[Original artwork by Aqeel Ameen]
In the music business, we tend to look inward for solutions rather than outward. That instinct often results in gossip, bad action, and shortsightedness. We end up repeating the mistakes of our predecessors. We narrow our world views, focused on hit records at the expense of sustainable systems and lifestyles.
Reading books and articles specific to the music business can be helpful, but sometimes it pays to step outside the frame. So this is Applied Science, an attempt to thread my concerns through problems, solutions, and concepts from other thinkers and fields. I’m trying to unearth the human aspects within the machinery of the music business, and turn some of my experiences as a manager and label co-founder into working philosophies that others can use to understand and solve their problems. I'm not sure I'm going to solve anything here. I hope I'll spark some questions, some debate, and maybe reach some people that can help enact change. It’s an experiment.
“There are those of sources and those of canals.” - Michel Serres, The Parasite
A few weeks ago, I spoke on a panel hosted by my friend Mars Today and his organization Over Everything, a non-profit promoting artist empowerment and education. Mars is a producer, songwriter, artist, and organizer who has released music independently and produced for artists who’ve done the same. The night’s discussion focused on ways artists (particularly those without major label backing) can break through in an oversaturated market. Inevitably, the conversation turned to distribution. Questions mostly concerned the quality of available options: What makes a good distributor? What should you look for in a distributor? What are some of the better distributors?
No one asked one question constantly on my mind: What does a distributor do?
That may seem rudimentary, but I was still surprised we didn’t address it in some form.
Comprehending music’s evolution from physical to primarily digital medium means understanding distribution.
“Distribution” is such a common term in music conversations, its practical application masks its complexities.
This week’s Applied Science explores distribution in depth—some history, some insight into costs, and its importance for the future of the liberated artist (an idea from the previous issue).
I’ve been fixated on this question of what a distributor does for a few years, but it entered my head from a new angle last December while I was reading an edition of Ben Thompson’s Stratechery newsletter (a big inspiration for Applied Science). I recommend subscribing if you're interested in tech, media, and their influence on the world at large (it’s $10 a month, so I also understand if you don’t subscribe). We live in an age where a company built around selling books over the internet now offers music streaming, original video content, and a speaking virtual assistant you can use to access this bountiful consumer kingdom. “Tech news” is now just “news” that governs our daily realities. Thompson does a great job synthesizing intricate matters and providing insight.
This edition dissected distribution in the video game industry, covering competition between three gaming storefronts: Discord, Steam, and Epic. Discord is an appendage of a popular gaming chat app; Steam is the titan in online game stores (the Valve-owned product that launched to some controversy years ago, but has become an industry standard as video games have made their own transition from physical to digital medium); Epic is a storefront built by the makers of cultural lightning rod Fortnite.
The younger among you probably know at least some of that, but since I’m rapidly hurdling towards irrelevance, I did not. I’m also not sure how this space has evolved in the months since I first started writing this piece, but Thompson’s overview of heated competition naturally made me think of my own industry:
In October…Discord launches its Game Store with a 70/30 revenue split with developers, mimicking Steam, the 800 pound gorilla in the space.
In November, Steam adjusts its revenue share, reducing its take to 25 percent for revenue over $10 million, and 20 percent for revenue over $50 million.
The first week of December, Epic, the publishers of Fortnite, announced their own store that would not only leverage the popularity of Fortnite but also give 88 percent of revenue to developers. Epic also included a popular Fortnite feature that allows popular streamers to profit from viewers that buy in-game currency.
Two days later, Epic not only launched their store earlier than expected, they also launched with two high-profile exclusives called Ashen and Hades. These are the sort of titles that compel gamers to go through the hassle of downloading new storefronts other than Steam.
Last week, Discord responded by cutting its take from 30 percent to 10 percent. The company said in a blog post: Turns out, it does not cost 30% to distribute games in 2018. [emphasis mine] After doing some research, we discovered that we can build amazing developer tools, run them, and give developers the majority of the revenue share.
Needless to say, I don’t think this was a surprise to Discord: of course it doesn’t cost 30% to distribute a game — or an app, for that matter, much less digital content. 30% is justified by nothing more than fiat. That’s the thing, though: the surest way around fiat is competition, and ultimately, the biggest reason why 30% is crumbling in PC gaming is because the PC is an open platform. Valve (Steam) can build a store, Epic can build a store, Discord can build a store, and while they can charge developers whatever they want, their pricing power is ultimately regulated by good old competition.”
Back to that burning question: What does a distributor do?
