. by the growth in mainstream internet usage and the potential that created for Either way, it quickly became clear that providing and monetising music downloads most digital music start-ups were keen and streams. to secure as much content as possible by negotiating as few deals as possible. This In the first part of that ten year period wasn’t just laziness. there was some push back from the record
DISTRIBUTION 16 REVOLUTION Because of the complexities of these 3.1 AGGREGATION deals there were considerable legal and admin costs associated with them. Rights- The first approach was aggregation. holders would also incur these costs, and New businesses launched that would as the digital market evolved they would aggregate the catalogues of multiple sometimes seek to pass their own set-up independent labels and then approach expenditure onto the DSPs, especially the DSPs to negotiate deals. with new services. Which made the DSPs even keener to secure as much content as The logic was simple, by performing the possible from each deal they did. role of an aggregator, these companies were helping the DSPs achieve their aim This created a challenge for the of securing as much content as possible independent labels, because DSPs seeking via as few deals as possible. as much content as possible via as few a deals as possible would often start with Therefore, the DSPs would generally be the major record companies. willing to sit down with these aggregators and negotiate a deal that would then apply to all the catalogues the aggregator That said, in the very early days the had aggregated. independents had an edge simply by being more receptive to digital music start- ups. The majors were also investigating These aggregator companies then built launching their own download stores at platforms via which each client label could this stage. But as the wider record industry upload their individual catalogues to a began to embrace digital, the DSPs central server. The aggregator could then tended to start their licensing journey by provide this content to each DSP through negotiating deals with the major record one ‘pipe’ according to each service’s companies. requirements.
Once the majors were on board, a DSP 3.2 COLLECTIVE would then often circulate a template ‘done deal’ contract for independent DEAL-MAKING labels which wished to make their music The second approach was collective deal- available via its platform. This was not making. Independent labels would come ideal. together and form a committee which would then seek to negotiate deals with In this challenge, though, lay an opportunity. the DSPs on behalf of all the members of And two different approaches emerged to that committee. The aim of this approach meet this challenge and capitalise on that was to get more bespoke deals that opportunity. were better than the standard terms a DSP may have already circulated to the independents.
DISTRIBUTION REVOLUTION 17 Persuading the DSPs to negotiate such a individual agreements and have a direct deal generally required the involvement relationship with the DSP. Those labels of rights-holders that controlled certain would then need to provide their content key releases from certain key artists. The to the DSP. Most labels couldn’t afford to collective might also try to exploit the build their own platform to do this, which fact that many digital music start-ups provided an opportunity for another new presented themselves as being ‘indie in a set of businesses to provide content spirit’, and therefore didn’t necessarily delivery, similar to what the aggregators want the spotlight to fall on the fact they were doing but as a standalone service. had mainly prioritised doing deals with major corporate rights owners first. These two different approaches employed in the early days of digital music had a Once a deal of this kind had been big impact on how the digital distribution negotiated by the committee, market subsequently evolved. participating labels would usually sign
DISTRIBUTION 18 REVOLUTION 4. DIGITAL DISTRIBUTION TODAY
Today there are three It is generally assumed that these off-the- shelf template deals will be less favourable main approaches that to the rights-holder than something a rights-holder can negotiated bespoke. And as bigger rights- holders will have negotiated bespoke employ for their digital deals, that gives them an advantage. distribution. That said, some of these off-the-shelf template deals have their origins in the OPTION ONE: collective deal-making of the 2000s and, DIRECT DEALS where that is the case, are generally A rights-holder can try to secure a deal considered to be fairer to smaller rights- directly with each DSP and then build or holders. Though any rights-holder relying buy in a platform to deliver the content on these arrangements needs to closely and process the usage and royalties data monitor any changes that are made by feeds the DSP returns. However, there are the DSP, especially when they launch new several questions to consider regarding services. this approach. This is particularly true if the new service is very different and therefore the nature of WILL YOU GET A DEAL? the deal is very different too. For example, Although DSPs today are generally much there was a short-lived but highly public better equipped to negotiate and manage stand-off between the independent rights-holder relationships than in the label community and Apple over some early days of digital music, most platforms of the terms it added to existing iTunes would still like to secure as much content agreements when it was first preparing to as possible by negotiating as few deals as launch the Apple Music streaming service. possible. Therefore a DSP might suggest or insist that smaller rights-holders employ CAN YOU DELIVER an alternative approach in order to get their content onto its service. THE CONTENT? Once you negotiate a bespoke deal or WOULD YOU WANT opt in to an off-the-shelf template deal, you then need to start delivering content THE DEAL? to the DSP according to their specific Some DSPs will have an off-the-shelf requirements. Most DSPs are very particular template deal that they will offer to about the way they receive content and smaller rights-holders that don’t have a accompanying meta-data, and will often sufficiently large catalogue to justify the be wary of a new rights-holder’s abilities to cost and time involved in negotiating a meet these specifications when entering bespoke arrangement. into a deal.
DISTRIBUTION REVOLUTION 19 To this end most rights-holders on direct called Merlin. In many ways this grew out deals will utilise a third-party platform of and was informed by the collective to deliver content to most – if not all – of deal-making of the mid-2000s, and the DSPs they work with. Where content especially initiatives of this kind led by the delivery of this kind is provided to a rights- UK independent community. holder as a stand-alone service, they will usually be charged a fix fee based on the THE PURPOSE OF MERLIN quantity of recordings they are delivering. Merlin, which has sometimes been referred to as the “virtual fourth major”, sought Some DSPs might provide rights-holders to secure better deals for independent some kind of browser or app-based tool rights-holders – seeking more parity with via which they can deliver content directly the deals secured by the majors - by without having to build or buy in a delivery negotiating on behalf of a large group of platform. This is particularly true for those labels and distributors. streaming services that grew out of or exist as part of user-upload platforms Having a more formalised and global like YouTube and SoundCloud. For a time approach to collective deal-making was Spotify was also developing a direct- attractive to the DSPs because it created upload tool of this kind, although after a an efficient single point for licensing, beta test it decided not to proceed with reporting and processing payments in this service. relation to a large combined catalogue of recordings. By offering these increased Even where such tools are available – and efficiencies to the DSPs, Merlin could if more such tools were to be developed secure better terms for its members. by DSPs in the future – as rights-holders generally want their music to appear on all The need for collective deal-making - and platforms, it is much easier and therefore a more formalised and global approach more attractive if a single system can to that process - had become ever more deliver content to multiple services. important as the 2000s progressed in no small part because the deals being made As the costs of developing such a system between the DSPs and the music industry are high, for individual rights-holders it were getting more complex. makes sense to utilise a third-party delivery service that offers this flexibility. In addition to core revenue share arrangements, the majors started to OPTION TWO: insert other elements into the deals such MERLIN DEALS as minimum guarantees, cash advances and – with start-up services – equity in the In 2007 the independent music community DSP’s business. The indies rightly argued came together to form an organisation that it was unfair if the independents were
DISTRIBUTION 20 REVOLUTION not offered these additional kick-backs as the return of a sizeable catalogue to the well. independent sector by brokering a deal, alongside pan-European trade group Especially the equity arrangements. IMPALA, with Warner Music. Because successful DSPs would build their businesses in part on the back of Merlin negotiates template deals on the value of the independent community’s behalf of its members, exploiting both catalogue. If and when that DSP was the size and significance of its members’ sold or listed on a stock exchange, the combined catalogue and the efficiencies majors – ie the independent community’s it can offer DSPs to secure competitive competitors – would profit from that terms. Once the deal is finalised, Merlin sale, and therefore from the value of the members can opt in on a deal-by-deal independent repertoire. basis. Where a Merlin deal is employed, the DSP will report usage and royalties to By stepping up the collective deal-making Merlin, which passes that information back approach through the creation of Merlin, to the individual rights-holders. more parity was achieved between the deals offered to the major record Royalties also flow through Merlin on companies and the independent rights- which it charges a commission. This holders. commission covers the costs of running the organisation. The current commission MERLIN’S OPERATIONS rate is 1.5% for members of AIM and other independent sector trade bodies and TODAY 3% for other parties. Any excess monies Today Merlin represents a membership of generated through these commissions over 800 labels and distributors. To date over and above the organisation’s running it has paid over $1.5 billion in licensing costs are returned to the members via revenues to its members. rebates, so that the effective commission rate is actually lower than 1.5%. It has also generated value for its members in other ways too. Sometimes as Merlin doesn’t get involved in content a result of the other elements of the DSP delivery. Therefore, as with most direct deals described above, for example by deals, a rights-holder would need to build successfully securing and selling shares in or buy-in a delivery platform. A number Spotify. of companies now provide delivery as a standalone service, with CI and FUGA And sometimes via other initiatives. For the main providers of this service to example, delivering tens of millions of Merlin members in the UK. As before, dollars to the independent community the companies providing this standalone via infringement actions. And facilitating delivery service would likely charge the
DISTRIBUTION REVOLUTION 21 rights-holder a fixed fee based on the entered the business over the last two quantity of recordings they are delivering. decades.
