Following UMG’s $775 million acquisition of Downtown Music and comments made by CEO Sir Lucian Grainge during an October analyst call, alongside insights from Virgin Co-CEOs JT Myers and Nat Pastor on the future of aggregators—particularly their eventual acquisition of CD Baby—it’s time to reflect on the current state of our beloved music industry.
Universal Music Group (UMG) has never shied away from making its stance on DIY music distribution platforms clear, and Sir Lucian Grainge’s comments reinforced this position. Addressing industry changes and the push for ‘artist-centric’ streaming models, Grainge remarked that opposition to these changes often comes from companies whose business models rely on, in his words, being ‘merchants of garbage.’ Harsh, but so true. While not all offer ‘garbage,’ 99% of what aggregators provide is music that nobody will ever hear, know enough about to care about, and is created by people who are not willing to work hard to build fan bases via social media and Fan Apps.
I applaud the fact that aggregators allowed more artists to expose their art cheaply, but the fact remains that history — mine over 50 years and others’ — has shown that talent and hard work are the only true ways to achieve success.
My friends and I always say to the complainers that we paid large amounts for our kids to become lawyers, doctors, etc., so why do musical artists think that, because they can compose and create, they have a god-given right to earn a living while they sit at home playing computer games or hanging out at bars, bragging about how talented they think they are and how rich they will eventually be?
While Napster ‘started it all,’ the true issue is that when artists and creators can produce songs, beats, videos, and social media inexpensively, a glut is created — currently, 120,000 new songs a day. This is not only ridiculous and unmanageable, but it is also not conducive to consumers’ music discovery.
SoundCloud, which is for sale after turning its first profit in 17 years, boasts having four times more tracks on its platform than Spotify or Apple, which, while wonderful for artists exposing their art, is meaningless except for the few dozen people who are ‘addicted’ to new music.
Now, let’s look at the aggregator business model, where some have earned literally billions from ‘conning’ people who did not know better — majors who eventually completely modified the business plans of the failed entities they bought, and some that succeeded in making their purchasers winners [like Sony with The Orchard], while others are left holding the bag through bad investments or founders who just didn’t sell their dream business fast enough.
For background, I was the Canadian President of Canada’s largest physical independent distributor, Koch Entertainment, for 25 years, and EVP of the American division, where we competed with well-oiled machines like RED, Ryko, ADA, and, to a lesser degree, Redeye. I negotiated the sale of Koch for $100 million to publicly traded music, film, and TV conglomerate eOne [Entertainment One], where I stayed on for seven years and helped build our own delivery system to DSPs. CEO Michael Koch had never relied on third parties to handle any of our warehousing, distribution, sales, A&R, or marketing services. [I probably should have stayed on until the $4 billion sale to Hasbro, but none of us have crystal balls… LOL.]
Thus, 14 years ago, while in the south of France on vacation enjoying what I thought would be my ‘early’ retirement, I got a call from my attorney, Sander Shalinsky, and Randy Lennox, then CEO of UMG Canada, who basically told me my retirement plans were premature. The offer was for me to start my own business, Independent Label Services Ltd [ILS], to handle the plethora of indie labels that UMG had signed but didn’t want to expand their department to address the many issues indie labels faced. So, ILS was born with a great team of indies from the UMG camp, as well as several I attracted away from eOne/Koch. UMG helped finance my creation of a team of industry professionals who knew how to handle label questions, select viable labels to distribute, and sometimes, not very diplomatically, tell entrepreneurs, artists, and creators that a job at McDonald’s might be better suited for their work ethic and experience.
UMC, UMG, and sister companies Caroline/Virgin US and UK initially handled our physical and streaming business worldwide. Five years later, ILS was sold, and the SRG-ILS Group LLC was created with a full-label services division based out of Connecticut, L.A., and Toronto, still used by artists signed directly to the SRG artist label division and for third-party labels to benefit from. Once UMG reactivated the Virgin Independent label services group, we were able to consolidate our worldwide distribution and marketing support system in one global outfit. BUT please note, while Virgin/UMG are fantastic partners, we are not ‘the boy who cried wolf’ as we develop traction to 3 to 5 million streams before asking Virgin to pull out their big guns.