Distributors exist to bring a product from creator to consumer. Whether a song, a video game, a podcast, or a film, distribution channels typically transport a thing someone made to different retailers or public platforms for an audience to enjoy (or hate or ignore). For the vast majority of recording artists, distribution means sending music from your hard drive to a distributor (via email or some sort of upload form). The distributor then sends files and their associated metadata on to DSPs (digital streaming platforms, i.e. Spotify, Apple, Amazon, YouTube Music, Deezer, Pandora, etc.). The distributor tells DSPs when the music should be released, what countries it should be released in, and details like “explicit” labeling, for example. Many distributors also offer “retail services,” a promise that can prove hollow.
Historically, distributors fronted the cost of manufacturing (and, in some cases, dissemination to retailers). In music, they provided an alternative to more involved, longer-term record deals—an ideal one that allowed artists with considerable local fanbases like E-40 to press up CD’s and tapes, sell to a rabid audience, pay back costs, and reap considerable profits. Digital distribution eliminates old costs (particularly when no advance is offered), shifting the expense from manufacturing, warehousing, and shipping to data transfer. The distribution fee, whether flat fee or percentage, embodies both the distributor’s incurred costs and potential profit. It’s the revenue split Thompson speaks of in the example of Discord, Steam, and Epic.
In eras when circulation demanded regional knowledge, brick and mortar storefronts, secure, timely transportation, and numerous human nodes in national networks, considerable expenses were unavoidable. Major labels and the distribution companies they owned often priced and strong-armed their independent competitors out of existence. Many indies got absorbed by majors, creating monopolies that warranted governmental inquiry in the booming 1990s.
Today, a dizzying array of options exists for digital distribution in music. Major labels own powerful distributors (Universal's Caroline, Warner's ADA, Sony's Orchard). Sometimes majors split the difference, forging non-exclusive partnerships with distributors that remain autonomous, but can “upstream” releases and use major label services (Create Music and Empire with Universal). Numerous independent distributors offer in-house label services and take a cut of proceeds (Kobalt's AWAL, Human Re Sources, Apple-owned Platoon, Stem, Foundation). And, most plainly, there are distributors who require a small fee for uploading music to DSPs (stalwarts TuneCore, CDBABY, and Distrokid).
The competition between distributors in music is rarely so public that it causes one distributor to change its behavior because of another’s choice, as seen in Thompson’s example with the cascade of decisions precipitated by Discord’s announcement. Steam quickly fired back, and soon Epic and Discord followed suit, competing on price in order to remain relevant in the market.
Two things struck me most about Thompson’s overview.
First, exclusives are still very much alive and well in the video game business, whereas they have all but dried up in music. Companies like Apple and Amazon may fund exclusive content, but gone are the days of windowed releases meant to drive new subscribers to a platform. Only Jay-Z-owned Tidal clings to the exclusive as a means of attracting paying users, with releases from Beyonce, Rihanna, Kanye West, and the boss himself all debuting on the platform for varying (and occasionally puzzling) periods of time. These releases tend to draw consumer ire rather than excitement about downloading and retaining a new streaming app. In video games, an exclusive can encourage people to download a service or buy a console. Music’s product isn’t as compelling and most music creators don’t have the choice (though some like enigmatic rapper Mach-Hommy have played with the concept to make a statement on smaller scales; his Bandcamp page appears to be down, but it used to feature a number of albums that were only available for four-figure sums, making a statement about the value of his art while also presenting a comical challenge to the average consumer, as if daring hypebeasts to skip the Off-White and buy a different kind of rare release).
Second, the competition between Discord, Steam, and Epic was public, even down to Epic’s somewhat comical admission that distribution didn’t cost what the company charged. Did someone run to the back office to crunch some numbers and figure that out? Of course not! Discord decision makers knew, but industry standards hadn’t forced them to shift their policies.
In music, the conversation about distribution rates is rarely flexible or public. I suspect this has to do with distribution’s cost and nature. It’s a process that should be simple, no more taxing than sending an email or a text. Digital distribution requires servers, computers, storage (hard drives or cloud-based systems), internet, and some humans to monitor what’s going on, ensuring the right data pairs with its respective song. (We can’t ignore the human component as a cost, necessity, and source of issues; ultimately, a process that seems wholly digital is still governed by people with all their fallibility and capacity for nuanced thought alike). These costs certainly add up, but they are ultimately elastic and scale far more reasonably than those in physical production and distribution. Even if CD’s get cheaper per unit as you make them, gasoline prices rise and fall as a function of global forces. Once a file is distributed digitally, distributors need to worry about server, internet, and archival costs—pillars that present their own issues, but prove far less volatile than oil prices and the health of physical retailers. The basic rate for most big digital distributors is 20% (if you’re not taking an advance, which can cause pre-recoupment splits to move more heavily in the company’s favor). Every major knows that digital distribution, even at its heaviest, doesn’t justify the full 20% fee. It’s a profit play. In the video game space, Steam recognized the distribution fee as a place for innovation and competitive advantage as it weathered attacks from compelling competitors.