OPTION THREE: You can organise the digital distributors on the market today in a number of different AGGREGATOR DEALS ways. This would include the following Finally, a rights-holder can appoint a classifications… distribution partner to handle all of their digital distribution. • MAJOR-OWNED DISTRIBUTORS All three major record companies This partner would have pre-existing provide digital distribution, usually deals with all the DSPs (though these through a standalone distribution or may actually be Merlin-negotiated deals) label services division. The main divisions and would then deliver the content and of this kind are The Orchard (Sony process the usage and royalty data that Music), ADA (Warner Music) and Caroline the DSP returns. and Ingrooves (Universal Music). All three majors have expanded the distribution Each DSP’s deal would be with the sides of their businesses in recent years, distribution partner not the rights-holder, often through acquisition, with Sony and the DSP would pay the partner which being most aggressive in this domain. would then pay the rights-holder. These partners often work on a revenue share • INDEPENDENT DISTRIBUTORS basis and take their commission as the There are then the large global monies flow through the system. independent distributors which are not allied to one of the major Some of the big distribution partners today music rights groups, but which also have evolved from the original aggregators operate in multiple territories that emerged in the late 1990s and early around the world, and usually work 2000s. Most have expanded the services with a wide range of clients. they offer and, as such, would no longer describe themselves as aggregators, and • REGION OR GENRE SPECIALISTS would instead refer to themselves as being There are also smaller independent distributors or providers of label or artist distributors that will usually specialise, services. However, part of the service either on the markets in which they they provide their clients is still basic distribute, and/or on certain genres aggregation. of music. These companies may have alliances with a major-owned or bigger Some of the old physical distributors have independent distributor in order to have also moved into digital distribution, while access to a larger infrastructure. a wide assortment of new players have
DISTRIBUTION 22 REVOLUTION DIGITAL DISTRIBUTION OPTIONS
OPTION ONE: OPTION TWO: OPTION THREE: DIRECT DEAL MERLIN DEAL AGGREGATOR DEAL
DSP DEALS Rights-holder Rights-holder Distributor negotiates its opts in to negotiates deal own deals a deal or opts into a negotiated deal negotiated by Merlin by Merlin
CONTENT Rights-holder Rights-holder Distributor DELIVERY builds or builds or delivers buys-in a buys-in a content delivery delivery platform platform
ROYALTIES Rights-holder Merlin Distributor & DATA processes processes processes royalties and royalties and royalties and data data - passes data - passes onto rights- onto rights- holder holder
OTHER Rights-holder Rights-holder Distributor may SERVICES buys in any buys in any provide (many) extra services extra services other services it needs it needs depending on the deal
COSTS: COSTS: COSTS: Cost of negotiating Merlin’s 1.5-3% Distributor’s commission deals (legal, admin etc), commission, cost of and/or fees (commonly and delivering content delivering content and 10-30%, or possibly higher and other activities. other activities. if involved in marketing).
DISTRIBUTION REVOLUTION 23 • DIY DISTRIBUTORS And then there are those distributors Below is a selection of widely that predominantly work with very recognised independent small labels and single-artist- businesses that are involved labels. These companies are usually in distribution at the time distinct in that they of publication: Above Board will provide services to any rights- Distribution, Absolute Label holders, whereas the others will Services, AWAL, Beatchain, usually only work with clients that meet certain creative or commerical Believe Distribution, Cargo, criteria. Some companies operate a CD Baby, Cygnus Music, DIY distribution service alongside a more Discovery Music Distribution, extensive service offering for selected Ditto, EmuBands, FUGA, IDOL, clients, with the former providing an K7!, Kartel, Kudos, Kycker, entry point for grass-roots rights-holders Label Worx, Landr, MTX Music, who might ultimately move up to latter. [PIAS], Proper Music, Redeye Two of the majors also have separate Worldwide, Republic Of Music, divisions offering DIY distribution. Secretly Distribution, Sequence, State 51, TuneCore, and MIXING UP THE OPTIONS Zebralution. It is worth noting that a rights-holder does not have to pick a single option for AIM has a comprehensive, up- its entire catalogue. Some rights-holders might have some direct deals and use to-date, directory of businesses some Merlin deals. Or they may use direct in its community offering or Merlin deals in certain markets and a distribution services at: distributor in others. So there is some www.aim.org.uk/#/resources/ flexibility in how a rights-holder organises aim-distribution-directory things.
DISTRIBUTION 24 REVOLUTION 5. EXPANSION OF SERVICES & CLIENTS
Over the years most perspective, it can be attractive to involve a distributor in these other areas, rather digital distributors than hiring a specialist agency, principally have expanded the for cash flow reasons. range of services they As a rights-holder, most of the costs offer to rights-holders associated with releasing new recordings are incurred upfront before release. But, so that, in addition even if a record sells well around initial to negotiating deals release, it can take months to see the financial return. With the shift to streaming with DSPs and then – where monies come in per play overtime delivering the content, rather than through sales around release – it can now take years to see that financial they now routinely return. support their clients in This creates a cash flow challenge for the an assortment of other rights-holder. Many distributors help labels ways too. meet this challenge by providing their services without charging any up-front fees and then recouping their costs by taking Most distributors say that this expansion monies out of future income. This makes of services was in response to requests by taking additional services from a distributor rights-holders. First, as the digital music attractive to the rights-holder. market evolved, it became apparent that there were extra tasks involved in releasing That said, there has been another music digitally, and rights-holders often motivation for distributors to expand their looked to their distribution partners to service offerings other than meeting client undertake these tasks. But beyond that, demand. Music distribution has become some rights-holders also began to ask very competitive in recent years, with the their distributors for support in other areas majors competing more aggressively in the of their businesses, such as marketing space and a small number of well-funded and promotions, or the management of new players operating in the sector working performing or neighbouring rights. hard to build market share. In such a competitive market, many distributors have This is likely true to an extent, even though had to offer much better revenue share – especially for things like marketing and deals to the rights-holders for the provision promotions - there are many established of the core aggregation services. third-party agencies within the music industry able to offer these services to One way to deal with the impact of those rights-holders that can’t justify hiring increased competition driving down the in-house expertise. From a rights-holder’s going rate for aggregation is to diversify
DISTRIBUTION REVOLUTION 25 and offer extra services. The distributor We mentioned earlier that, with this further may charge additional fees for this work expansion of services, some distribution - often recoupable out of subsequent companies have started to adopt the term income - or simply use the extra service ‘label services’ or ‘artist services’. offering to justify taking a bigger cut of revenue overall. In some cases distributors prefer to identify their businesses using these terms, mainly to Or, where the extra work sees the distributor communicate that they offer clients a wider get involved in another of the rights- range of services than those traditionally holder’s revenue streams, there is another associated with aggregation or, even, source of income of which the distributor distribution. Other companies might use can take a share. So, providing these extra the terms label services or artist services services means additional revenue streams to describe those teams within their for the distributor beyond the monies made businesses providing these extra services, from aggregation. or those clients who opt to receive a wider service offering. These extra services include tasks closely linked to the distribution of digital content, There is no real industry-consensus as like playlist pitching and analytics tools for to what extra services are still part of understanding usage data. It’s providing distribution and what extra services these extra services that arguably moves a constitute label or artist services. Though company from being merely in ‘aggregation’ many would probably agree that the more to being involved in full-on ‘distribution’ – so consumer-facing marketing activity takes a a ‘distributor’ rather than an ‘aggregator’. company or project beyond distribution.
But, as noted above, the expansion of Where a distribution partner is providing services has also seen distributors taking all of these extra services to a client, it on – or at least funding - some or all of is actually undertaking the majority of the marketing and promotional tasks the tasks traditionally associated with associated with a new release, ie work that a record label. The main area of the would traditionally be undertaken by the label’s operations excluded from this list rights-holder or by a specialist agency paid is A&R, so the signing of new talent, artist by the rights-holder. development, and overseeing the creative process of producing new recorded music. And finally some distributors also provide additional services to rights-holders beyond Where a rights-holder takes as many activity around specific releases, which services as possible from a distributor, you might include things like neighbouring basically have a situation where the label rights management, royalty administration is in essence an A&R operation that then and the pitching of catalogue to potential plugs into a distributor’s infrastructure for sync clients. everything else. There are parallels to this approach in music publishing, where a
DISTRIBUTION 26 REVOLUTION small publisher is principally an A&R outfit, When it comes to distributors offering a with a bigger publisher actually handling all much wider range of services to single- the rights management and administration. artist-label clients, it’s worth noting that some labels also partner with artists in this A small number of distributors have now way as an alternative to a more traditional even started offering extra services which record deal. In this scenario a label - which arguably take them into the A&R domain, by is often also concurrently signing other helping to support the recording process. artists to more conventional record deals - would provide many but not all of the Concurrent to this expansion of services, services of a traditional deal. The artist many distributors have also expanded the would then expect more favourable terms range of clients they work with. In particular, when it comes to rights ownership and by working with more self-releasing artists revenue share. via their single-artist-labels. For the DIY distributors we described above this is You could argue that distributors offering the primary client base.However, some more services than normal and labels distributors whose clients are traditionally offering fewer services than normal results labels now also routinely work directly in a similar proposition from an artist with artists – though these are likely more perspective. This is particularly true if and established artists who run their single- when a distributor starts to provide A&R- artist-label in partnership with a producer like services, as some have, at which point or manager, or studio or artist management the line between distributor and label company. really starts to blur. Either way, for more established artists, especially heritage Once a distributor is regularly working acts, this option of forming a single-artist- with single-artist-labels we can again label which is actually run day-to-day by reconsider the definitions of label services a producer or manager, and then hiring a and artist services. Is ‘label services’ when distributor to do much of the actual work, the client is a label and ‘artist services’ has created an attractive alternative to when the client is an artist? Or, in fact, is signing a more traditional record deal with ‘label services’ about providing the services a more traditional record label. of a label to an artist, and therefore it should apply more to single-artist-label This evolution of the music distributor in clients? terms of services offered and client base – and the blurring of the line between label Again there is no industry-wide consensus and distributor – creates an interesting on this and, in many ways, it’s mere challenge. Because it means that some semantics, ie precise definitions do distributors are now in essence competing not matter, providing a rights-holder with their own label clients. We will discuss understands that different distributors and this challenge – and what it means for both different distribution deals may involve a labels and distributors – in Section Eight. very different service proposition.
