The State of Independence: A New Day for Indie Distribution

Are things looking up in the indie sector? A period of downsizing among indie distributors appears to have ended. With stability among CD merchants, growing vinyl sales and digital streaming on the rise, indie distributors have come out of their protective shells and appear to be looking for new opportunities.

The past few years had seen much cost-cutting at the distribution level as CD retailers fled the space and those remaining reduced their music presence. But right now, the remaining majors are moving to beef up their own independent distributors, with Universal Music Group (UMG) looking to compete with the success of Sony's RED and Warner's Alternative Distribution Alliance by reinvigorating a sleepy Caroline. Given the success of the RED-distributed Mumford & Sons (which has sold 2.3 million copies of "Babel," according to Nielsen SoundScan) and the ADA-distributed Macklemore & Ryan Lewis (which has moved 843,000 of "The Heist"), it's easy to see why.

By no means is the current climate just benefiting the major-owned distributors. Other distros have benefited by shifting dynamics in the marketplace. Stricter guidelines at major-owned distributors have sent some labels looking for new homes at midsize distributors. And smaller distros have taken advantage of the growing ­vinyl phenomenon, which has seen units rise to 4.6 million albums at the end of 2012 from 2.6 million at the end of 2009.

Sony Music Entertainment has maintained steady investment in keeping RED fully staffed, which has been rewarded by RED becoming the No. 1 indie distributor in terms of market share for 2011-12. The Bob Morelli-led RED displaced perennial leader ADA, which had led the indie sector for the previous five years starting in 2006, the first year Nielsen SoundScan tracked the market share of albums plus TEA sales (where 10 tracks equal an album).

Warner Music Group has shifted WEA president Mike Jbara to ADA Worldwide president, added label services by integrating its Independent Label Group and strengthened A&R by assigning Sire label legend Seymour Stein to recruit new labels worldwide. Moreover, UMG -- which downsized its commitment to the indie sector by selling off a majority interest in Fontana to INgrooves and becoming a minority shareholder of the latter -- has reinvigorated the Caroline indie distribution brand by naming Dominic Pandisca president. Caroline has built up its worldwide presence with the addition of 25 staffers, and is seeking to add labels to its roster, most recently picking up ATO.

The revitalization of the major-owned indie distribution sector is highlighted by the market-share shootout between ADA and RED. While RED had been the indie distributor market-share leader for the last two years, peaking in February with a year-to-date album plus TEA market share of 5.0%, in recent weeks it has been displaced by a likewise red-hot ADA, which now leads with 4.5%, versus RED's 4.4% for the week ended June 16, according to Nielsen SoundScan.

On the digital front, the Orchard -- which is 50% owned by Sony Music Entertainment -- has grown nicely this year, with album plus TEA market share sprouting more than one full percentage point to 2.5% from 1.5% at year-end 2012. The Orchard represents the consolidation of such digital aggregators as the Independent Online Distribution Alliance and Iris Distribution as well as physical distro capabilities thanks to its acquisition of certain TVT assets. Its main competitor, INgrooves, also has grown nicely with its acquisition of Fontana, which has been folded into the company, and gives it physical distribution capabilities.

Beyond the majors, Kobalt Music Group has launched an artist services and indie distribution operation; Alliance Entertainment is also putting its foot back into the indie sector with the addition of Dean Tabaac, a former longtime RED executive, to its staff with the purpose of bringing indie labels aboard for distribution.

"All of a sudden, the marketplace is different," the GM of an indie label says. "Caroline is making noise again. RED, ADA and [E1 Distribution] have been doing their thing for a long time and continue to do it well. INgrooves, now that it has digested Fontana, is acting more like a traditional distributor. Redeye has grown, and Kobalt and Alliance Entertainment have stepped into the market. And Select-O-Hits still gets music into the big accounts like Walmart."

Beyond all this, smaller indie distributors have experienced benefits in both the physical and digital realms. On the physical side, the retail downsizing of the last few years -- during which Borders and Circuit City shuttered -- has led to tightening guidelines at larger, major-owned distributors, which, in turn, have led smaller indie labels in the direction of small indie distributors. Companies that have benefited include Music Video Distributors in Pottstown, Pa.; Sumthing Distribution in New York; Burnside Distribution in Portland, Ore.; City Hall Records in San Rafael, Calif.; Super D in Irvine, Calif.; Allegro in Portland, Ore.; and CPI in Cleveland. On the digital side, indie labels have seen distributors with access to large physical retail accounts demanding digital distribution as well as physical; those that don't want to give in to the ultimatum have had to look elsewhere.

"There is more stuff falling through the cracks because the majors have tightened up their criteria," says Mike Dreese, CEO of Brighton, Mass.-based Newbury Comics, which specializes in indie music product.

"That is the beauty of the ecosystem," Redeye principal Tor Hansen says. "There is still a lot of music to go around, so there is definitely a need for distributors that are adding value to their label partners."

Indie distro veteran and CPI principal Clay Pasternack says companies like his provide an alternative to labels that have nowhere to go. "There will always be labels that won't be big enough to go to RED or Fontana, but they have to start somewhere," he says.

Not everyone is optimistic. One distribution head says physical sales continue to be a struggle, and digital also is proving challenging as the bigger indie labels choose to do direct deals with iTunes. "It's a tough business and I don't see a lot of success and growth stories out there," he says.

But a slew of boutique distributors has been strengthened by vinyl sales, a specialization in a niche genre or both. Beneficiaries include Carrot Top Distribution in Chicago; Forced Exposure in Malden, Mass.; Revolver USA Distribution in San Francisco; Get Hip in Pittsburgh; StickFigure Distribution in Atlanta; Cobraside Distribution in Glendale, Calif.; Altavoz Distribution in Washington, D.C.; Groove Distribution in Chicago; Light in the Attic in Seattle; Ernie B's in Atlanta; and Soundburst Audio in Layton, Utah.

"I feel like we are on firmer ground with more consistency," Hansen says. He reports that his staff is at 50 employees because it sells directly to many small accounts that other distributors don't want to deal with. "We are seeing more vinyl curated shops open, and the new breed of record stores requires a level of customer service, shipping and packaging that didn't previously occur. There is an element of going back in time. It feels more like it did years ago."

One indie-label GM cautions that the level of service today isn't the same as a decade ago when distributors were in stores taking inventory and putting up posters. Still, vinyl is helping. Hansen reports that 50% of Redeye's sales in May was in vinyl, and he expects that to happen again in June.

"Vinyl is helping all of us, so we continue to grow," Pasternack says, "which makes me cautiously optimistic."


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