In the last decade, digital distributors have made much noise in both the independent artist and venture capital communities. With the exception of Empire, a few AWAL success stories, Stem’s Frank Ocean coup, newcomer Human Re Sources, and Symphonic's Bad Bunny boom, none have made a huge dent in label-controlled market share. Even these still can’t compete with the majors or major-owned distributors like ADA, which often work with whole labels (former major label BMG is among their biggest, most successful clients). The reasons are numerous.
One, recorded music isn't as intrinsically social as apps or current generation video games. It usually requires millions of dollars to market effectively. Distributors can’t typically offer big budgets. True, music is a part of the fabric of our daily lives, but that experience is typically passive; not so for video games and chat apps.
Two, music doesn’t generate as much money as games (or even other entertainment products—sports, movies). Venture capitalist Andy Weissman pointed this idea out on Twitter recently in response to music and tech writer Cherie Hu asking “what is one truth about the music industry that very few people agree with you on?”:
Three, distributors aren’t great at retail services (getting songs on playlists and prime placement on digital storefronts) and marketing. They typically have little incentive to spend the money necessary to break a song or artist. The average distributor takes a 15-20% of gross revenue or net profit, while the average label takes an 80-85% royalty. There are exceptions to this rule. High-earning clients always get premium attention and you can never discount good old-fashioned nepotism in helping certain projects get off the starting block. By and large, volume economics motivate distributors. Reality often sets in for aspiring artists only after they’ve chosen a partner and put out some music.
Stem's midsummer upheaval points to many of these issues at play at once. When it launched, Stem promised radical royalty transparency to artists that used its platform, while only taking 5% of gross proceeds received from distributed releases (10% less than AWAL, and 15% less than the industry standard for un-funded distribution deals). Stem also promised pitching to DSP playlist editors and guidance to new artists through its blog and concierge services.
In its early days, it largely delivered. Stem’s clean, clear interface and royalty splitting capabilities still feel like a revelation. The latter allowed artists to account directly and plainly to their collaborators in a way no other platform (except, possibly, cover distributor Soundrop) has yet offered—a boon for independent artists who may not be able to afford business managers or fancy accountants. Admittedly, I became an evangelist for the company after seeing the product in action (not a paid evangelist or partner, mind you, but a fanatic recommending it to everyone who’d listen). Stem’s company philosophy and messaging galvanized a small community in Los Angeles, independent musicians and their teams united by creative freedom and a desire for increased commercial control beyond the gravitational pull of the major labels. I imagine Stem’s rise sent at least a small shudder down the spines of some big executives. After all, numerous stories of accounting obfuscation, willful confusion, and, at worst, actual obstruction of payment haunt much of the industry’s history. Stem, at scale, promised a viable alternative—and a potential sea change in accounting practices.
As time wore on, unfortunate cracks started to show. Anecdotally, I've heard numerous stories of artists and managers delivering music for distribution, only to have that music improperly delivered to DSPs, promises of retail support that never materialized, and the rollout of features yet to arrive. It also must have become evident to the Stem team and their early investors that the 5% model was not working. A few months ago, with only one of their original founders in tow, they announced that they were closing their doors to clients that were not substantial earners while upping their fee to 10% for new clients (8% for clients who were grandfathered in). This is well within their right as a business, but that didn’t shelter them from criticism when they informed many of the artists who used and championed their platform that their music would disappear from DSPs by 7/31/2019.
The mini-war between Discord, Steam, and Epic fascinated me because it’s a far cry from what you usually see in music: Three profitable behemoths publicly vying for the loyalty of developers by telling them “you will make more money if you bring your games here!” This sort of competition might not be possible in the music business given the nature of our product, as Stem’s pivot illustrates. Music is less profitable and less widely consumed (or at least less widely consumed by people forking over lots of money for it). Resistance to this kind of competition speaks to a mentality mired in the mid-90s, governed by secrecy and a holier-than-thou attitude that fades only when a company wants something it can’t have. Namely, an in-demand artist who will only sign a deal if all their terms are met. Even then, labels are loath to disclose terms for fear one “non-precedential” deal will give future signees the wrong idea. Hell, it’s bad enough that Chance the Rapper and Frank Ocean planted seeds of independence in artists’ heads. Don’t let these kids realize that contracts are negotiable and the goal lines can be moved as the business evolves!