DISTRIBUTION REVOLUTION 27 6. THE MENU OF SERVICES
In this section we of overall listening in any one month was accounted for by a rights-holder or outline in a little more distributor’s catalogue. detail the range of Though there may well be minimum services a distribution guarantees, advances, equity and fees partner may now offer included in the deal too, the size of which may be reliant on the scale and popularity a rights-holder. of the rights-holder or distributor’s overall catalogue. We organise these services into four groups: those provided by the original aggregators; the additional services CONTENT DELIVERY involved in full distribution; the extra The distributor delivers the digital content marketing and promotional services some to the DSP. To do this it will build – or buy- companies now also offer; and other ways in – a platform that facilitates this process. a distribution partner might work with a The rights-holder will upload recordings rights-holder. and accompanying images and meta- data to this platform, which will then automatically push that content into each 6.1 AGGREGATION DSP according to that DSP’s requirements These services relate to getting music and specifications. onto the digital platforms in line with each DSP’s requirements. In the early days of digital music, some distributors would have been more hands- DSP DEALS on in the actual content upload process The distributor has deals with all the key if working with rights-holders who were DSPs, which the rights-holders can then more used to releasing physical product participate in, meaning that the rights- and who were therefore still adapting to holder doesn’t need to negotiate or the digital world. Most rights-holders also manage deals itself. The distributor may had to undertake the task of digitising have negotiated these deals with the DSPs back catalogue. directly, or it may be a Merlin member and therefore utilise Merlin-negotiated deals Though these days most distributors are for some or most services. assuming that rights-holders are able to manage the upload process via their platforms, especially for new releases, As outlined above, DSP deals – especially which will today be put together with in the streaming domain – have a number digital delivery in mind. of elements to them. The core deal is revenue share based on what percentage
DISTRIBUTION 28 REVOLUTION MENU OF SERVICES
AGGREGATION DSP DEALS CONTENT DELIVERY
CONTENT CHECKING CONTENT IDENTIFIERS
DATA FEEDS PAYMENT PROCESSING
DISTRIBUTION B2B MARKETING ANALYTICS
MARKETING SERVICES CONSUMER MARKETING CREATIVE /CONTENT
OTHER SERVICES
PHYSICAL DISTRIBUTION DIRECT-TO-FAN
CATALOGUE CHANNEL MANAGEMENT
NEIGHBOURING RIGHTS ROYALTY ADMIN
SYNC ANTI-PIRACY ACTIVITY
DISTRIBUTIONDISTRIBUTION REVOLUTIONREVOLUTION 29 CONTENT CHECKING functionality, and some will be used for payment purposes. As part of the content delivery process, the distributor needs to check that the content provided by the rights-holder - including Among the key data points are some the audio file and accompanying visuals unique identifiers used by the record and meta-data – meet the requirements industry. These include the International of the DSP. Most DSPs take these Sound Recording Code, or ISRC, which is requirements very seriously and, to that the unique identifier for the track. Single end, might rank distribution partners based and album releases often also have a on their adherence to said requirements. Universal Product Code, or UPC.
Part of this process is also having checks Rights-holders may be in a position to in place to confirm that the rights-holder issue these code themselves or they may is indeed the rights-holder, ie they own or need their distributor to provide these control the sound recording rights in the identifiers for them. files they are uploading. DSPs increasingly look to their distribution partners to ensure DATA FEEDS that people do not use their systems to Once a rights-holder’s music is streaming, infringe copyright. the DSP will return both usage data (how often tracks were streamed) and There have been a number of high profile royalty data (how much money tracks cases where unofficial (and therefore have generated). The former is provided illegal) uploads have occurred and this on a very regular basis (commonly daily) issue is currently subject to litigation in while the latter will come in monthly. The the US, with lawsuits claiming that the distributor needs to work out how to pass problem is much bigger than previously this information onto the rights-holder. acknowledged.
Some DSPs now publicly rank or certify Most distributors will provide some kind of distributors, and these content checking portal via which rights-holders can access, processes – including anti-piracy measures utilise and understand this data. Bigger – are key criteria for securing a top ranking. rights-holders may also want this data in its raw form and will then build their own platforms for processing it. Smaller rights- CONTENT IDENTIFIERS holders will likely want as much help as When recordings are delivered to DSPs, possible from their distributors in handling an assortment of meta-data must also be this information. provided. Some of this will be displayed by the DSP on its platform, some will be PAYMENT PROCESSING used to enable search and discovery Once a rights-holder’s music is streaming,
DISTRIBUTION 30 REVOLUTION the DSP will also start making payments for distributor. Rather than simply providing a its exploitation of each recording. These DSP with content, it tries to persuade that payments will be made to the distributor DSP to place the content in a prominent according to the terms in the distributor’s position on its platform. deal with the DSP. The distributor then needs to report this income to the rights- This kind of activity was also a key part holder and pass the money on minus its of physical distribution and was generally commission and fees. referred to as ‘sales’. In the physical domain, a key challenge was persuading It’s generally important to the distributor a high street retailer – with its limited that this money passes through its bank shelf and storage space – to even stock account, as – assuming it is charging a a release. commission for its services – this is how it both knows what commissions it is due and Although a retailer could always order ensures those payments are made. a specific release at the request of a customer, having a record actually on As part of the payment process, rights- display would greatly increase sales. holders will need to know what specific Beyond having a release stocked at all, recordings any payments it receives relate the other sales challenge was having it to. Because it may also have to account stocked in a prominent position in the to other beneficiaries of the recording, store – eg by the entrance or tills – as this principally the main artists who appear on would increase exposure for the release it. and lead to all important impulse buy purchases. This was usually referred to in 6.2 DISTRIBUTION the record industry as ‘racking’. These services are also directly linked to With the shift to digital, stocking ceased the rights-holder’s relationship with the to be an issue, because digital platforms DSPs, although they involve the distribution can in theory stock everything. However, partner going one or two steps further. So, prominence within a digital store was not just getting content onto the platforms, even more important, given the increased but working with the platforms to drive choice for the consumer. sales and streams. And not just passing on DSP data, but helping rights-holders make In the download space this meant sense of that information. securing positions on home pages and genre home pages, ensuring a track was SALES & B2B MARKETING correctly categorised so that it would This is probably the key activity that appear in appropriate genre charts, and moves a company from being a simple getting featured in any editorial or direct aggregator to actually becoming a marketing a DSP produced.
DISTRIBUTION REVOLUTION 31 In the streaming space this may also mean domain, which has closer parallels with being featured on home pages or in direct how the music industry has always pitched marketing activity. For those streaming music to radio, what was traditionally services that also carry advertising, a called ‘sales’ is now sometimes referred distributor may also have access to to instead as ‘B2B marketing’. The latter advertising slots as part of its deal. Though term correctly implies that playlist pitching increasingly the most important thing in needs to sit closer to other marketing this domain is getting releases featured activity than perhaps the sales function on relevant playlists on the streaming traditionally did. platforms. ANALYTICS Playlists are incredibly important for This is another enhanced service that driving listening and discovery in the arguably moves an aggregator into streaming domain. On most streaming distribution. A distributor has to pass on platforms anyone can set up a publicly usage and royalty data that it receives available playlist. Many distributors have from the DSPs to its rights-holder clients. set up their own playlists which they can Many distributors have built – or bought use to promote and test new releases. in – an online portal via which to share Though with the DSPs that are biggest in this data. Some distributors have then Europe, the playlists curated by the DSPs also developed and evolved these portals themselves have the most prominence and, to help rights-holders better process, in most cases, by far the most subscribers understand and utilise the data they are and plays. receiving. Rights-holders are therefore now The music industry now has significantly constantly pitching music to the people more data at its disposal about fans and who curate these playlists at the DSPs. A consumption, with data from social media, relatively small number of people compile ticketing and other direct-to-fan channels these playlists and they obviously have on top of that which is provided by the a limited amount of time available to DSPs. Everyone has struggled to cope with be pitched to. Therefore those rights- this influx of insights - which data really holders with existing relationship with matters and what should you do with it? these curators have a real advantage. Therefore it is helpful to rights-holders if Many smaller rights-holders increasingly their distributors can provide tools and rely on their distributors having those portals to help with this process. relationships.
Where the rights-holder is a label, they As this activity has shifted away from may also want or need to share some or stocking and racking – or the digital all of this information with each artist and equivalent – and into the playlist pitching their management teams. Although some
DISTRIBUTION 32 REVOLUTION DSPs now provide usage data directly to the marketing of artists and records. This artists and managers via their own popular work is what arguably takes a distributor artist-centric analytics platforms, such as beyond distribution and into what might Spotify For Artists and Apple Music For be called label or artist services. Artists. Through these services, the DSPs are circumventing the distributor and CONSUMER MARKETING rights-holder when it comes to the delivery of usage data. If a distributor gets involved in consumer marketing it means it is helping to promote the release to existing and potential fans, That said, there is still significant value in a rather than just pitching it to decision distributor providing a rights-holder – and/ makers at the DSPs. or artists – with tools to receive, crunch and utilise streaming data, because the DSP’s own platforms always provide a The distributor may do this by advancing relatively narrow view, being limited to monies to help pay external marketing the data of one service. This will become agencies or by employing its own teams more of a limitation as the streaming of marketers and making them available to market matures and, in many countries, a rights-holder. Some physical distributors no one service dominates. If a distributor had already started to offer marketing as provided analytics platform can pull in the an added value service before the rise of other fan data too – especially downloads digital, but many digital distributors have and physical sales, but also other stats - it made such services a core part of their becomes even more valuable. offer.
