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Deep Dive

The Evolution — And Boom — of Music Distribution

Data and marketing are now part of the business of distribution — and business is booming.

For decades, distribution in the record industry meant physical labor: transporting CDs and vinyl records from studios to warehouses to stores on trucks and crates. But when digital music kicked in nearly 20 years ago, the biggest distributors pivoted, learning early on how to most efficiently help artists and labels post tracks on iTunes, then YouTube, then Spotify, and get them paid as quickly as possible. Then they realized, through this process, they had access to troves of data, on sales and streams, by demographics and regions.

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Over the past 20 years, distributors have become just as essential to the record industry as they were in the days of trucks and warehouses. And since the pandemic, when music fans streamed music at home more than ever, the business has grown even more explosively: Secretly Distribution, which handles 200 labels and thousands of artists, has increased its revenue from more than $39 million in 2019 to $70 million last year, or nearly 79%; The Orchard’s earnings doubled from 2015 to 2018, Sony officials have said, and, according to COO Colleen Theis, it has “continued double-digit growth” since then.

“It is fair to call it a boom,” says Matt Burns, who co-founded Universal-owned Ingrooves Music Group, a distributor, in 2002 and is now its general counsel. “It’s possible this might just be the beginning of a bigger boom.”

Distributors handle so many crucial functions for artists — using their connections to hustle new tracks to playlist curators, supplying metadata from song titles to publisher names, keeping track of mixes in new surround sound formats like Spatial Audio and Dolby Atmos and, of course, making sure artists and labels receive their royalty statements and paychecks as quickly as possible — that every major label has to have its own company. Or several. Sony Music Entertainment, Warner Music Group and Universal Music Group distribute their releases through internal distribution companies; Universal, the world’s biggest label, also has individual distributors for labels such as Capitol’s Virgin and Republic’s IMPERIAL, which launched last September, as well as deals with independent companies such as Ingrooves. “There’s a lot of behind-the-scenes work that goes on,” says Theis. “You need to get music out to platforms and stores and pay the artist or label. And when you’re receiving all that data, you need to be able to chop it up in tactical ways and analyze it so you can help provide intelligence.”

Warner Music’s Alternative Distribution Alliance (ADA) Worldwide, the 29-year-old company, which, like The Orchard, works with indie artists and labels, is similarly “having a moment,” according to Cat Kreidich, the company’s president. With social media “ubiquitous” and tracks uploaded to streaming services “every second,” she says, distribution companies are crucial to help artists and labels manage and market their own releases: “All the barriers have come down. There’s a need for fast-moving, flexible service offerings to help bring all of this music to fans around the world.”

Ingrooves started out trying to answer the question: “How do you get from point A to point B – how do you get a master song to Apple?” Burns recalls. Over time, though, the company realized data was its most precious commodity, and it began hiring “more data scientists than we did label managers,” including mathematicians and statisticians who use artificial intelligence and machine learning to analyze artists and tracks. For example, when K-pop first began to take off internationally, Ingrooves’ data team recognized that the genre was surprisingly popular in Mexico City, then encouraged its clients to market releases there.

Another distributor, indie Create Music Group, which works with 25,000 artists and 2,500 labels, has spent $25 million in the last two years on social media brands such as TikTok content specialists Flighthouse and The Nations, whose YouTube channels include Trap Nation, which has more than 30 million followers. When a track shows signs of taking off, through Shazam or TikTok, Create’s staff can “test” it by adding it to its YouTube channels. “This is the type of innovative thing innovative companies are building,” says Jonathan Strauss, the company’s founder and CEO. “That’s honestly hard for major labels to compete with.”

In addition to using internal distribution companies for their own releases, all three major labels have taken advantage of the boom by purchasing distributors working with indie artists and labels. Ten years ago, Sony became a minority investor in The Orchard, founded in 1997, then bought the remaining 49% of the company in 2015 for a reported $200 million. Then, early last year, Sony spent $430 million on AWAL, an indie label and distributor. These acquisitions have helped Sony boost its market share by including hits that are not necessarily Sony’s own hits, allowing the company to take advantage of the indie sector. Sony Music CEO Rob Stringer hinted at this growth-by-acquisition strategy in 2018, when he told investors: “We bought The Orchard to help with market share — and everywhere The Orchard is now being built up, it’s helping with market share.” In this way, Sony (through The Orchard and AWAL) and Warner (through its own indie-focused distributor, ADA) profit from their own major-label releases as well as the many independent releases for which they oversee distribution.

Meanwhile, Universal Music Group has such a dominant market share that executives foster competition within its own group in addition to rivals such as Warner, Sony and the independents, according to a source in music distribution. Thus, UMG sublabels such as Capitol, Interscope and Republic have their own distributors. “When you have 40% of the market share, you can get relaxed and bloated and you can not only compete externally, you’re also competing internally,” says the source. “There’s an intentionality within Universal to have Interscope and Republic at odds with each other. That contributes to having competing distribution systems.”

Sony and Warner have comparably more streamlined distribution mechanisms. “Different parts of the organization have different deals for different reasons — but ultimately, Warner is set up to support artists at every stage in their careers,” ADA Worldwide’s Kreidich says. “The universe of music is vast and expanding all the time — there’s more music and more ways to listen to music than ever before. We have the opportunity to be strategic, to utilize data and understand audiences and to help drive fandom and engagement in ways we never could’ve imagined.”

Why are distributors so crucial for major labels in the streaming era? Darius Van Arman, co-CEO of indie label Secretly Group and its distribution company, says it’s because distributors use long-standing connections to communicate with streaming services, physical retailers and radio stations, emphasizing certain tracks amid the fire hose of new releases. “Distributors say, ‘We have two hours with you, Spotify, this week. We’re sending 1,000 releases your way, but we can’t talk about all of them, so here’s our priority,’” Van Arman says. “They can’t really have conversations on every release on a deep level. It’s not economically sustainable.”

More than anything, he adds, distributors that have worked thousands of tracks and use data to pinpoint where and how they’re breaking worldwide provide experience that is essential for artists and labels: “You can go hiking through treacherous terrain by yourself and figure it out. Or you can go with an experienced hiking guide who has done it hundreds of times already.”