The music industry’s biggest messaging problem

By: Cherie Hu

Published: 2021-04-07

If you’ve worked at all in the music industry, you’ve probably had some version of this debate: How do we actually define “independence”?

Writers and executives have been banging their heads against the wall trying to settle this debate for years. To be fair, most trade organizations have concrete, if perhaps arbitrary, definitions for what it means to be an independent music company. Merlin’s latest application criteria emphasizes copyright ownership, requiring that members “control [their] digital rights free from obligations to third parties like distributors or licensors.” A2IM’s Patrick Ferrell proposed a more amusing but no less accurate benchmark for independence in a 2019 NPR interview: “If a label has more than 5 percent market share, then they’re a major. No independent currently has that great of a market share.”

But what about independent music artists? The answer to that question is much more nebulous.

From the artist’s perspective, traditional definitions of independence have focused not only on full or majority copyright ownership, but also on a hard binary between major labels and everybody else. You either have access to major-label/corporate resources, or you don’t. You’re either doing business with The Man, or you’re not.

But this binary is becoming increasingly irrelevant, as The Man himself is now pivoting to “independent” services. Namely, major labels, rights holders and tech corporations are increasingly building their own artist services divisions in-house — usually through aggressive M&A, startup investment or internal restructuring — in a way that lets artists keep the majority of copyright ownership and revenue.

This trend had already been underway throughout much of the late 2010s: SoundCloud buying Repost Network, Downtown Music Holdings acquiring AVL Digital Group (CD Baby, DashGo) and FUGA, Apple acquiring Platoon, Universal Music Group acquiring Ingrooves, Sony Music acquiring The Orchard, the list goes on. And this momentum does not seem to have slowed down in 2021:

This leaves artists who want to identify as “independent” in an interesting position. Today, the vast majority of self-serve music distributors are either owned by or in a strategic partnership with a larger, corporate parent company with outside business interests. In this landscape, independence as an artist isn’t as simple as just owning your copyrights — and it certainly isn’t as clear-cut as being anti-corporate, either. So, what does the term actually mean, and is it still useful?

“DIY” music is a corporate commodity

As I’ve written in the past, virtually every kind of music corporation wants to get into “independent” distribution because it’s the universal entry point for early-stage recording artists — and therefore, a rich data farm for A&R and marketing teams.

In addition, independent and unsigned artists reportedly accounted for the fastest-growing segment of recorded music by overall consumption in 2020. In a streaming-first world, where major labels are vying less for “sales’ and more for overall market share, buying a self-serve distributor is arguably table stakes for survival.

But music distribution is also a cutthroat, low-margin and fully commoditized business. You may have noticed that most self-serve distributors out there today offer basically the same set of tools to artists, and at this point are just racing to the bottom on price. This is hardly a friendly business environment to be operating in, and so most of these distributors end up either 1) getting acquired by a major rights holder or tech platform, or 2) pivoting to act more like a traditional label, taking larger cuts of revenue in exchange for more bespoke, exclusive services (e.g. Stem culled its customer base in 2019 to focus on artists with more established incomes). Note, though, that a commoditized industry like music streaming only benefits companies that already have larger catalogs under their belts; content aggregation begets more content aggregation. So if a distributor chooses option No. 2, they will also probably end up at option No. 1.

Hence we are now in a situation where less than one-third of the “independent,” self-serve music distribution market is actually 100% operationally independent, in the sense of not being owned by a major label, publisher, tech platform or other kind of music company. Put another way, the vast majority of “indie” distributors alive today are value-added commodities to larger businesses with different bottom lines.

Here’s a diagram that tries to illustrate all these dynamics at play:

Let’s break down this diagram, which is an update on similar kinds of distribution market maps I’ve made in the past. There are a few different ways you can slice and dice the music distribution landscape based on what you’re looking for.

First things first, all distributors fall on two different spectrums of high vs. low accessibility and high vs. low service. Traditional major-label deals provide the most exclusive, hands-on services, but run mostly on closed, internal analytics and accounting software; they are high-service and low-accessibility, hence why you see their logos on the left side of my diagram. In contrast, 100% open distributors like DistroKid, Record Union and UnitedMasters allow any artists to sign up for their distribution, analytics and payment software — but because their user bases are so large, there’s little that these platforms can offer in terms of hands-on marketing and career services. These low-service, high-accessibility platforms fall all the way on the right.