Although some distributors – and rights- The record industry traditionally splits its holders – have invested heavily in consumer marketing activity into a number developing analytics tools, it does feel like of strands. there is still much more potential in this domain. It’s also important to note that • The marketing team oversees budgets a number of start-ups have emerged in and strategy, commissions creative recent years that specifically offer this as materials used in the campaign, standalone service to rights-holders and and likely manages any advertising, artists, pulling in data from a variety of promotional events and/or mailing list sources. activity. • The press team pitches releases to editors and journalists at blogs, 6.3 MARKETING websites and music magazines, and SERVICES other newspapers and magazines where appropriate. This group sees the distribution partner The promotions team pitches releases getting much more actively involved in • to DJs, producers and heads of music
DISTRIBUTION REVOLUTION 33 at radio, TV and clubs, seeking to get will also help rights-holders further new releases played. monetise their releases and catalogues, • The digital or social team manage and manage their data and channels, by online activity, usually utilising the social providing additional services. channels of both the artist and the label. Some companies may see some of these extras as actually being part of the core Many distributors offering consumer distribution proposition, while others will marketing will organise teams and activity consider them to be added-value activity according to this traditional structure for that goes beyond distribution. record industry marketing campaigns. Some distributors may also have separate CREATIVE / CONTENT divisions working in some of these areas, possibly signing their own clients. This could be seen as part of the consumer marketing operation, though it is increasingly important so is worth PHYSICAL DISTRIBUTION mentioning separately. Of course, for traditional distributors this was the core service. However, many Social channels constantly eat content, digital distributors have also added while in the streaming age the music physical distribution into the mix, this time industry needs to keep new releases in both as an add-on service. the media and people’s social feeds for much longer. As a result, a large quantity For some rights-holders, physical is no of marketing content is now required for longer much of a concern beyond possible each release. So whereas in the CD era direct-to-fan activity. Though for others a new release would be accompanied by physical is still very much part of the a band photo, album artwork and promo business. This may mean the continued videos for each single, today a constant release of CD versions of new albums, supply of visuals is required. and/or further capitalising on the vinyl revival. Those distributors seeking to help rights- holders with marketing may get involved Some rights-holders see physical and in this process, becoming generators of digital distribution as two different things marketing content. and are therefore happy to work with different partners for each side of the business, perhaps keen to ensure that 6.4 ADDITIONAL neither physical nor digital is seen as an SERVICES add-on to the other. In addition to aggregation, distribution and marketing, many distribution partners Bigger rights-holders may also work with
DISTRIBUTION 34 REVOLUTION different physical distributors in different Nevertheless, some rights-holders now territories or on different releases, as utilise these channels, and therefore some described in Section Two. distributors have been looking at ways they can facilitate this process. This may However, some rights-holders would prefer mean providing tools and platforms to to have all of their distribution in one place. help with the e-commerce side, or helping Some digital distributors have substantial manage D2F stores and campaigns built physical distribution operations of their own, on third party platforms, and/or doing the possibly because they began as a physical fulfilment on sales. distributor, or because they acquired a physical distributor, or because they have CATALOGUE MANAGEMENT invested in this side of the business. Others In addition to the distribution and actually outsource most of the heavy lifting marketing of new releases, a distributor involved in physical distribution, but may may also get involved in helping a keep the sales activity in-house. rights-holder get more out of their back catalogue. And the shift to digital, and DIRECT-TO-FAN especially streaming, has opened up Beyond the download and subsequent new opportunities for exploiting a rights- streaming revolution, another key change holder’s wider catalogue of recordings. in the music industry caused by the rise of digital is that artists now have a direct Whereas catalogue activity in the past connection with core fanbase. This means largely involved re-releasing an album artists can communicate to core fanbase – and basically treating it as if it were a directly and then seek to commercialise new release, often with bonus content this relationship by selling products and or in different formats – in the streaming services direct-to-fan. Artists and their space exploiting catalogue is more about business partners are still learning how to staging new marketing campaigns. Some capitalise on the potential of these direct distributors are now getting into this space relationships. too. They would already be likely providing basic distribution services on this catalogue Although some labels initially saw direct- anyway, but they might now offer the extra to-fan as a competitor – the narrative marketing services in relation to catalogue being that D2F channels would allow as well as new releases. artists to cut out labels – in fact these channels create another retail partner for CHANNEL MANAGEMENT all rights-holders. Though, with the shift away from downloads to streams, these While artists will usually have their own channels probably offer more potential ‘channels’ on most DSPs where their various for selling physical and merch rather than releases are collated, these channels are digital product. more important on certain platforms.
DISTRIBUTION REVOLUTION 35 They are perhaps most important on So any artists who appear on a recording the user-upload platforms like YouTube are due a cut of neighbouring rights and SoundCloud, where each creator’s money, even when they are not the individual profiles are much more copyright owner and/or have no royalty proactively pushed by the platform. share agreement with the rights-holder. Rights-holders may, therefore, want to put This artist payment is often referred to as more effort into managing these channels. ‘performer equitable remuneration’.
Some distributors can assist in this Neighbouring rights are usually process. And while that activity might administered by the collective licensing centre on new releases, again this work is system and therefore collected in first often done on an ongoing basis and often instance by a collecting society, sometimes sees distributors getting more involved in called a performing rights organisation marketing a rights-holder’s catalogue. (PRO) or a collective management organisation (CMO).
NEIGHBOURING RIGHTS The CMO for the record industry in the UK MANAGEMENT is PPL. Because of the way this money is When the record industry talks about shared out between rights-holders and ‘neighbouring rights’, these days they are artists, in some countries there will be one usually referring to the monies paid to society for the rights-holders and another rights-holders by radio and TV stations, for the performers. However, in the UK PPL and pubs, clubs, cafes, gyms and any represents both groups. Although where public space that plays recorded music. an artist is both the rights-holder and the In copyright terms, these people are performer they basically join the society exploiting either the ‘public performance’ twice, so that PPL is able to pay them both or ‘communication to the public’ controls the rights-holder and performer share of of the copyright. the money.
Royalties of this kind have always been due As neighbouring rights have become an to the record industry (in most countries), ever more important revenue stream, many but became much more important in distributors have started to help rights- the 2000s as CD sales slumped and holders with this side of their businesses new digital revenue streams were yet to too. compensate for this decline. At a basic level, this will mean ensuring It’s worth noting that this revenue stream that all the appropriate data is submitted also works differently to all the other to the relevant CMOs when any new revenue streams in that, in most countries, recording is released. This includes data artists have a statutory right to share in about both the copyright owner and this income at industry-standard rates. the performers. Where distributors take
DISTRIBUTION 36 REVOLUTION responsibility for this, it’s important that ROYALTY ADMINISTRATION they do so as an agent of the actual Another service now offered by some rights-holder, and not by claiming to be distributors is royalty administration, which the rights-holder themselves. is to say helping rights-holders calculate what monies are due to the artists a Distributors taking responsibility for logging label works with, and then reporting recordings with the CMOs is now so those calculations to the artists and their common, that you could argue doing so is managers and accountants. part of basic distribution, rather than an added value service. However, there is a Royalty administration of this kind is a more advanced way in which a distributor considerable task for rights-holders and may be involved in neighbouring rights which bad royalty reporting can often damage goes beyond the basic role of a distributor. artist/label relationships. The shift to streaming and the high number of micro- Each CMO generally only collects payments this involves has only increased royalties in its local market. A rights- the royalty administration task. Therefore holder can either join every society around many rights-holders look for people and the world to collect its royalties or allow platforms to help with the process. its local society to represent its rights globally. In which case that society will – in theory at least - collect royalties from its SYNC counterparts across the globe whenever Another revenue stream that became the rights-holder’s music is used. increasingly important as CD sales slumped in the 2000s was sync, ie the As this revenue stream has become more synchronisation of music into TV, film, important, a market has emerged for games and ads. neighbouring rights agents which allow rights-holders to connect directly to all Like the vinyl revival, the sync market can societies around the world through a sometimes be exaggerated. Overall sync single access point. In theory appointing accounts for just 2% of global recorded your local society to represent your rights music revenues (though that figure globally achieves the same, though these excludes most TV sync income, which agents argue that they can get rights- in most countries sits with neighbouring holders paid their global neighbouring rights). right royalties faster and more accurately. That said, for some rights-holders, sync A number of distributors have also set is a more important revenue stream, and themselves up as neighbouring rights accounts for considerably more than agents and therefore can provide this 2% of income. This is true of certain more advanced level of neighbouring independents who have a catalogue that rights management as an extra service. is particularly suitable for synchronisation
DISTRIBUTION REVOLUTION 37 and/or have made particular efforts to This usually involves providing tools for secure sync deals. monitoring the distribution of music on unlicensed or semi-licensed online The music supervisors who curate and platforms, so that the rights-holder can see license music for the TV, film, gaming when their recordings have been uploaded and advertising sectors are another small by third parties to blogs, websites, digital group of decision makers who are being lockers, file-sharing networks, social pitched a lot of music by a lot of people. media, user-upload platforms and similar Like with playlist pitching, personal services. relationships with these people gives you an advantage, and many smaller rights- These tools then usually simplify the holders will struggle to form and maintain process of issuing takedown demands such relationships successfully. against these platforms. Some platforms respond to such demands, others do not. To that end, many rely on third party Even where they do, often when recordings agents to represent their catalogues in the are removed at the rights-holder’s request, sync domain, and some distributors have the same recordings quickly reappear, seen this as another opportunity to again requiring another takedown to be issued. expand the services they offer their rights- Hence why rights-holders need tools to holder clients. help them manage this process.
