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"Indies today represent the 'new model' artist/label deals, where the pressure of having to put out million-selling records on a quarterly basis is significantly reduced."
——Ken Antonelli, RED President
THE SPIRIT OF INDEPENDENTS
An exclusive HITS NARM roundtable by Mark Pearson
With the music industry landscape looking as bleak as anyone can remember, there is at least one light in the tunnel that doesn’t seem to be an oncoming train. Independent distributors have been posting jaw-dropping gains over the last two years, ranging anywhere from 20% to 50%, bucking the seemingly endless downward spiral of the majors. What gives? Why are they able to rise above the fray? We’ve assembled the brightest and most successful names in the indie business and put that exact question to them, as they try to light the dim bulb that is HITS’ own sales guru Mark "Person to" Pearson.

At a time when the Big Five are all in a major downturn, why is independent distribution posting such large gains? And how has major-label consolidation affected the indie community?
Andy Allen, ADA President:
Two music reasons and one business reason. The business reason is easy. There are fewer distributors in our peer group since DNA closed its doors and the remaining distributors all benefited in some way. There will be one more consolidation at the major indie level and the remaining distributors will again gain marketshare. On the music side, indie labels are really coming up with some great new music in a wide variety of genres. For example, Interpol, The Streets and Flogging Molly. At the same time, many established artists are falling out of the major label system and into our world, like Tom Waits, Steve Earle, Chicago, Yes and Sister Hazel, who still have great fan bases, actively tour and can sell several hundred thousand records.
Ken Antonelli, RED President: This is not a sudden gain. Frankly, indies collectively own more marketshare and are #1 in every country around the world except North America and Europe, where they are #2. The gains from independent distribution in the U.S over the last five years, while not gigantic, have been steady. Indies today represent the "new model" artist/label deals, where the pressure of having to put out million-selling records on a quarterly basis is significantly reduced. You can actually make money at a lesser sales plateau and have a career at the same time. That’s attractive to a lot of people.
Steve Pritchitt, Navarre Sr. VP/GM: Artists continue to fight for a space on the priority list with the majors, and this impacts all facets of marketing a record. Unless your champion is well-entrenched or you are expected to be platinum, it’s become difficult to get noticed. The independent distributors are not only willing to pay attention, but our very survival depends on being successful with the labels we distribute. We love records that sell 25,000, and if they do more, we love them more. Consequently, our labels are picking up artists that have an established base which is too small for the majors to handle with their economics. Last year, we had more records on the album chart than at any time in our history.
Michael Rosenberg, KOCH President: The gains are due in part to the way the independent distribution companies are structured. We have less bureaucracy. Because of that, we can adapt very quickly to this ever-changing landscape. If a label has a requirement that is currently not in our business plan or model, and it’s at all possible to make a change to meet that requirement, we’ll do it. We are much more flexible in our business dealings than most majors. We are also picking up a larger piece of the pie as the Big Five drop artists who are no longer economically viable for them. Examples of artists who would have been through the Big Five in the past, but are now distributed by KOCH include Carole King, Eileen Ivers, Ringo Starr, Tom Waits, Nick Cave, Daniel Lanois, John Gorka, Walter Beasley, Kim Waters and the list goes on….
Eric Weisman, Independent Distribution Network President/ CEO: As the majors look inward at their business, they will be making changes to create opportunities for the independent music marketplace. They are reorganizing and downsizing their business. For the independent community, this is one of the cycles we have seen over the last 30 years, where there will be growth-oriented opportunities. Combine this inward focus with technology and the drivers that technology present to the marketplace, and it creates new alternative opportunities for certain cutting-edge independent distribution companies to grow their business.

What do you see as some of the biggest differences in indie distribution over the last 10 or even 20 years?
Antonelli, RED: The biggest difference is that the labels get paid on time. That’s a huge difference. There’s certainly less regional activity. You have to be a national company to compete. We can function and compete like a major (more accurate sales data has had a big impact on this), but we can also still act and operate like an indie.
Pritchitt, Navarre: In order to survive and prosper, all the indie distributors have had to take a serious look inside; how do we become effective on a national basis? What do we offer our labels that will result in getting records placed in the appropriate retail channels? How do we communicate so that the retailer has quality information with which to make informed decisions; what services do we need to offer our labels and customers so that their jobs are easier? In essence, we have become a viable alternative to major distribution in terms of our reach and penetration. Also, we can react quicker, and we have a single agenda.
Rosenberg, KOCH: There are now only a handful of "major" indies, which for the most part, handle their lines exclusively for the whole country. The old system of regional indie distribution is either gone or has been marginalized. The remaining large players have increased access to major accounts. Combine that with our philosophy of selling direct to as many independent accounts as possible and you get a broader account base than the majors. Another difference is, again, the "profile" level of artists. Artists who have had tremendous past success at the majors, but who are no longer a top priority there, are being cast away. We relish that. Many of these artists still have a large core audience and have many successful sales years ahead. Finally, the technology and information management of most indies is much more sophisticated than it was years ago.
Weisman, IDN: I think the biggest difference will be the role of technology and how it will be required as a core competency. And whether it supports the back-end supply chain management aspects of one’s business, interfacing with retail customers, or finding innovative ways to sell and market product. And by handling the needs of each of the labels and recording artists on the respective labels that you distribute.
Allen, ADA: Full-service national distribution is the standard now. Ten years ago, the only way to achieve full national distribution at the indie level was to work with several regional indies in some kind of patchwork fashion. It was clumsy and time-consuming and it was difficult to get paid. Reporting and information was poor. It might have been more fun and there certainly were more characters, but it wasn’t very efficient.

