The following MBW blog comes from Paul Pacifico (pictured), CEO of the Association of Independent Music (AIM) – a trade body which works in the interests of the UK independent music community.
The idea has very much come of age that artists are able to build independent music businesses as entrepreneurs by plugging in to the global digital music system through a series of service deals that enable them to keep full control of their rights.
But does the sales pitch actually deliver for these self-releasing artists and smaller independent labels? What is the true cost of doing business?
Many calculations in the music industry today are based on a company’s market share, but not enough people recognise that this calculation is often based on the proportion of market share distributed by a company, rather than the actual share of the market for which it owns rights.
“as an independent label or self-releasing artist, your choice of distributor could well be the deciding factor in whether or not you get your fair share of the [Spotify IPO] pay day.”
This is fine when the value passes through the distributor efficiently and its clients (labels and artists) benefit properly from the full value generated by their work – but there are questions here that need to be answered.
As has been well documented, Spotify is expected to list on the New York Stock Exchange in the coming months. This is expected to generate a sizeable windfall back to the music industry as music companies who picked up equity stakes when licensing the platform in its early days have the opportunity to cash in those holdings by selling them on the open market.
However, as an independent label or self-releasing artist, your choice of distributor could well be the deciding factor in whether or not you get your fair share of that particular pay day as the major labels have taken a tranche of Spotify equity that includes the value of the independent share of market they distribute.
Independents have long signed up to share the proceeds of these sorts of deals with their artists through initiatives like the Fair Digital Deals Declaration (FD3) of 2014.
Pressure from artist organisations such as the Featured Artists Coalition (FAC) has also succeeded in securing commitments from at least Sony and Warner to share the proceeds of the Spotify IPO with artists signed directly to those labels. (Universal is yet to make a public commitment to do the same.)
However, independent labels and self-releasing artists who distribute through majors and whose catalogues make up an important part of the value coming back to the industry are unlikely to benefit as things currently stand.
Artists and Independents using services such as ADA (owned by Warner), The Orchard (owned by Sony) or Caroline (Universal) look like they will miss out – whereas independents who are either direct members of Merlin or use a distributor that is a Merlin member (the Independents’ licensing body) will share in the benefits of all of the deal terms with platforms.
“If customers can’t realistically change suppliers in a market, then the market is in danger of becoming stagnant and uncompetitive.”
On the one hand, it might be argued that small players taking advantage of the enormous global infrastructure available to them when distributing through a large corporation will inevitably have to pay a considerable cost, but the Merlin examples proves that this does not have to be the case.
However, this article does not seek to assess fully the pros and cons of independent vs major distribution but to look at the key question of whether independent entrepreneurs are free to choose their channel to market – and whether can they can opt to change suppliers with relative ease when their deals come up for renewal?
If customers can’t realistically change suppliers in a market, then the market is in danger of becoming stagnant and uncompetitive, stifling innovation.
This is in stark contrast to a fluid and healthy market that competes on the basis of service and price.
This question is especially relevant right now in the wake of a swathe of acquisitions by major labels of independent distributors – such as The Orchard, Essential, Phonofile and Finetunes.
Many entrepreneurs that deliberately chose an independent distribution channel are now sucked into the major label ecosystem whether they like it or not.
Distribution is often considered a pretty dry area of the supply chain and many entrepreneurs in music are often much more focussed on the music than they are on the nether regions of back office processes, but in the digital supply chain, dereliction in this area could become very costly indeed.
The problem in the distribution market is that, having signed up to a service, it can be extremely difficult to move. Metadata is not always registered correctly and can muddy the chain of title. Some distributors may change or issue new ISRC Codes, and fragmentation in the neighbouring rights landscape complicates matters even further.
“Many entrepreneurs that deliberately chose an independent distribution channel are now sucked into the major label ecosystem whether they like it or not.”
Distributors should compete on pricing of course, but also the data they are able to provide from services and stores, which is not always standardised. They should compete on their ability to analyse and present this data – through dashboards or other user interfaces.
Some distributors punch above their weight in specialist markets and others in terms of other added-value services they offer so although size can matter, biggest is not always best. It is also worth considering whether or not you want a potential competitor to have more data on your business than you yourself have access to.
A key conclusion is that too many independents are currently trapped by the invisible handcuffs of the sheer scale and difficulty of the task of switching services. Ultimately, this delivers poor value back down the value chain to artists.
The situation reminds me of the bad old days of the retail banking sector, where it was almost impossible to switch banks as the nightmare of moving Direct Debits and other payments made the task herculean.
That sector was revitalised by the banks’ cooperation and commitment to helping customers move if they wanted to through the ‘Current Account Switch Service’. This unleashed an era of competition through service and innovation which could serve as a salutary lesson to the music distribution market.
For my part, I would suggest the time is coming for distributors to subscribe to pre-agreed standards by which they facilitate a healthy switching market, using standardised data feeds like DDEX to enable the transfer of services by customers giving the chance for both Majors and Independents alike to benefit from a thriving, creative and diverse music market that encourages creativity and entrepreneurship to flourish.
“This situation reminds me of the bad old days of the retail banking sector.”
This is all the more important in a landscape made up of increasing numbers of micro-labels and self-releasing artists who may come to rely on this flexibility in the future as their businesses grow and prosper.
The music market should be there to service them and to articulate a healthy value proposition for the services on offer.
If the desired future is a democratic and meritocratic music industry offering open and fair access to the market, a key pillar must surely include a transparent and efficient digital supply chain.
We should all remain committed to delivering exactly that.Music Business Worldwide