When Mike Davis joined Atlanta-based one-stop Justin Entertainment as a sales representative in 1989, he had a pretty limited view of the music business.
"Back then," he recalls, "I thought the scope of the music industry consisted of rock stars and kids hanging posters in record stores."
He quickly learned otherwise when, a year after he left the company in 1992, Justin Entertainment went out of business. Still he quickly sensed a career opportunity in music distribution. During those early days of Nielsen SoundScan, the distribution business was finally beginning to achieve a level of technological sophistication, with order processing moving from hand-scrawled lists and stock clerks patrolling warehouses to inventory-tracking computer systems and automated order fulfillment.
After brief stints at other one-stops and Montgomery Ward, Davis began his 14-year career at Universal Music Group in 1997 as a local sales representative in Atlanta for Universal Music Group Distribution (UMGD), where he rose up the ranks to become executive VP/GM. In 2006, he moved over to Universal Music Enterprises, where he was charged with mining the major's vast catalog.
Then in June, Davis was named president of Alliance Entertainment, arriving at the Coral Springs, Fla., wholesaler/one-stop at a moment of transition. Alan Tuchman, who had headed Alliance since 2003, resigned as CEO in April, seven months after the company was acquired by Platinum Equity and the Gores Group. The expertise he gained at UMG in distribution pipelines and moving catalog titles will prove vital at Alliance. In an interview with Billboard, Davis surveys the shrinking landscape of physical retail.
Some executives might hesitate before taking a job in a business dependent on physical product. What about the Alliance job attracted you?
Although I am aware of the decline of physical goods, there is still a lot of business being done in the format. So much of today's business goes back to the perspective of right-sizing your company in relation to the business opportunity. I believe Alliance is a smart, sophisticated, right-sized business aware of market conditions and opportunities.
Even companies that have lost revenue during the CD decline may be twice as healthy today because of the way they are running their businesses. Film studios and record labels are trying to figure out their cost structure around physical distribution. Any time you can put more than one brand in a box, you are saving money. We are ready for that and it's just a matter of the stores meeting the IT challenge to accommodate that possibility.
What advantages do you gain from having worked on the account side at retail stores and wholesalers as well as with a major label?
When I was the head of purchasing at [one-stop Abbey Road Distribution] and then became a buyer at Montgomery Ward, I just learned a ton about the mechanics and the financial aspects of the business. When I became the [UMGD] senior account rep at Target, my history made it easy to speak in their vernacular and I was able to deliver promotions and merchandising concepts in a way that they hadn't seen before. Circling back to the industry's migration to more sophisticated statistical analysis, one of the first things that I did when I [joined the national staff at UMGD] was begin the Universal analysis team.
Now fast forward to Alliance. With the ongoing move to digital as labels, content creators and film studios go about remodeling their businesses, Alliance can provide an incredible back-end solution for them. I can have conversations with them, knowing the sensitivity to the demands they face financially, artistically and politically. Alliance is in a nickel-and-dime business. The challenge is to try and balance both sides' profit margins and help the labels and studios grow by constantly looking for efficiencies.
After Alliance was acquired by private equity investors last year, there were expectations that they will use the company to roll up other music and video distributors. Is that still part of the plan?
The game plan is to look for efficiencies and take costs out of the supply chain. Sometimes you can achieve that by putting together companies through acquisitions. Or it could be taking over warehousing for some of the industry players or part of it. There was a time when studios and labels were very worried about top-line sales and less worried about efficiencies. When business gets tough, they look at cutting costs and product returns. The way to do it is to put less product in less warehouses around America. Do all the labels and studios and retailers still need hundreds of warehouses in an industry going through these changes?
What do you make of recent developments in the overall music business?
It is exciting. Spotify launched last week. You have an uptick in year-to-date album sales. Netflix is doing well. Google, Amazon and iTunes are setting up their clouds. You have all the activity with Pandora. All of this is good because it is shaking up the old way of thinking. Regardless of who wins, it is stirring consumer interest and making the label and the studio executives ask themselves what can they do next to continue to provide entertainment for consumers.
Do you foresee a role for Alliance in digital distribution?
We are still focused on our part of the food chain. That doesn't mean that at some point we won't have to address the digital aspects of the business. Some of our counterparts like INgrooves do a good job there already, while we are still engaged in our core business.
What's driving the uptick in U.S. album sales so far this year?
The details on that would be to look at sales by dollars. I believe a significant piece is being driven by an aggressive $5 campaign at a certain retailer. That campaign is good because it makes more people buy music, but makes the economics of the business more difficult. If there is unit growth, it is positive and better than the opposite. But everyone still needs to be twice as sharp about the financials behind the growth. On the plus side, most of that growth is coming from catalog, which is Alliance's bread and butter.
What's your assessment of the health of the brick-and-mortar account base?
It's a shame we are losing another merchant this week with the announcement that Borders will be liquidated. More opportunities to buy music is always better for the industry. But the surviving retailers have all proven themselves as smart merchants who know how to manage their businesses and are probably here for the long haul through the whole ride of the physical life. The closing of Borders should have a positive impact on some of our customers like Barnes & Noble.
I always thought that Alliance missed an opportunity to become a top player in independent distribution. Are you interested in getting back into indie distribution?
I don't know that you need the full independent distribution structure anymore. I do believe that Alliance provides a solution for indie labels. Nowadays, many labels feel they can market directly to their consumers through the Internet, and some of them may be less interested in all the bells and whistles that indie distribution provides and charges them for. They may be interested in hiring us for our logistics.