These days the music industry sometimes looks like a media business version of “Trading Places” where every company wants to be a distributor and every distributor wants to be a company.
On March 7, Warner Music Group revealed its interest in buying French digital music distributor Believe, but all bands are more focused on the distribution game – think Sony Music's 2021 acquisition of AWAL and the merger of Virgin Music and Ingrooves in October from Universal Music Group. At the same time, distributors offer more of the services that labels alone provided, including radio promotion and different types of marketing.
From an independent creator's point of view, these two once-separate sectors have come close enough to compete – major labels offer more flexible contracts that allow artists to retain their copyrights, while distributors provide advances and a range of services to successful actions. For anyone who was in the industry before streaming became standard, this is like the Reese moment of the music business: You have your distribution on my label! Have your tag on my distribution! However, for outsiders and new creators, the distinction may not make much sense in the first place. Behind all the complicated corporate org charts, doesn't Sony invest, market and distribute Bad Bunny's music (via The Orchard) just like it invests, markets and distributes Beyoncé's music (at Columbia)?
About. Companies spend less and earn less for the music they distribute, while acts signed to labels represent bigger bets in terms of both investment and potential upside. Distribution is more stable, while the label business involves more risk and some very profitable hits that overshadow. This is not new. What is new, however, is how what was once a binary choice has become more of a matter of finding the right spot on a risk-reward spectrum that has a traditional label deal at one end, distribution at the other, and many options in between.
It's easy to see why distributors offer services that were once exclusively the domain of labels – pure online distribution has always been a low-cost product business, and label service offerings are a way to get better margins. But what about the opposite? Why would labels get into a lower profit business that essentially jeopardizes the best part of their existing business? Especially as label deals become less standard, companies are making higher margins on acts who are early in their careers, before they have the success that gives them the power to negotiate a better deal.
Understanding why major labels invest so much in a less profitable sector than the one they're in requires looking at the issue like a media executive in the Internet age, that is, through the lens of disruption. This is the idea that companies that pioneer a good enough product or service at a much lower cost will eventually challenge the market leaders – think Netflix and cable TV, for example. While the theory isn't as simple or as workable as tech executives say it may well apply here: Recorded music market share from traditional labels is slowly but surely shrinking, benefiting distributors. The good news for the majors is that much of this change is with the distributors they own, including Sony-owned The Orchard, which has increased its US market share from 1.5% in 2021, to 7, 1% in 2022, to 8.7% in 2023. according to Luminate. Much of that business comes from Bad Bunny, of course, but the label already has another bona fide Latin superstar in Peso Pluma.
Labels basically just want to disrupt their own businesses before other companies do. If you believe this kind of change is inevitable, it's worth running towards it. (The music business has a reputation for being afraid of technology because it took so long to embrace the Internet, but the idea of disrupting business school doesn't apply to pirated music; Napster didn't offer another product—it offered the same product illegally.)
The second reason companies buy distributors is, as the founder and CEO of MUSIC Matt Pincus he said recently Advertising sign, “it solves a real stack problem for them.” Pincus was talking specifically about Warner, which like all tag teams is focused on trying to break and market stars. A “stack” — developer-speak for the underlying technology — would allow the company to serve up-and-coming creators and more up-and-comers, as well as stars and some aspiring star artists. Warner already does this with ADA, which distributes independent labels, but ADA tends to focus on a modest number of medium-sized indies, rather than a larger number of smaller ones.
But the most important reason why labels are investing more in distribution could be the industry's potential to act as a kind of talent farm system. In movies, record executives discover artists at bars or office auditions, but that wasn't the dominant way of doing business for a generation. These days, even novice creators are distributing their music online, launching their own careers instead of trying to be discovered. Which means that by the time a major company is interested in them, they may already have a deal. Since it's easier to sign an artist who is already involved in another part of the company, it makes sense to cast the widest possible net. This is also a defensive move: Now that Sony and Universal have large distribution businesses that can potentially serve as conduits for talent, Warner arguably needs one as well.
For that matter, so does Believe. Most indie creators want to start their careers with basic distribution deals – but few of them want to stop there. Believe could be much more attractive to creators if it could offer them a place to grow as well as services to evolve.