Once a distributor is offering sync licensing Where a platform does not respond to a services, there is possibly the opportunity takedown request, it is then for the rights- to expand this even further by looking holder to decide whether they wish to take for other licensing opportunities and/or further action to enforce their copyrights. negotiating brand partnership deals that go beyond just sync. It feels like it’s early days for distributors moving into those 6.5 PICK & MIX areas, but we would expect a further All distributors will offer at least some of expansion of services in this domain in the these services. Aggregation is a given and years ahead. the other distribution services are also increasingly the norm.
ANTI-PIRACY ACTIVITY Even the DIY distributors usually offer In addition to ensuring that their platforms some sort of analytics platform, even if are not being used to upload music they can’t realistically offer anything other onto the streaming services without the than occasional B2B marketing support permission of the copyright owner, some with such a large number of clients. Of distributors may also offer their clients a the other services, the exact menu varies wider range of anti-piracy services. greatly from distributor to distributor.
DISTRIBUTION 38 REVOLUTION Many distributors will allow clients to pick also some agencies that will offer B2B and mix from their menu of services or offer marketing – especially playlist pitching – as various tiered packages. When working a standalone service. directly with artists or single-artist-labels, this flexibility will be pitched as a unique A rights-holder with direct deals may selling point over doing a more traditional also need help with things like rights deal with a record label. Because a label administration, neighbouring rights would usually assume it is going to provide and sync. Again there are specialist all of these services and therefore won’t agencies that provide these services on a necessarily be used to negotiating on standalone basis. Though a rights-holder royalty rates by reducing the number of may nevertheless choose to work with services it provides. a distributor in these areas – especially neighbouring rights – even if they don’t Quite how a rights-holder picks from this work with that distributor on actual menu of services will be influenced by distribution. which of the above described distribution options they have gone for – ie the direct OPTION TWO: MERLIN DEALS deal approach, the Merlin deal approach or the aggregator approach. Those rights-holders utilising Merlin- negotiated deals for some or most of their DSP relationships will also need to at least OPTION ONE: DIRECT DEALS build or buy in a content delivery platform. Those rights-holders with direct deals Merlin, of course, provides the deal, and with the DSPs but without the resource also handles data feeds and payments. or expertise to build their own content delivery platform may be looking for just As with those who have direct deals, rights- content delivery and/or data feed services. holders utilising Merlin-negotiated deals Some companies specialise in offering just may still need help with B2B marketing, these services on a standalone basis. In analytics, consumer marketing and so on. the UK that would include CI for content Again they are probably more likely to hire delivery and Entertainment Intelligence specialist agencies to undertake most for processing data. Some distributors of this work, although might work with will also offer these services standalone, distributors as well, especially in areas like which in the UK would include FUGA. neighbouring rights.
The rights-holder may also want help OPTION THREE: with marketing, though would probably be more likely to hire the services of AGGREGATOR DEALS specialist marketing, press, promotions These are rights-holders who rely on a and/or digital agencies rather than using distributor for the full aggregation process, a distributor for this work. There are now so DSP deals; content delivery, checking
DISTRIBUTION REVOLUTION 39 and identifiers; data feeds; and payment from monies generated by the recording, processing. But many will also utilise other either by recouping specific budgets or services offered by the distributor, with simply taking a higher commission. B2B marketing and analytics often a given, and the other services also attractive. In order to offer this option, the distributor needs to be in control of the payment It is much easier for rights-holders processing on digital income, which is to employing this option to utilise the say the DSPs need to pay the distributor distributors’ other services. As discussed first, so that it can deduct its fees and above, one of the reasons why it is commissions from that income before attractive for rights-holders to take these passing monies onto the rights-holder. extra services from a distributor is that And once a distributor is in control of doing so often reduces the up-front costs payment processing, it might be attractive of releasing new music. Because the for a rights-holder to take more services so distributor will cover its costs down the line to further reduce its upfront costs.
DISTRIBUTION 40 REVOLUTION 7. CHOOSING A PARTNER
There are various one-off charges, per-release charges and annual charges all employed in different criteria rights- ways. holders could and But for higher level distribution (and some should consider DIY distribution) the commission model when deciding which is more common. The exact rate will vary depending on the level of services distribution partners to offered and the status of the artist and work with. likely revenue they will generate. That said, commissions of between 10-30% Obviously those utilising direct DSP deals are common, and possibly higher once or Merlin-negotiated deals will only need consumer marketing services are being the content delivery component of the provided. Additionally, the distributor may core aggregation process, and possibly also seek to recoup certain defined costs assistance on B2B marketing and analytics. or fees relating to specific services from They will therefore probably focus on total income and/or the rights-holder’s those companies that provide these as share, in addition to taking its standard standalone services, usually on a fee basis. commission.
For those looking to utilise the DSP deals As already mentioned, digital distribution of a distributor, and therefore at least all is a very competitive market place. six elements of the aggregation process - Major record companies expanding their and probably other services too - there will operations in this domain and the arrival be a much greater range of companies to of a number of well-funded start-ups choose from. The criteria they employ when seeking to build market share has seen choosing a partner may include some or all commission levels pushed downwards. of the following. Certain distributors may also develop ways to automate previously labour- intensive tasks, allowing them to offer a PRICE lower commission rate without affecting A distributor will commonly have a core their profit margin. revenue share deal with a rights-holder that will see it take a commission off Recorded music has traditionally been any revenue streams it is involved in. The perceived as a famously risky business. exception is the DIY distribution model. Though most independent record Some, though not all, DIY distributors companies have become experts at charge the client a modest upfront fee managing this risk, as evidenced by many and then pass on 100% of all subsequent such labels having been in business for income it receives. There are various 20-40 years. manifestations of this approach, with
DISTRIBUTION REVOLUTION 41 That said, there is still a significant level DSP deals or investing in infrastructure, it of risk management required whenever can be a disadvantage too. Particularly releasing new music, and especially when when it comes to more labour intensive working with new artists, with large upfront activity or if a distributor is pitching costs and few guarantees any one release music – for example for playlists – where will be profitable in the long-term. Many realistically you can only ever pitch a small independent labels also operate on low number of releases at any one time. profit margins and as a result experience frequent cash flow challenges. Though, sometimes a major or newly launched distributor with access to cash Steep revenue declines across the record chooses to pursue a loss-leading market industry in the 2000s and the challenge of share growth strategy. Either because shifting to a new streaming model in the of the aforementioned advantages of 2010s both increased the risk associated scale, or to impress investors and potential with the business. Although the global clients, particularly where the distributor record industry has now been back in gets a big name client to add to its roster. growth for five years. Where a larger or newer distributor is pursuing such a strategy, it may in fact be But either way, given the continued risk for able to offer the rights-holder considerably labels, a distribution sector increasingly more than they are really paying for, in the competing on price has arguably been short term at least. advantageous for rights-holders, even if price wars tend to give bigger players But, of course, that isn’t necessarily for an advantage and can ultimately drive the long-term good of the market, given smaller players out of business (or force that loss-leading market share building them to sell to a bigger player – likely a can only ever be a short-term strategy. So major record company) reducing overall rights-holders will only enjoy the benefit choice. of that strategy for a time, meanwhile other good independent distributors may That said, most smaller distributors – struggle to compete. Which can result in it especially when criticising bigger or newer being acquired by a bigger rival or major rivals – often say rights-holders should record company. remember the mantra that, generally speaking, “you get what you pay for”. As referenced above, increased competition pushing down the price of Which is to say that, even with the most core distribution services is also one of tech-savvy distributors, only so much of the motivating factors for distributors the work can automated, and quality diversifying their range of services. Adding manpower costs money. And while in marketing and such like can justify representing a larger catalogue can be an retaining a higher commission, while advantage when it comes to negotiating moving into things like neighbouring rights
DISTRIBUTION 42 REVOLUTION CHOOSING A DISTRIBUTION PARTNER
What commissions and fees will the distributor charge you and how long are you committed?
Will they advance any money? Are you relying on a cash advance?
Do they have a good portal for providing assets – and accessing and understanding data?
What services can they offer? And which ones do you actually need?
What DSPs do they work with – and do they use direct, Merlin or partner company deals?
Do they offer relevant genre expertise? Do they offer expertise in your priority markets?
What level of playlist pitching and other B2B marketing support can they offer?
Is physical distribution important to you - and if so can they provide it?
Are they a big or small distributor - and what best suits your needs?
Are they and their entire supply chain independent - and does that matter to you?
Who are the key people working there - and can you work with them?
DISTRIBUTIONDISTRIBUTION REVOLUTIONREVOLUTION 43 management allows distributors to share direct deals – may in turn look to the DSPs in another revenue stream. to advance them money. So in some ways this advancing of monies works its way When rights-holders are negotiating down the digital supply chain: ie the DSP distribution deals, price must, of course, advances to the distributor who advances always be balanced with quality of to the label who advances to the artist. service. A distributor unable to compete on price, but which offers a more hands- Of course more recently, in a small number on service and/or particular expertise, of cases, Spotify has started paying may be able to deliver a more successful advances directly to single-artist-labels, in release campaign, so that the rights- essence cutting out the middle men. If this holder is ultimately better off, even though becomes a more common trend, it could the distributor took a bigger cut. make things tricky for any distributors or labels using the payment of a cash advance as the key negotiating tool when ADVANCE signing rights-holders and artists. In addition to price point, the other financial element of any deal between a Nevertheless, for any rights-holders distributor and a rights-holder relates to navigating the financial challenges of whether the former will advance monies to the recorded music business described the latter. These advances may be to cover above – especially smaller rights-holders specific costs the rights-holder will incur who can’t draw on their own cash reserves around a release or be a general cash or credit facilities - cash advances from advance on future income. Advances may distributors are attractive. relate to whole label or artist accounts or to specific releases. Advances are, of course, often used as a negotiating tactic that benefits the Cash advances are also common in deals advance giver down the line in return for between labels and artists. Therefore, offering a short-term cashflow benefit to when a distributor works with single-artist- the advance-receiver. labels, the artist may well be banking on a cash advance to make a deal feasible. Which might mean the rights-holders – and Meanwhile more conventional labels may any beneficiaries of those rights – seeing well look to their distributor to provide an lower ongoing payments in the future. advance so that they are in a position to in Therefore the short term benefits of turn advance monies to the artist, as well advances always need to be considered as cover other upfront costs associated in the context of the long-term costs. with a release.
