At least half a dozen independent music distributors are raising money or exploring selling their businesses to investors, and major music companies, including Warner Music Group, are vying for a piece of the business that caters to DIY artists.
Stem, the beloved indie distribution that began as a fintech platform offering royalty splits, is in the early stages of what will be its largest fundraising round to date, while Larry Jackson's gamma. completed its second round of fundraising. Downtown's board is exploring a sale and has been in talks with Believe after a previous dialogue with WMG was scrapped. (Sources say WMG continues to pursue acquisition targets.) ONErpm aims to raise about $40 million next year for its own mergers and acquisitions (M&A) fund, and independent streamer/distributor SoundCloud is expected to move into the final stages either a sale or fundraising round later in 2024 to replace some of its existing shareholders.
Already this year, Believe founder and CEO Denis Ladegaillerie bought a 95% stake in the French music company backed by around $1.7 billion from investors that include TCV and Swedish private equity firm EQT, in order to take it private the company. And Chicago-based Flexpoint Ford bought a stake in Create Music Group for $165 million. Last year, Exceleration Music bought indie distributor Redeye for an undisclosed amount and range. launched with a $1 billion war chest.
Indie executives say there are many factors driving them to seek funding. Among them are the growing influence of artificial intelligence on music creation and the evolving feelings of next-generation creators about independence. Some would rather take a big check from a big company if it comes with guaranteed autonomy – which means indie distributors need to achieve scale to survive.
Meanwhile, these indies' collective market share is growing, prompting major music companies to make acquisitions and investments as a defensive play. And backers outside the music industry, such as private equity and institutional investors, see an opportunity to bet on these companies that claim to have the pole position serving the musicians of tomorrow. The share of non-major labels and self-released artists in the global recorded music market was 36.7% in 2023, up from 28.6% in 2015, according to MIDiA research.
“The amount of money being thrown away right now is more than I've ever seen,” Stem co-founder and CEO Milana Rabkin Lewis he says. “If you're not out there raising money right now, you're not doing your job.”
Another reason to invest: Indie distribution companies handle a growing share of the songs that perform best on streaming services. In the first half of 2024 in the United States, such companies were responsible for 13.6% of tracks played between 100 and 500 million times and 22.1% of those played between 50 and 100 million, according to Luminate.
That said, the indie digital distribution sector remains highly fragmented, and executives say they expect significant consolidation as the roughly 25-year-old segment of the music industry matures.
“You're going to see a lot of DIY distributors selling over the next six months,” he says Greg HirschhornCEO of Too Lost, an indie distributor that Hirschhorn says distributes music for more than 300,000 artists and labels. “It's a great time to be running an indie distributor.”
Earlier this year, French securities regulators forced WMG to reveal it was considering a $1.8 billion bid for Paris-based Believe. CEO of Warner Robert Kyncl said the company backed off before making a formal offer because of the short time it took to conduct due diligence on the deal, among other reasons.
The consortium of investors led by Ladegaillerie finally succeeded in taking Believe effectively private this summer, leaving WMG and other bidders for the company, such as BMG, to hunt elsewhere for takeovers. Sources say WMG's decision not to bid for Believe may lead to more bids in that area.
The city center benefited from this result. Its main investor, the family of the late New Zealand beer baron Douglas Myershas been considering an exit for months. The company's board is in exploratory talks with WMG and Believe, among others, according to sources.
Downtown declined to comment on any deal talks, but executive chairman Justin Kalifovich says the current flurry of deals is a natural next step arising from the significant amount of investment dollars that flowed into music-related businesses between 2018 and 2022.
“A lot of good ideas were born out of that. Some of them have grown into real companies, achieving scale but not profitability,” says Kalifowitz. “There's an efficiency that these businesses provide in the service sector that frankly isn't available to the big companies.”
A significant portion of the outside investment that has flowed into music in recent years has been directed toward acquiring song catalogs, which independent executives point out provide more stable, if lower, returns than active companies. Private equity funds controlled by banks such as Goldman Sachs are turning to music companies, an executive says. “You could buy an asset and forecast it 20 years into the future. But in a music world, that's really difficult,” says the executive. “They realize that music works like an annuity.”
CEO of ONErpm Emmanuel Zunz says the indie distribution space is facing an inflection point in its maturation driven by more than investment and transactions. Moments like this put pressure on companies that may be heavily indebted or unprofitable to prove their business makes sense. Zunz estimates that the company he founded about 15 years ago now ranks third, behind Believe and Downtown, among the largest full-service independent music companies. ONErpm, which has no debt and runs on its own earnings, plans to raise a $40 million M&A fund next year to buy smaller companies around the world.
“It will be interesting to see how it plays out over the next two to three years,” says Zunz. “Some people will crash and burn. There will be consolidation. But those who stay will have an exciting offering that offers great value to artists.”
Additional reporting by Elias Leight.