Only aggregation with full label services, which our CEO Claude Villani and I agreed on, was a viable business model, versus becoming a service that simply takes an artist’s money to get their material on DSPs for a fee, with zero commitment to artist development. As Grainge states, companies whose business models rely on being “merchants of garbage” are doomed.
While I don’t want to write a novel just yet, I will summarize my personal thoughts on each aggregator below.
I will also explain why so-called white-label Super Fan Apps, where artists own their data, content, stats, and information, are the next powerhouses. These apps complement and capitalize on social media, offer additional revenue streams, and vet the process of adding artists associated with labels and/or support systems that not only have the ability to reach success but actually care about their clients’ well-being.
Let’s look at the players:
CD Baby was a Portland, Oregon-based online distributor of independent music. The company was described as an “anti-label” by its parent company’s COO, Tracy Maddux. Established in 1998, it offered distribution for artists in both physical and online formats. However, it discontinued physical media services and went digital-only in June 2023.
In 2018, CD Baby was one of the three companies with preferred partner status with Apple Music. It was home to more than 650,000 artists and nine million tracks available to over 100 digital services globally as of May 2019.
In August 2008, CD Baby was bought by Disc Makers for $22 million. This was a poor investment, as new artists often lack the funds or market to sell physical goods. Disc Makers made a clean exit, but the acquisition didn’t help them.
In March 2019, Disc Makers sold CD Baby to Downtown for $200 million. Downtown had the capital to play and hoped for publishing assets and contacts, though the acquisition didn’t deliver as expected.
At a client fee structure of 9% and gross revenue of $30 million, CD Baby could never turn a profit, leading to multiple sales to buyers who hoped to leverage the asset. UMG has since stated it will be sold or closed. There’s even a suggestion that Believe might buy it, once they settle their lawsuits, including the $500 million one from UMG.
The Orchard was founded in 1997 by Scott Cohen and Richard Gottehrer in New York City. In early 2003, The Orchard was bought by Dimensional Associates. In 2012, Sony acquired a majority stake, eventually buying the remaining equity in 2015 for over $200 million. The Orchard merged with Sony’s hugely successful RED distribution company, a move that made the purchase more justifiable.
The Orchard has been successful, particularly in Latin America, with signings like Bad Bunny’s Rimas Entertainment label. It now holds a market share of over 10%, which is impressive in the indie world.
Believe is a publicly traded global digital music company headquartered in France. Founded in 2005, Believe owns several brands, including TuneCore, Nuclear Blast, Naïve, Groove Attack, Play Two, and AllPoints. The company went public in June 2021, raising €300 million. CEO Denis Ladegaillerie has been buying labels to offer a menu of label services to his artist clients. TuneCore’s acquisition has been a drag on profits, but Believe is now focusing on offering a menu of label services or risk becoming obsolete.
DistroKid is an American independent digital music distribution service, founded in 2012 by Philip J. Kaplan. They’ve recently added what some refer to as ‘costly label services.’
Other players in the music distribution business include:
- Unchained Music
- Boost Collective
- TuneCore
- AWAL
- LANDR
- Level Music
- Ditto Music
- Songtrust
- Symphonic
- CD Baby
- ReverbNation
- FreshTunes
- Record Union
- The Orchard
- DropTrack
- RouteNote
- Label Engine
- Uniqueopia
- National Digital Aggregator
- Music Gateway
- Repost By SoundCloud
- Hola Tune
- Worldstar Distribution
- Amuse
- Labelcamp
- Musixmatch
- OneRPM
- TAXI
- Audiosalad
Interestingly, Virgin Label Services isn’t on the list, though they distribute for top-tier independent labels globally. With Downtown’s acquisition, Virgin and UMG are likely to significantly increase their market share and profitability.
Virgin Music is a subsidiary of Universal Music Group.
The views expressed on this page are not necessarily those of World Music Views.