On top of that, in the digital domain, COMMITMENT & REACH distributors – and rights-holders with Other key elements of any distribution
DISTRIBUTION 44 REVOLUTION deal will cover exclusivity, geographical In theory, rights-holders will want to be reach and time period. Which is to say, locked in to any one deal for as short a time what music is the distributor distributing as possible, while distributors who incur on what basis in which countries for how various upfront costs will want to share long? in any revenues generated by the rights- holder’s catalogue for as long as possible. A general trend in the music rights Though realistically a rights-holder doesn’t business is that the time periods that deals want to be switching distribution partners run for have come down in recent years. too often either. So, traditional label and publishing deals with artists and songwriters do not last Because another issue for rights- as long as they used to, in terms of the holders to consider is how easy it is to number of recordings/songs the artist/ change distribution partners logistically writer is obliged to deliver, and how long speaking. Even if the rights-holder is the label/publisher will control the rights only contractually obliged to work with a in that work. distributor for a relatively short period of time, the logistical headache and risks In both recordings and publishing ‘life-of- of switching partner can result in rights- copyright’ assignment deals were once the holders sticking with a distributor beyond norm, giving the label or publisher control the original deal period. over the rights they acquired for decades. In the record industry life-of-copyright This issue has been raised numerous times assignment deals are still regularly signed, by labels in recent years, with the logistical especially by new talent. Though over issues related to switching distributor the last two decades independents in sometimes seen as “invisible hand cuffs” particular have generally become much that can lock a rights-holder to a distributor more flexible on this point, and may even when they have no contractual compete against a bigger rival by offering obligations and are not entirely happy with a shorter fixed-term assignment. Or even the services they are receiving. It is also a fixed-term licence, which it is generally felt that some distributors exacerbate this agreed is even more favourable to the problem by deliberately making it harder artist. to move away from their platform in order to retain business. This general move in the music rights industry to shorter term deals has also To avoid this, rights-holders should impacted to an extent on distribution deals consider exit strategy when negotiating as well. And, indeed, some DIY distributors any deal, and ensure they have access to offer deals with no time commitments, their content, meta-data and DSP usage where a rights-holder can leave by giving data should they wish to switch distribution as little as a month’s notice. partners down the line.
DISTRIBUTION REVOLUTION 45 The independent label community should services available the better. This is most also develop a code of conduct with the true for those rights-holders interested distributors, so that those who do not in outsourcing lots of activities to their seek to exploit the stress of exiting in distributor, most likely to reduce the upfront order to win competitive advantage can costs associated with new releases. be championed. We discuss this further in Section Eight. Other rights-holders might actually prefer distributors that offer a smaller range of PLATFORM OR PORTAL services, assuming that this will mean their distribution partner is more focused Once a deal is done, a rights-holder will on the core elements of aggregation and likely be connected to the distributor day- distribution. to-day via an online platform or portal through which they provide content, Some rights-holders say they sometimes assets and meta-data and access usage feel their distributors are forcing services and royalty data. This portal may also onto them - possibly in a bid to justify a include any analytics tools the distributor higher commission or to enable them to provides to help the rights-holder process, share in another revenue stream – when understand and utilise the flood of they’d rather hire specialist agencies to do streaming stats. that work or have decided they don’t need said services at all. Many digital distributors have invested heavily in their portals. Rights-holders Most distributors insist that they operate should consider how easy these portals a very flexible approach when it comes are to use and what kind of data and to rights-holders choosing services. And analytics they provide against the in some cases there are logistical as well commission level being paid. They might commercial reasons why a distributor also want to consider whether these wants to lock certain services together. portals can help with their own reporting That said, it may also be in the distributor’s to any beneficiaries of the rights which financial interest for as many services as they control, such as artists and their possible to be utilised. managers. DSP DEAL SPECIFICS RANGE OF SERVICES Each deal done between a DSP and a We discussed the range of services a rights-holder or distributor is different. distributor may offer in Section Six. The basic structure of each deal is usually the same, but the exact revenue share For some rights-holders, this range of percentage may be slightly different services may be factor in deciding which (DSPs in the UK usually pay between 50% distributor they work with, with the more to 60% of revenues to recording right-
DISTRIBUTION 46 REVOLUTION holders). There may also be differences the specifics. And they should also make in any minimum guarantee agreements. a commitment to always prioritise the And both of these may be influenced by interests of the clients – rather than the any advances that the rights-holder or distributor’s own business or any parent distributor received. company’s business – when negotiating any new DSP agreements. Where a rights-holder is relying on a distributor’s deal, therefore, the month- Again, we will return to this issue in Section to-month payments they receive from any Eight. one DSP will depend on the specifics of the deal they are benefiting from. And GENRE OR REGIONAL while in terms of percentages or average per-play rates the differences between EXPERTISE deals may be only slight, when that is Some rights-holders may be drawn to a applied across an entire catalogue over distributor because they have particular a few years, the total financial difference expertise in a specific genre of music. might be significant. Although there is generally less genre One challenge here, though, is that most specialism in the digital domain than there deals between DSPs and the music industry was with physical – in that most DSPs cover are confidential, and a distributor may not most genres – nevertheless there are still be able to share key information about its some niche DSPs for certain kinds of music. deals with rights-holders because of non- And when it comes to playlist pitching and disclosure agreements or competition law marketing, knowledge of and contacts in a concerns. This hinders a rights-holder’s particular genre can be very valuable. Also, ability to choose a distributor based on some rights-holders simply like working with the specifics of its DSP deals. people who have a passion for the same sorts of music as they do. Some distributors argue that, ultimately, across all the different DSP deals, things Regional expertise can also be key. probably even out. Though some bigger Although – unlike with physical distribution rights-holders who have worked with – it is relatively easy for smaller distributors multiple distributors at the same time have to upload music into DSPs worldwide, been able to crunch the figures across the it nevertheless remains valuable for a board and see which of their distribution distributor to have specific knowledge of partners seem to have better deals with and contacts within any markets that are which DSPs. particularly important to a rights-holder. It should also be noted that some markets Either way, distributors should be willing are harder than others to manage from to explain the structure of their deals, abroad and therefore require substantial even if they are not allowed to share local expertise.
DISTRIBUTION REVOLUTION 47 We should also note that, while services to playlisters at the streaming services, like Spotify, Apple Music, Amazon and realistically you can only ever pitch a YouTube dominate on a global scale - few new tracks at a time. For distributors there are still other services that are key in distributing hundreds – if not thousands – certain territories. of tracks each week, clearly it is going to be difficult to provide solid support in this That includes Pandora and iHeartRadio in area for all clients. the US, the Tencent services and NetEase Cloud Music in China, Yandex.Music and In addition to pitching to the curators of VK Music in Russia, JioSavvn and Ganna playlists at the streaming services – or the in India, Anghami in the Middle East, and owners of third party playlists that have a Boomplay in Sub-Saharran Africa. Local decent audience on services like Spotify distributors will usually have stronger and Apple Music – many distributors relationships with these regional services. operate their own playlists on most of the key platforms. These may or may not And even the global DSPs also have command big audiences, but can be regional playlisting teams, so local useful for both testing and seeding new contacts can be important with those releases. And curators at the streaming companies too. platforms may also be influenced by how tracks perform on these playlists.
B2B MARKETING ABILITIES Distributors who set up their own playlists Although every rights-holder obviously on the streaming platforms early on are has their own priorities, pitching music to generally at an advantage here, because the curators of streaming service playlists there was a time when the DSPs pushed has become such an important part of third-party playlists much more proactively, the music marketing mix that this has whereas they now tend to mainly push become a key service distributors provide. their own playlist brands. Especially for smaller rights-holders not able to afford to build up their own in- house playlist teams. PHYSICAL DISTRIBUTION ABILITIES Most distributors have put a lot of effort We mentioned above that for some rights- into building this service in particular. As holders physical distribution remains previously noted, this is an area where important, for now at least. Where this is smaller and genre specialist distributors the case, the rights-holder needs to decide have an advantage over bigger distributors, whether it wants a single distributor for and especially the DIY distributors. both physical and digital or if it is happy to have different partners. This is because, even if you have a B2B marketing team that regularly speaks Utilising different distributors for physical
DISTRIBUTION 48 REVOLUTION and digital is pretty common, because we have said several times now, are more many distributors have particular strengths likely to be able to include any one right- in one or the other, but often not both. holder’s tracks when speaking to playlist This is especially true when you go global. curators. Working with different distributors in different regions is also more common Smaller distributors may actually be with physical than digital distribution. outsourcing some of the work to or utilising the platforms of another distributor. This When you have one distributor working on isn’t necessarily a problem, indeed it might both, it might actually be relying on a third allow a rights-holder to have the benefits party to deliver either the physical or the of a smaller distributor while also having digital part of the distribution. When that access to some of the scale of a bigger is the case, some labels may feel that they distributor. Though rights-holders should might as well work directly with whoever is know whose servers their content and actually doing the work. data sits on, and who has sight of that data and how it is used as it flows from However, there are advantages to having DSP to rights-holder. both sides of distribution handled by one distributor. This is particularly true if the INDEPENDENCE distributor is involved in marketing activity, because they will be fully informed about Related to scale is the issue of whether or the full release campaign and incentivised not a distributor is owned by one of the to promote each element with equal three major music rights groups, ie Sony vigour. Music, Warner Music or Universal Music. Or whether their independent distributor is outsourcing some of the work to a major- SCALE owned distributor. There are, of course, pros and cons to working with big distributors versus small Again, there are pros and cons to working distributors, in just the same where there with the majors, either directly or indirectly. are pros and cons in artists working with But some independent rights-holders are big labels versus small labels. very proud of their independence and of the independent music community – Bigger distributors generally have more and/or may want to publicly express any weight when negotiating deals and will concerns they may have with the majors - likely have on-the-ground personnel and therefore might not want to work with and expertise in multiple markets, which a distributor owned or allied with a major. remains important for some rights-holders. There is also the issue that, when it comes Smaller distributors can offer a more to negotiating some elements of the DSP focused and dedicated service and, as deals, market share can become a factor.
