Music Business

Why Digital Distribution Is Such a Mess, And How We Should Fix It


Rebeat-logoBy Guenter Loibl, founder and CEO of Rebeat Digital.

There are now more than a dozen companies that can easily distribute your music to hundreds of outlets, within 24 hours. So why is digital distribution now consuming more label resources than ever, devouring label profits, and creating chaos when it should be doing the exact opposite?

If you run a label, or distribute any serious recording catalog of any kind, there’s a good chance that the distribution of that catalog has become an all-consuming (and profit-consuming) beast. And, perhaps most importantly, is distracting your company away from what matters the most: the music itself.

In this guest post, I’m going to propose a solution to the current state of digital distribution by fixing its Achilles’ Heel: accounting. Actually, this is more than a proposal: I’m putting this into motion at my digital distribution company, Rebeat Digital, and learning along the way. In the end, I hope to advance digital distribution towards a new, more manageable level that will not only benefit labels, but keep them in business.

So who made this mess?

The reasons for digital distribution overload are painfully obvious to the content owner. Instead of a few physical formats (CD, vinyl, cassettes), labels are now forced to consider and produce dozens of different variations and code each variation differently. Scratch the surface and you’ll find single downloads, album downloads, on-demand streams, non-interactive streams, videos, digital+physical bundles, and mobile formats among the endless varieties. Some are paid, others are promotional; some are ad-supported, others are premium. And, all of these carry slightly different metadata with different considerations for each sales outlet.

But most importantly, labels have to account for thousands of times more transactions, every day, and most are struggling to properly ingest, track, and split royalties properly in the face of this avalanche. This isn’t exactly the digital utopia we all signed up for.

The ‘silent killer’ of accounting.

No wonder more labels are struggling than ever before: on one hand, digital formats are paying less, that is, if the fan is paying at all. But labels are often fighting with one hand tied behind their backs, simply because the sheer volume and resources required to distribute, track, and – most importantly – account for all these formats is often astronomical. We’re sometimes talking multiple accountants and label employees struggling to handle unbelievably large spreadsheets of transactions, for one artist.

Just to illustrate, here are the accounting demands for two mid-sized labels that we work with. This is simply measured by the amount of data they have to manage.

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Looked at another way, here are the number of spreadsheet lines this translates into.

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All of this raises an often-overlooked reality: the labels that survive and ultimately thrive must innovate ways to make great music and sell that great music (directly or indirectly). But almost equally important, they also need to manage the music they distribute and sell. And, pay royalties quickly and efficiently to their most important assets: their artists and writers.

Accounting is boring, it’s not why people get into the music business. Yet I’d argue that our inability to properly manage the extremely complicated accounting aspects of digital distribution are threatening our survival.

3 steps for streamlining data management, taking control over accounting, and saving lots of money.

Over the years, we’ve spent a lot of time dealing with giant piles of data and a minefield of unforeseen errors. And what we realized is there are three major areas that we needed to improve. In short, they are:

1. Integrated Distribution & Royalty Accounting.

This, more than anything, is the key to lowering costs and increasing returns. We suddenly realized that everything had to be tightly integrated; a sale had to integrate with analytics which had to integrate back to accounting for it all to make sense. Data and royalty synchronizations should be integrated and automatic; therefore errors are greatly reduced. And it takes less people (and less time) to deal with it all.

2. Complete Transparency

In all honesty, transparency was once a choice for content owners; now, it has become a challenge for even the most well-intentioned labels. We’re trying to solve this issue by clearly organizing and displaying the massive number of royalty sources, while eliminating accidental double-counting and the mis-application of outdated contractual splits. You can’t blame it on your software anymore.

3. Data Security

In the rush towards the cloud, we seem to be disregarding some important security issues. I’ll be blunt: a web-based, cloud-enabled solution means that your stats can be seen by your distributor, and no label wants their distributor to know their splits, contracts, or other details.

And don’t even get me started on broader security risks. Better to keep the data jewels on a local, secure server or hard drive (ie, your own), with secure, controlled backups that only you can access. That’s going to be our approach.

In total, I believe that integrated accounting can streamline a messy process, and save participating labels, publishers and other rights owners several hundred, to several hundreds of thousands, of dollars annually. And form the basis for a more profitable and thriving future for everyone.

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2 Comments

  1. Every other industry has figured out how to standardize and manage sensitive data: medical, retail, government, financial, supply chain management. The music industry needs a standardized metadata protocol and standard APIs for passing the attribution information. The issue is not data security – that is technically solvable. If you want to know where the roadblocks lie, look to who currently profits most from the lack of transparency. Accounting is not a technical issue, it’s a political issue among the stakeholders who make the money.

  2. We have created the Musicxip Digital Supply Chain platform to solve the issues you point out above.
    It is a purely technical solution, no other stakes involved than just solving these technical problems.
    It allows labels, distributors and aggregators to distribute, account royalties and store all data securely at a price that does not eat away profits while they maintain complete independency. Check it out on http://www.musicxip.com

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