Retail & Vinyl

Consolidation In The Digital Music Distribution Business. Does Size Really Matter?

Bfm-digital-logoGuest Post by Steven Corn co-founder and CEO of independent digital music distributor BFM Digital.

Recently it was announced that IODA and The Orchard are merging and majority stake will be owned by Sony Music. Universal Music still owns a large stake in InGrooves. Kobalt just purchased AWAL. What does all this activity mean for the indie artist? After all, for most of them, their relationship with their digital distributor is beyond critical. This appears to another example of the majors trying to do a land grab and the impact on the indie market could be significant.

(Note: I prefer the term "distributor" over "aggregator. Not because the latter has some sort of menacing sound to it. Rather, "distributor" is much more accurate to describe the functions of companies such as BFM Digital, IODA, and The Orchard. Distributors are companies that get product placed into retail outlets and work with retailers to develop promotional programs and placements. Aggregators are companies that buy up product. You could say that BMG Rights is an aggregator but not a distributor. So I always prefer the phrase "digital distributor".)

Normally when large companies merge, there are definitely benefits that aid the bottom line. They will certainly have economies of scale and, no doubt, the combined company will result in redundant offices around the world. And once they complete their integration process (a very complex procedure), they will not need two sets of delivery and royalty accounting systems.

Sometimes, large corporate mergers can benefit its customers. Usually there is a significant amount of spin generated by the joint PR departments that tries to make this point (especially in Europe where sensitivity to anti-trust violations is greater). Usually the argument is that the new entity will likely have a larger market share. That in turn creates greater buying power, lower costs that may be passed to consumers, etc.

In regards to the IODA/The Orchard merger, what is the benefit to their labels? Personally, I don't think there are many, if any. Instead, this appears to be a corporate move that will benefit the new behemoth and it's major label partner, Sony. In fact, in many ways, it even be detrimental to many of the indie labels currently signed with IODA and The Orchard:

  • Small Fish – Big Pond: BFM was formed to give indies special attention (and so was IODA for that matter). In other words, we strived to create a "big fish/small pond" scenario. Those days are long gone for IODA already. Under the new merged company, it will be nearly impossible to get the attention of your own distributor. If you can't get their attention, then how in the heck are they supposed to get your message across to the digital services? This new merged company will be as ineffective at "telling your story" as Tunecore and CD Baby is. But at least with those two companies, they don't pretend to do so.
  • No Longer Indie: "I" in IODA stands for "independent." Not any more. The Orchard, once boasting the largest catalog of independent music, is now under the auspices of a major label. Any sense of "indie cred" or caring about the indie artist is essentially gone now that Sony Music is in control.
  • No Additional Buying Power: IODA and The Orchard, separately, have very similar, if not identical, deal structures with the major digital outlets such as iTunes, AmazonMP3, etc. The merged entity will not wind up getting better deal terms. That is, they will not have greater buying power and can't pass along that savings to its labels.
  • Developing Promotions Will Be Much Harder: Say that you are an indie label with a dozen albums and you want to create a discount or bundling program to pitch to the services like Amazon or iTunes. This will require first convincing your distributor that it is worthwhile and hoping that they will do the selling to the services. Now imagine your distributor has just doubled in size and has twice as many labels to listen to. They can still only pitch so many discount programs to the services. The odds of your program being successfully adopted by any of the major services has just plummeted.
  • More Do-It-Yourself Attitude: The Orchard is well known for its dashboard featuring a lot of plug-in DIY services. IODA also has its version of such a dashboard and affiliated services. Together, they will have no choice but to continue down this DIY path and become less and less interactive with their customer labels. It won't be economically feasible to offer any real advice or customer service about a widget program or a one-sheet program. Figure it out on your own. That will be the likely customer service message.

This merger looks to me like a means for a major record company to capture a portion of the recorded music market that they have been unable to monetize and control. Now, Sony will generate profits from sales of its own copyrights, distributed labels and 10,000's indie artists. More importantly, since they will have a majority stake in the new merged company, what's good for the goose (Sony) is going to have to be good for the gander (Indies).

I guess I shouldn't complain. These kinds of mergers leave the truly independent digital distribution companies like ours more and more attractive to a growing pool of labels and artists. After all, based on the lack of clear benefits for artists and labels with these types of mergers, where else are they going to receive personalized digital distribution and marketing services?

P.S.Moments before publishing this blog entry, layoffs were announced at The Orchard/IODA: "Today [The Orchard has] made some personnel adjustments to ensure that the Orchard is efficiently structured to serve the needs of our expanded client base and won't have any negative impact to our clients." I have to wonder how a smaller staff and a larger clientele equates to better client service.

(Author's Full Disclosure: Steven Corn is co-founder and CEO of BFM Digital, a competitor of both IODA and The Orchard.)

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6 Comments

  1. Not only on the digital merge they are bringing on physical distribution and there’s a great reason why. They fan can and should have a clicks to bricks distribution solution and that is what is behind this and others that are happening now.

  2. That “Author’s Full Disclosure” blurb probably should’ve been at the top, it would’ve saved me a few minutes of my life.
    Bruce, I hope Steven’s check clears.

  3. Roger, I see nothing ethically wrong with this piece. Steven’s name and job title are at the top of the posting.
    All of these are extremely valid points. As an Indie Label Owner who is considering contracts from IODA, Orchard, and Sony Red, with serious apprehensions about the level of service we would receive (they all take roughly the same 20% on digital sales), this was very valid.
    Steven, I’ll be in touch.

  4. Nice article. very informative. We’ve used most of the indie distributors and have now found one that seems to be picking up traction as the artists and bands go to distributor. They’re called MondoTunes. they have the most retailers and range and they don’t have the monthly and yearly fees like all other’s.
    we have 3 projects with them and they seem to be very solid.

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