DISTRIBUTION REVOLUTION 49 When negotiating their deals, majors will consider what happens (ie what is written include the recordings they distribute in in the contract) if an existing distributor is their market-share. acquired by or starts working with a major.
Therefore an independent rights-holder KEY PEOPLE might be helping a competitor secure a more preferential deal with a DSP. That Finally, although it’s a cliché to say so, the independent rights-holder will, of course, music industry is a people business. Artists benefit from at least some elements of the often pick labels to work with because they deal in the short-term, but not necessarily like the people who work there. Likewise, all elements, and not if and when they when picking a distribution partner, rights- switch to another distributor down the line. holders might be swayed by its people.
As mentioned above, the majors – and There is nothing wrong with this, as a specially Sony Music – have been growing distributor will become a close partner their distribution business in recent of a rights-holder – especially if they are years, often via acquisition. Meanwhile providing a wide range of services – so distributors which outsource some of the a good working relationship between work will inevitably switch suppliers from both parties is important. Though, of time to time. course, people move on and up, so it isn’t guaranteed those people will remain the Therefore rights-holders who have issues rights-holder’s main contacts throughout with working with the majors need to the duration of the deal.
DISTRIBUTION 50 REVOLUTION 8. CHALLENGES & ISSUES
The evolution of the a decent period of time. Also there tends to be more variation in minimum guarantee distribution sector, arrangements than revenue share splits and the growth in the (though arguably the minimum guarantees become less relevant as any one service number of services gains momentum in a market). distributors provide, As also noted above, certain bigger has greatly increased rights-holders who have worked with the choice available to multiple distributors and who have been able to crunch the figures have noticed artists and labels. But some significant differences in different these changes have distributor’s deals and have then used that information in part to inform their decision also created some making. But this information is generally challenges and issues not available to smaller rights-holders. for the independent music community. DSP DEALS - SHARING THE VALUE Although day-to-day, for a rights-holder, DSP DEALS - the revenue share agreement between the TRANSPARENCY ISSUES distributor and the DSP – and any minimum As mentioned above, the distributor’s deal guarantees directly linked to plays – are with each DSP will have various elements most crucial, the other elements of the to it. With streaming services, the core deal are important too. deal is likely to be revenue share based on consumption share. But there may be In particular, there is the question as to advances and minimum guarantees as what happens if a distributor receives an well, plus equity and fees in first deals with advance from a DSP which is recoupable start-up DSPs. but not returnable, and then it is not recouped within the agreed time period. Every DSP deal is different and most are So a distributor is advanced $1 million for covered by non-disclosure agreements, a calendar year, but during that year only which may mean the distributor cannot generates $900,000 under its revenue share the specifics of any one deal. share agreement with the DSP.
Distributors often argue that the differences Under most deals the distributor would between the deals are not significant, get to keep the remaining $100,000. but – as referenced above – they may These unallocated advances have been become so across a large catalogue and somewhat confusingly referred to as ‘breakage’ by the music industry (for
DISTRIBUTION REVOLUTION 51 historical reasons related to physical distribution, ie whether to seek direct product). deals with DSPs; or opt-in to Merlin deals, and then probably buy-in content delivery Additionally, there is the question as to and data support; or whether to work with what happens if a distributor secures a distributor on the entire aggregation equity in a DSP and then subsequently sells and distribution process. Beyond that, that equity for profit. there is the option to then work with that distributor on wider marketing activities, In both scenarios, the question is: does and/or utilise other services the distributor the distributor share the profits from its offers. advance and equity with the rights-holders whose recordings it was representing at As referenced above, for rights-holders the point it negotiated its deal. tackling the financial challenges of meeting the upfront costs of a new It is mainly the majors who are profiting release, it can be attractive to take a from unallocated advances and equity range of services off a distributor which sales in this way, usually from deals that will be paid for by future income, therefore involved both their own rights and those reducing upfront expenditure. of the rights-holders they distribute. To that end, questions around breakage and Whether or not this approach works out equity sale profits are relevant to major- more expensive in the long-run depends label signed artists but also to those rights- on a number of variables, not least how holders utilising a major’s distribution successful the release is, especially if the services. distributor is recouping all of its costs out of its commission, rather than initially This has been a big topic of conversation recouping certain upfront expenditure out in recent years, initially in the artist of all monies or the rights-holder’s share community, and then subsequently of income. among independent labels distributed by the majors. Some commitments have But, if a rights-holder has the ability been made by distributors to share some and resource to manage most of the of these additional profits, though the distribution and marketing process, then it commitments vary from major to major, is likely more profitable in the long-run to and have generally been more favourable to directly-signed artists than to distributed operate under direct or Merlin-negotiated labels. deals. Even if that means paying a Merlin commission as well as fees to a content delivery platform and possibly for data COST BENEFITS AND and analytics support. CONTROL Unless, of course, a distributor is offering Above we described the various options an incredibly good deal on its commission, rights-holders have when considering
DISTRIBUTION 52 REVOLUTION which some market-share building doing well, and so will therefore work distributors have been doing in recent harder. Which may or may not be true. years for the reasons outlined above. If the bigger advance enables the rights- That said, whether or not the direct holder to invest in, for example, a bigger or Merlin deal approach is more cost marketing campaign, then there can be efficient in the long run also depends on sound business rationale to choosing the what other marketing or admin services deal that provides that level of upfront the rights-holder has to buy in, and also money. Though if the bigger advance is the sometimes hidden resource costs of being sought to deal with unrelated cash internal teams undertaking marketing and flow crises or simply because of a gut other work. instinct that the bigger the advance the better, then choosing a distribution partner Even if the cost benefits of the different based on advance alone is probably less approaches are hard to assess, because of wise. all the variables, it is true that by keeping as much work as possible in-house - or Though we should acknowledge the relying more on specialist agencies for financial challenges faced by many rights- marketing, who tend to work on a project holders, both self-releasing artists and basis rather than retainer – the rights- independent labels (especially smaller holder has more control over its business. lables), which may result in primarily pursuing a big advance from a distributor Which is to say its success isn’t reliant on a rather than focussing on the longer term single supplier, which may cease to be so potential or wider benefit of a deal. competitive on future deals as the market evolves, and which could potentially For most labels, a small percentage of become a competitor down the line (more catalogue will account for a significant on which below). portion of income. Meanwhile many smaller rights-holders are still to put out what will become their ‘cash-cow’ release. THE ALLURE OF THE ADVANCE Some who have got such releases in their Most people in the music industry like catalogue nevertheless struggle to work cash advances, and there are plenty of out how to use a sudden influx of money deals that have been won by a label or to ensure the long-term future of the label distributor simply offering to advance the overall. most money. But if, when they do secure that release, a There is sometimes an assumption that a rights-holder can invest that income wisely label or distributor that has advanced a and, as a result, advances become less lot of money has more of a vested interest important when negotiating distribution in that artist or rights-holder’s recordings deals, the rights-holder will have a greater
DISTRIBUTION REVOLUTION 53 choice of distribution partners to work There are, however, things the rights-holder with. And will be in a better position to can do to make moving distributors an select the services they take in order to easier process. First, and most importantly, retain control. is that rights-holders should never treat a distributor as its archive for recordings and assets, and should always store copies of EXIT STRATEGY all these things on its own server, preferably As previously noted, one key issue a number backed up in the cloud. of labels have raised is the logistical and administrative challenge of moving from Second, rights-holders should ensure a one distributor to another. Some rights- well thought-out exit strategy is included holders fear that such a move may result in any deal along with suitable sanctions in losing content, assets or data, or in if it is not followed, and that any tasks problems occurring on the streaming they will need their outgoing distributor platforms, like tracks or stats associated to undertake when moving suppliers are with them disappearing. contractual obligations of that distributor. Such contact terms should also be clear on So much so, the work and risks involved whether the outgoing distributor is allowed in moving suppliers can result in a rights- to charge fees for this work. holder sticking with a distribution partner even if they are not entirely happy with the Some labels and distributors have services they are receiving. suggested that this is an area where some kind of industry standard could It was also felt that some distributors have be developed, to both manage the exploited this issue to keep the business of expectations of and to provide some unhappy rights-holders. Though, in some security for rights-holders. cases, this may instead simply be due to a lack of competence on a distributors’ PARTNERS AS COMPETITORS part when it comes helping a client exit (ie rather than a deliberate attempt to hinder This is another key issue raised by rights- the process). holders. As noted above, as distributors have expanded their range of services, Obviously if a rights-holder parts company and have started to increasingly work with a distributor even on good terms, that with self-releasing artists – usually via distributor may not be hugely motivated single-artist-labels – they have started to go out of its way to help with the to compete with their more conventional transfer of content, data and services to a label clients. competitor. Though future business, word of mouth and professional pride should be Plus, of course, it has always been the drivers to encourage distributors to help a case that some distributors are one part rights-holder exit in as clean and efficient of a business that also operates more a way as possible. conventional labels.