Importantly, many distributors today have diversified into offering multiple different tiers for more accessible tools vs. more closed, traditional or “pro” label services (e.g. Amuse and Ditto). There are also a handful of companies like Stem, Empire and Symphonic that market themselves as distribution tools, but are more selective in the clients they choose and take a higher cut of revenue than more DIY distributors as a result. You’ll see these platforms show up more towards the middle of the diagram.

Another, more illuminating way you can divide up the distribution landscape is by corporate ownership — i.e. grouping together distributors under the same parent company.

There are three different kinds of colored boxes in the above diagram, illustrating the following kinds of ownership patterns:

I. Distributors owned by a major label (red box)

There are currently at least eight flagship “independent” distribution brands housed under major labels — the vast majority of which were acquired from the outside, rather than built internally:

What I hope the above diagram illustrates is that every major label now has its own, fully verticalized music distribution ecosystem in-house — servicing everyone from DIY artists releasing their first single, to mid-tier artists who need more formal marketing support, to established artists in more traditional recording deals.

Moreover, the impact of this consolidation on major labels’ market share cannot be discounted. Billboard found in 2020 that if you divide up the recorded music market based on distribution ownership, not IP ownership — i.e. counting distribution companies like The Orchard, ADA and Ingrooves as major-label companies, even if they service “independent” artists — major labels’ market share jumps by 19.4 percentage points, from 64.2% to 83.6%.

My sense is that majors still make their bread-and-butter from legacy catalogs and frontline hits top celebrity artists like Lady Gaga or Cardi B. But in a world where artists increasingly demand ownership over their copyrights, labels will invest just as much in these kinds of verticalized, long-tail service ecosystems than in traditional notions of IP/masters ownership in perpetuity.

One major snag that I see in this consolidation, though, is that all the different “indie” services under the majors will struggle to differentiate themselves from each other, leading to bloated, unnecessary competition for internal resources. For instance, looking at Sony Music, why would an independent artist want to sign with The Orchard vs. with AWAL Recordings? At the end of the day, would the branding, deals, services and reach offered by those companies really look that different? If not, why does it make sense for Sony Music to continue to operate them separately?

II. Distributors owned by a larger parent company in the music industry that is not a major label (blue box)

If you’re a music distributor who is not owned by a major label, chances are you’re still owned by another, larger music company that treats you as a loss-leading utility.

Perhaps the largest power broker in music distribution and services right now outside the majors is Downtown Music Holdings, which now owns four different distribution services (CD Baby, DashGo, Soundrop, Fuga), not to mention the self-serve digital ad platform Found.ee. Here, the main purpose is the same as the majors: Content aggregation and market share.

But for smaller companies, buying a loss-leading distributor is less about market share, and more about branding and retention:

The actual business model behind any of these individual distribution features might not be viable on its own. But in this situation, that is precisely the point: The whole of the company is greater than the sum of its parts.

III. Strategic partnership with a major label and/or tech company (pink box)

This category consists of distributors that are operationally independent, but have investments from or strategic partnerships with major labels or other music/tech corporations. Some key examples include Empire, which has a strategic partnership with UMG; DistroKid, which has an upstreaming partnership with Republic Records and a minority investment from Spotify; and UnitedMasters, which has a new investment from Apple.

If recent history is any indication, distributors in this category will eventually get acquired.

In June 2019, I interviewed Troy Carter at the music-industry conference MIDEM, just months after his tech company Q&A announced a merger with J. Erving’s label services company Human Re Sources. During our conversation, Carter mentioned the challenges he foresaw in retaining artist clients at Human Re Sources the more those artists grew and were tempted by major-label bidding wars. He proposed something akin to an “upstream” deal, where Human Re Sources would have a stake in the upside of any of their artists who decided to move on to a traditional label deal, such as Pink Sweat$ moving on to Atlantic Records. Lo and behold, Human Re Sources didn’t just embrace the upstream deal; they got 100% acquired by a major label outright.

Similarly, Kobalt’s former CEO Willard Ahdritz talked extensively in several interviews throughout the late 2010s about the potential for Kobalt and AWAL’s services to steer a “middle class” of artists into the streaming era, without the need for major-label support. But things started to shift a bit when AWAL changed the meaning behind its acronym from “Artists Without A Label” to “A World Artists Love” in May 2019, implying that the company wanted to embrace and rethink rather than completely scrap the traditional label model. And now, they are 100% owned by a major label.

Even if it’s not intentional, the underlying, ironic messaging behind the fates of AWAL and Human Re Sources is that the only way you can afford to truly serve “middle-class” artists is to get bought by a major label.