Music-specialty retailers are under siege, being forced to bring in other product lines. Is it necessary for music distributors to broaden their product lines as well?
Pritchitt, Navarre:
We feel this is one area in which we are in a unique position today. We are not only a music distributor; through our NDS division, we are also a leading software distributor as well as a distributor of video games, and we are developing our DVD offerings in both music and other areas. In addition, we distribute major label music and major studio DVDs to a select group of retailers, specifically, the wholesale clubs and office superstore chains. By working together within our company, both our divisions can offer a reach to our independent labels that even the majors can’t duplicate.
Rosenberg, KOCH: No business model in any industry should have only one source of revenue stream. We continue to look for opportunities within the entertainment industry. Our in-house video label, KOCH Vision, continues to grow at an amazing pace. We have started a joint-venture video line with home video veteran Richard Lorber, KOCH Lorber Films, to enable us to enter the independent and foreign feature film business. We have one of the most successful fitness lines in the country, which has enabled us to expand our product line, for both video and audio, into non-traditional accounts. Our expansion into these non-traditional and lifestyle accounts has allowed us to broaden our reach of consumers for our traditional music titles.
Weisman, IDN: Is it a necessity? Maybe not. But is it prudent? I would say yes. It’s always a good business strategy to have a diversified product line when you’re in the distribution business. It would be smart for independent distributors to do that. We see trend lines in the home entertainment product area, where music, movies, games and other related home entertainment products are being aggregated and sold under one retailer’s roof with greater and greater frequency. So it makes sense to complement the needs of an independent label and its recording artists to be able to handle other derivative entertainment media products and be able to bring them to the marketplace with expertise and competency.
Allen, ADA: We are looking at different lifestyle items for distribution. We just picked up a music trivia board game. However, we will not stray from our music center.
Antonelli, RED: Good question. We’re certainly thinking about it. We already have the mechanism and capacity to do so. But we’re picky. It has to have a certain niche element that fits our personality before we would even consider it. We have been interviewing potential non-music product lines for years. Our DVD business has certainly been a way for us to expand into some non-musical product lines with extreme sports videos and Steve-O, Kung Fu, etc.

What currently makes indie distribution a good financial investment?
Rosenberg, KOCH: I’m not sure what you mean by that. Three of the so-called "independents" are owned by majors. I don’t know if those entities are for sale or make money. We are making a profit because we know how to make money without having to sell lots of gold and platinum records (although those are nice when we have them, too). But, sorry, we are not looking for investors!
Weisman, IDN: I can answer this question for Alliance, though not for others. This is clearly strategic for us. AEC is in the business of diversifying its services and innovating its business. And given the marketplace position we hold and the focus and the core competencies that we maintain at Alliance, this is just a natural extension of a service that we can bring to the marketplace, that’s good for our business and for the labels that we distribute.
Allen, ADA: I see growth in the indie sector short-term. However, the financial health of our retail partners will determine our future longterm.
Antonelli, RED: It has to be of important strategic value, for one. Two, the cost structure to sell product is about one-third to one-half of what it costs the majors to do the exact same or similar things. Three, the most exciting A&R is coming from the independent community. Four, there is a growth potential in this segment of the industry.
Pritchitt, Navarre: If you look at the entertainment sector as a whole, you can see that the market is not really shrinking, it’s just diversifying. In order to be a growth company moving forward, companies will need to be flexible, nimble and quick on their feet. We are looking at several ways to grow our business which all complement each other, and that we can execute without creating any conflicts either internally, or externally with our existing content providers. I don’t think too many of the big guys can make that statement in their current situation.

What are you doing at your company to take advantage of the current conditions in the marketplace?
Weisman, IDN:
What we’re doing today is the same thing that we’re doing every day, which hopefully allows us to take full advantage of market conditions and change today, and things that we’ve seen in the past as well as what we’ll see tomorrow. We’re committed to drive service, innovation and excellence throughout every aspect of our business. And when we follow those principals, we do a good job for our customers and for the suppliers that we support and are able to grow and sustain our business. What we try to focus on is a steadfast commitment to injecting innovation in our business. Clearly today, if you stand still, you’ll get passed by and miss it in the blink of an eye.
Allen, ADA: We listen carefully to our customers and our labels and put emphasis on those efforts that benefit both. If our labels and customers are happy, we’re doing the right thing.
Antonelli, RED: Outsourcing certain functions, expanding our marketing capabilities, becoming a full-service company, not just a distributor. I don’t want to say too much because lately, everything we do as a leader in the independent distribution business seems to be copied by at least one of our competitors. But frankly, I suppose I’m flattered by that.
Pritchitt, Navarre: In the past 15 months, we have focused on diversifying our mix to give us a broader range of artists and music throughout most genres, and to have critical mass in those genres. This broadened and deepened selection gives us "more in our bag" to sell our retail customers. We have added to our field sales and marketing force, expanded our telephone sales team and, at the same time, putting ever more emphasis on what we can do to enhance sell-through at the store level. We have also added college reps in key markets. These efforts, as well as our expanded b2b online focus, have resulted in our reaching more independent retailers and chain storefronts. This has enabled us to open more accounts, while providing better service to our label partners
Rosenberg, KOCH: We work closely with our account base. If we can help an account who may be struggling, we do. On the label/artist side, we have a variety of deals available, from traditional artist signings, to imprint deals, to straight distribution. There is one that is right for every type of artist and label. We just completed the purchase of a new corporate office and warehouse. This new building, which is nearly twice the size of our previous facility, will enable us to increase the use of state-of-the-art automation for order and return processing. In short, we continue to grow our business so we can compete in this ever-changing industry.

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