DISTRIBUTION 54 REVOLUTION It’s not uncommon in the music industry music distribution is a fiercely competitive for companies to collaborate on one market. project and then compete on another, and this need not be a problem. Though Physical distributors have obviously had to rights-holders would understandably be deal with 20 years of significant decline frustrated if their distribution partner in the sale of physical music products. actively sought to work directly with As discussed in Section Two, this side of their artists as soon as any contractual the market has downsized considerably commitments to the rights-holder are – through closures, liquidations and completed. mergers – so that we are getting to a stage where there is one main last-man- Concerns in this area have arguably standing physical distributor in each increased with the shift to digital. market, to which pretty much everyone Distributors are now usually in possession else outsources the work. of much more detailed information about the businesses of the artists they distribute, Some physical distributors successfully and even more so if they are involved in moved into digital distribution, though that marketing and other activities. too has proven to be a very competitive market, with majors and certain well- This information could then be used by funded start-ups competing aggressively the distributor or a sister label to try to to build market-share. Meanwhile artists secure a deal with an artist who previously have the option to use a DIY distributor worked with a rights-holder client. which, although in theory aimed more at grass roots talent, have sometimes also Obviously in an open and competitive been used by more established artists who market place for talent, there is only so prefer the business model. much you can do to counter this issue. And arguably more competition – and a This has often forced other distributors to greater variety of deals on offer – is good become more competitive on price which for the artist community. in turns hits their margins. This likely forces them to take on a bigger client base and/ Though rights-holders and artists should or offer more services, which then creates give some consideration to who has challenges around fulfilment. For many access to any data relating to their smaller and middle-sized distributors, this recordings and fans as it passes down makes merging with a bigger player more the supply chain. This should also apply to attractive. any other third parties that the distributor outsources work to. Also, as noted, distributors who diversify their range of services – and especially those who start working with lots of NEW COMPETITION single-artist-labels - also need to consider As mentioned several times already, to what extent they will begin competing
DISTRIBUTION REVOLUTION 55 with their label clients, and whether that Therefore, in the main, a rights-holder might damage future relations. needs their music to be streaming on all the key platforms. Having to deal with and Another recent talking point has been the manage separate uploading systems for possibility of streaming services offering each and every platform would be time- more direct-upload tools to artists, consuming and impractical. Therefore allowing those artists to circumvent both the idea of having a single delivery point labels and distributors. Some platforms – as a distributor offers - is very attractive have offered this option for years, but it indeed. was Spotify’s aforementioned experiment with a direct-upload tool that kick- The platforms that are most notable for started a much bigger debate about this having always provided direct-upload approach possibly becoming the norm. options are YouTube and SoundCloud. But these platforms are also marketing There are, however, various issues with the channels and therefore managing these idea that every DSP would ultimately offer separately may make sense for marketing a direct-upload tool. And Spotify’s decision reasons. But with most of the other to not pursue its direct-upload product services, there are no real benefits for after a beta trial perhaps suggests that the extra work platform-specific-delivery those issues mean that such a practice will would require. not, in fact, be widely adopted. All that said, it is inevitable that in the years The biggest issue in that domain is that ahead distributors will see some of the artists and labels really need to have services they currently provide automated their music available on as many DSPs as and commoditised – by competitors, start- possible. Yes, there was period when some ups or the DSPs - so that they no longer artists were doing exclusivity deals with command the same value for rights- single platforms. But those were generally holders. To this end, distributors need to superstar artists agreeing to be limited to constantly consider the range of services one DSP in return for a substantial upfront they offer and how they can continue to payment. And, in the main, it was felt such add maximum value to the rights-holders exclusivity deals were counterproductive, they work with. even for the biggest name acts.
DISTRIBUTION 56 REVOLUTION 9. CONCLUSION & RECOMMENDATIONS
The music distribution to rights-holders. Especially smaller independents and single-artist-labels that market has evolved find it easier to work with fewer partners dramatically over the overall, and who like being able to secure extra services upfront paid for by a share last two decades, of revenue down the line. with the rise of digital Though rights-holders need to assess distribution and the whether their distributor really is the best consolidation of the partner to provide all these services, rather than using a bespoke agency or hiring physical distributors. in-house expertise. Plus, as distributors start to offer pretty much all the services Today music distribution companies are of a label, and work directly with artists, offering more services to a wider variety rights-holders face the challenge of their of clients, to the extent that in some distributor partners becoming competitors. cases the line is blurring between the distributor and the label.Meanwhile, new These are all factors rights-holders competition in the market, from major should be considering when choosing players and well-funded start-ups, has a distribution partner, selecting which resulted in commission rates being pushed services to take and negotiating on price down and the amount of extra services point. being provided going up. The rights-holder should also be This evolution has changed the thinking long-term and ensuring that rights-holder/distributor relationship. their distribution agreement provides Competition in the market has enabled a workable, efficient and enforceable many rightsholders to secure more exit strategy, so that they do not end up favourable deals. Though too fierce locked to an under-performing distributor a price-war will result in further for logistical reasons. consolidation of the market, reducing the choice of suppliers for rights-holders long- Based on the research behind this report, term. And where a distributor is offering we would also recommend that the an extremely good deal to a rights-holder independent music community consider in terms of fees or commission, that rights- the following actions. holder should consider if the distribution partner can really provide a quality service Agree on codes of practice for at that price. • distribution partnerships. The widening range of services provided • Identify the whole digital supply chain. by distributors has also proven attractive • Promote a distribution checklist.
DISTRIBUTION REVOLUTION 57 1. Agree on codes of 2. Identify the whole practice for distribution digital supply chain partnerships We have discussed above how Rights-holders and their distribution distributors may actually outsource some partners together should agree some of the services they offer to the client to basic working standards for both to another company. Also, the distributor follow. may have their own directly negotiated DSP deals, or use Merlin deals, or they AIM supports the ‘5 Cast Iron may utilise the deal of a parent, partner Commitments’ cited by Simon Wills or external business. of Absolute Label Services in a 2017 opinion-editorial piece for Music Business All these things can be to the benefit of Worldwide, and see these as a sound the rights-holder, who wants to access the starting point from which a wider code of best services and the best deals through conduct can be developed. a single access point. But rightsholders should be able to choose who they work In his piece, Simon set out his belief in the with and – even more importantly in the importance of distributors ensuring that modern music industry - who has access the client has access to all their assets to and use of their data. and data, that profits of unallocated advances or equity from the DSPs is To achieve that, there should be shared with the client base, and that the full transparency of the deals and clients’ interests should always come first partnerships the distributor has in place, when negotiating DSP deals. so a rights-holder – and, where the rights- holder is a label, the artists they work with One other area that has been identified – can understand the full digital supply by AIM members as of particular chain from artist to fan. significance and which currently creates friction between rights-holders and It would be useful for AIM and its distributors - and which would be community to fully map the digital supply suitable for alleviating via a code of chain, but in an ever-changing landscape conduct - is exit strategies. Therefore any of deals and acquisitions, this would fast code of conduct should include specific be out of date and would likely knock its exit strategy obligations. head against commercial confidentiality issues. AIM can however encourage distributors in this area to help enable more transparency and inform rights- holders so that they can identify every entity involved in their own process.
DISTRIBUTION 58 REVOLUTION 3. Promote a Next steps distribution checklist To stay updated with AIM’s future work on the issues raised in ‘Distribution Based on this research we have been Revolution’ – including follow-up able to compile a music distribution activity and related training, events, checklist, helping rights-holders get to conferences, networking and more - grips with what is now on offer, and sign up to AIM’s newsletter and other guiding them as to what they should be bulletins. considering when choosing a distribution partner and negotiating a distribution You can do this at bit.ly/aimupdate. deal. Key developments will also be promoted As part of its remit to educate and inform via AIM’s social media as follows: the independent music community, Twitter: @AIM_UK AIM will be sharing this checklist with Facebook: @aim.music its members, and especially newer Instagram: @aim_insta_uk labels, self-releasing artists and other businesses releasing music. CMU will also report on this future activity via its media: the CMU Daily bulletin and It will also share this knowledge via its Setlist podcast. You can sign up to both other activities, including via its ‘AIM for free at cmusignup.com. Academy’ training and conference programme through the year, so that everyone is asking the right questions and fully understands the challenges and opportunities of distributing music in the digital age.
This guide © 2019 The Association of Independent Music Limited. All rights reserved. No part of this guide may be reproduced or copied in any manner whatsoever without the prior written permission, except in the case of brief quotation embodied in articles, reviews or academic papers and in such instance a full credit must be provided prominently alongside.
DISTRIBUTION REVOLUTION 59 ‘Distribution Revolution’ is a major new report from the Association of Independent Music (AIM) and CMU Insights.
It explores how the role of the music distributor has evolved over the last two decades as distribution companies have expanded the ways that they work with independent music businesses, increasingly moving into so called artist and label services.
It then explains the options now available to those independent music businesses – including self- releasing artists – who are seeking a new distributor, outlining essential knowledge required before selecting any new partner, for distribution and more.
THE ASSOCIATION OF INDEPENDENT MUSIC AIM.ORG.UK DISTRIBUTION 60 REVOLUTION