Turmoil In Digital Music Distribution

WORL WIDE WEB (Hypebot) – PART 1 IN A SERIES: DIGITAL MUSIC IN TRANSITION

A TALE OF RISING COMPETITION & SHRINKING MARGINS

As digital revenues have grown and other income streams slowed to a trickle, record labels and artists have begun to question paying digital distributors 10-30% for delivery of music to download stores. Services like TuneCore have fueled the fires of discontent offering low cost flat fee delivery and RoyaltyShare recently added 5% digital delivery to its suite of label services. This has all led to downward price pressure on digital music distributors already struggling with thin margins and a multitude of competitors.

Last week news came that losses at publicly traded distributor The Orchard widened from $1.4 million in the last quarter to $2.4 million even as revenue almost doubled. Also last week, INgrooves received a large cash infusion from Universal who apparently found value in the company's technological platform more than its catalog or revenue.

Friday was the last day at EMI's Caroline indie distribution arm for SVP Bill Hein although he denies it's part of any shakeup at EMI or in the distribution sector. In an email to colleagues, industry veteran Hein wrote "My exit is not related to Terra Firma's recent acquisition of EMI. I have a career opportunity which I wanted to take and EMI have graciously allowed me an early exit from my responsibilities here." Hein is headed to Live Nation's new recorded music division which he will helm.

Earlier this year there were rumors of offers from at least two major label groups for one of the larger players IODA; and WMG bought niche German distributor Zebralution who was struggling to gain a foothold in the key US market.

Now comes unofficial word that niche distributor IRIS just laid off 5 of its 11 staffers and rumors are growing that The Orchard and World's Fairs will also lay-off staff.

COMMENTARY: More cuts and consolidations in digital distribution are sure to follow, and the future appears dim.

Download stores may someday offer direct delivery platforms for labels and artists as Amazon already does from some other products. Fewer middlemen could mean both lower prices for consumers and higher margins for labels. Or will distributors learn to compete by using technology to trim costs and fees and by offering new value-added services?

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