To be clear, record labels are still the biggest “benefactors” of the creation and marketing of new music. They are the only companies existentially tied to the success of music. Red Bull and Nike have marketing budgets to do cool shit with artists. Their core products (soft drinks and sneakers respectively) subsidize these expenses. Labels live and die by the success of their projects, scrounging for ancillary revenue streams where they can.
There’s another bit of intrigue to bear in mind here that I believe also influences competition in the distribution space. As mentioned, the major label groups own their own distributors (multiple, in some cases) in addition to having partnerships with various independent distributors. Through these distributors, majors often put out music by “independent” labels—labels that are independently owned in the true sense of the word, but benefit from major label muscle. Major label groups often count the independent labels they distribute via their subsidiaries towards their overall market share calculation, a practice which, while ultimately accurate, feels fluffy. Majors wield distribution as a tool to increase market share, a battle with real implications. Universal doesn’t want to gobble up real estate just to look better than Sony and Warner in trade magazines, it wants bigger market share because that means better royalty rates from streaming partners (particularly Spotify). Each of the majors would be happy to purchase and partner with as many distributors as possible if it meant winning the market share battle.
But distribution means so much more to the average artist and team. Distribution, ultimately, means possibility—access to distribution gives any artist the potential to reach an audience. Since Shawn Fanning upended our understanding of the value of music and how consumers find music, countless tools have emerged allowing amateur and professional musicians alike to make and spread their creations. YouTube and Soundcloud have long provided the simplest path to “market,” with easy, immediate upload capabilities. Widespread access to distribution is a kind of liberation, shifting a traditional power center by affording artists the ability to theoretically reach and cultivate audiences with minimal interference from established powers. It is easy to bemoan the death of quality control and quality along with it, the supposed influx of garbage in comparison to the cherished releases of our halcyon past. These complaints seem to come largely from those most affected by the change: Gatekeepers in all forms and fashions. Label employees, critics, playlist curators—all (knowingly or unknowingly) battling for relevance in an unmitigated reality. There may not have been as many releases in the pre-digital era, but there was proportionally plenty of bad music and filler to go around—and all of it cost you more than watching YouTube on your phone (if we are not, of course, considering the cost of buying a smartphone and paying for data service).
Distribution channels are the veins around which the entire body is built, long ignored in their intricacy because most artists care primarily about reaching the largest audience possible, details be damned. Those veins are vital to everything around them—the flow of money, the archival security of a record, the very history of digital music. Distribution is the closest thing the music industry has to a utility, the gateway between creator and consumer, the one thing a creator can control in a chaotic atmosphere.
Distribution plus services (marketing, radio promotion, press) is the music’s industry’s creeping present and impending future. Sony’s expansion of the Orchard, Warner Records’ quiet launch of Levels, and Universal’s boundless appetite for companies like Create and Empire tacitly acknowledge changing artist demands. It’s the core of what everyone at the Over Everything panel wanted to know: How can I distribute my music independently and cut through the noise? There is no singular, sexy solution for cutting through the clutter. I’ll discuss many of my philosophies in upcoming newsletters, but the unsatisfying reality is that no one knows best. At root, you must create the art you want to create, tell the story you want to tell, and convert strangers into fans and evangelists day by day. It might take a decade, it might take a few months and some TikTok luck—either way, your understanding and control of your music’s distribution (where it lives and how it gets there) lies at the core of everything. It’s one of the only things you can directly influence; once your music is out, it’s a chemical exposed to the elements, warping and moving in ways that are hard to predict.
Perhaps most importantly, distribution presents paths for economic self-determination. In an industry that has so long diminished the artist’s interests and vision for the sake of profit, this is an important realization for any up-and-coming act.
This week’s playlist mixes the hard and the soft. slowthai and Mura Masa deliver one of my favorite songs of the year with snarling, breakneck “Deal Wiv It.” It encapsulates the energy of a slowthai show without the sweat and moshing. Also French enigma SebastiAn returned with his sophomore album a few weeks back and it has some gems on it, including “Doorman” featuring The Internet’s Syd. I’ve been listening to a lot of Nick Drake because it’s cold and gray in LA.
Also, as a reminder, this playlist is as much an experiment as the newsletter itself. I’ve actually tried to sequence it so it flows loosely between chunks of songs. There’s no singular mood, but it does go…somewhere.
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