A parallel message is emanating from distributors’ strategic partnerships with tech companies. Many sources I’ve spoken with recently have expressed a fear that certain marketing opportunities on Spotify and Apple Music in the future will prioritize artists who use the distributors that those DSPs have invested in. We’re certainly already seeing this on the podcast side, in how Spotify actively props up podcast shows created and distributed through their owned-and-operated tool Anchor. In any case, once a strategic partnership is in place, it’s difficult to claim pure neutrality.

The value of defining independence by the artist, not just by the company

So, where does this leave us in terms of our attempt to define “independence” in the music industry today?

If one of my recent Twitter polls (posted the day after the Sony/AWAL acquisition announcement) is any indication, it leaves us a bit confused. People seem equally split on whether “independence” for artists should mean copyright ownership, no major label affiliation, some combination of both or something else entirely.

I want to focus on the alternatives that might fall under that “something else” category. Traditional benchmarks of artist independence, especially ones that rely on differentiation from corporations, are arguably no longer productive in an environment where the platforms that artists rely on to get their music heard (Spotify, Facebook, Twitch, YouTube, Instagram) are all owned by a tech company with a multibillion- or even trillion-dollar valuation; where brand sponsorships become more and more common earlier on in artists’ careers, to the point where artists are not “selling out,” but “selling in” to survive; and where, as illustrated above, corporations are acquiring self-serve distributors at a faster clip than before.

Maybe the most generative way to think about the future of “independence” is less about specific copyrights and pipes, and more about artist autonomy and choice as a whole.

Generally speaking, “independence” as a descriptor is used not just to position a certain artist in the music industry, but also to gauge the health and sustainability of their business. As most people in the industry would argue, there is no one-size-fits-all model for artist success, and there are multiple different journeys an artist can take to a long-term career.

With these points in mind, maybe it is precisely the point that artist-level “independence” is in the eye of the beholder — or, more specifically and ideally, in the eye of the doer.

Just like with any startup or small business, independent artists should be in a position to create their own definition of success, and make the decisions necessary to get to that state as quickly as possible, without having to go through a laundry list of gatekeepers or bureaucratic processes along the way. Whenever things go badly in the industry for the group known as “independent” artists, usually the root problems tie back to some lack of choice — lack of choice about who they need to work with to get their music heard, how often they need to release “content” to stay relevant, who they need to get approval from to even post that content in the first place, what platforms and revenue streams they need to prioritize, what cut of revenue they get in a partnership deal, and so on.

We can debate whether copyright ownership or corporate affiliation should be part of the picture, but in any case, “independence” on the artist level seems to thrive on the non-negotiable factor of leverage. I am independent = I have the team that I want, to make the music and build the brand that I want, that powers the sustainable business that I want.

Jon Tanners proposed a similar set of ideas last month in his newsletter Applied Science, namely that being “independent” as an artist is about having access to benefits that any normal business owner would want — from financial clarity and agency, to data access and control, to education and creative autonomy. Importantly, writes Tanners: “It is not a strict binary between two choices that never truly existed. Independence is a method, not a resting state.”

Even still, I’m wary that my argument in this piece might eventually fall in on itself, as there’s one area where independent artists still don’t have leverage: The kinds of companies that end up buying and acquiring the tools that they use.

Outside of music distribution, there’s an even more gargantuan pool of money being thrown right now at “creator services” tools that cater to early- and mid-stage artists at source, i.e. in the first stages of their creative process. Splice recently raised $55 million from investors including everyone’s favorite independent music company, Goldman Sachs. Native Instruments and iZotope both raised funding from private equity firms Francisco Partners and EMH Partners, forming a new parent entity known simply as “Music Creation Group.” Epidemic Sound raised $450 million in funding from private equity firms Blackstone Group and EQT Growth.

On the bright side, this capital perhaps validates the sheer size of the self-employed/“DIY” music market today, and underscores the importance of serving them well. Hopefully, this funding will eventually extend from creative tools to business-facing tools for artists — which are much-needed, especially on the royalty accounting and data analytics fronts, in order to put artists in a position to make the kind of nimble, informed career decisions I discussed earlier. (Even NFTs could potentially fall into this category, as a form of long-term fintech product for the creative class; that’s for a whole separate piece).

But I can’t help but notice, whether with distribution or with creator tools, that the perceived value of independence in the music industry is increasingly being realized and concentrated only in its aggregation on the company level — namely, through these multimillion-dollar M&A and investment deals — rather than in its expression on the artist level. Deeper than just “WTF is independence?,” this might be the source of the music industry’s biggest messaging problem: Rather than rejecting commoditization, independence is now forced to become the commodity in itself, as corporations wield it into the new raw material for institutional power.