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"Independent distributors are strong enough to place product in all of the places that the majors can."
KOCH & PITCH
An exclusive HITS dialogue with KOCH Entertainment Distribution President Michael Rosenberg
Michael Rosenberg has been with KOCH Entertainment Distribution for over 16 years, and was promoted to the office of President in March 2001. During his lengthy tenure, he’s watched KOCH grow from a niche player to one of the most powerful indie distributors in the nation. KOCH’s recent high-profile signings include Epitaph, which came on board in 2001, and Artemis, joining the KOCH family in April. Just last month, Rosenberg signed Daemon Records, the label run by Indigo GirlsAmy Ray. Having been there to witness KOCH’s evolution gives Rosenberg a unique perspective not only on his own company, but the world of independent distribution as a whole, which is exactly two more perspectives than offered by HITS’ retail maven Mark "Missing" Pearson. The independent sector is one of the only growth sectors of the music business right now. To what do you attribute the upswing?
One of the obvious things is that the indies are getting a piece of what used to be the major’s business. In the sense that artists which have been dropped by the majors or are dissatisfied with the majors are moving into doing things independently. If you look at the success of, for example, Jimmy Buffett, who has his own label, Mail Boat; that’s something that would have been on a major before. Now it’s independent. Similarly, our Koch Entertainment label, or our distributed labels like Epitaph, are releasing product from artists who previously would have been on majors: Ringo Starr, Beth Hart, Dwight Yoakam, Nick Cave, Daniel Lanois, etc.Years ago, as consolidation began in earnest, major artists filtering down to the indies was the thing that was supposed to happen, but never did. Why is it now different?
Because majors are now dropping many artists in earnest and other majors are not picking them up. Within the majors, they’re realizing the need to consolidate their internal units, like MCA and Geffen, for example. That will continue to happen with the regular major labels from the pop side. And that’s when artists start getting dropped for real. It’s also when artists become increasingly dissatisfied, because they’ve been working with the same label people for years and they’re suddenly not there anymore.What makes these acts so valuable to the indies when their sales base is not enough for the majors?
Independent cost structure is different than for a major. We can make healthy profits at lower levels of sales. Independents are also more flexible about how to structure deals than the majors. As a result, we can structure a deal in a way where the artist is happy and we can make nice money on it. At the same time, there are now independent distributors such as KOCH that are strong enough to place product in all of the places that the majors can. Fifteen years ago, when you had regional distribution systems, it was certainly a lot harder to cover the whole country. But that’s not a problem anymore. In many cases, we’ll probably be reaching more accounts directly than the majors can.How has independent distribution changed since you came on with KOCH in 1987?
When I started, American independent labels usually had somewhere between 10-15 distributors. And now, those labels have a single independent distributor. Whether it’s KOCH, Ryko, RED or ADA, it’s one distributor covering the whole country. That is the single biggest difference from the time I started in the business. And that happened through a consolidation on the independent distribution side of things. Those indies which remained regional either became irrelevant or went out of business. That was the biggest single change.Do you ever see a time when regional distribution will completely disappear?
No, but it’s a much smaller niche than it used to be. The account structure has also changed. You used to have many regional accounts and independent records stores as well. And those are gone now, too. You don’t have a Rose Records chain in Chicago anymore. You don’t have a Turtles, a Record Bar or a Strawberries. Those chains became part of larger entities. If you want to have your product available in a region of the country, you need to be talking to people all over the country anyway. You need to be talking to wholesalers or chain buyers who are based outside of that region. That, to some degree, will discourage any sort of significant regional distribution, or any regional distributors, from becoming very successful. Because in order to get it where you need to, you need to be talking to all of the national accounts and, for the most part, they don’t want to talk to regional distributors, because they want to be talking to larger companies.How big was it for Koch to acquire labels like Artemis and Epitaph last year?
Obviously, for us to have the opportunity to work with a label like Epitaph was something we’d hoped for for a long time. We have other great branded labels, like Putamayo. Epitaph really provided us with a significant presence in the rock world. But in terms of how we do our business, it wasn’t a seismic change. We’ve been building a great distribution company for a number of years and haven’t had the opportunity to work with some of the bigger labels we would have wanted to be able to work with. Those opportunities came along and we were able to jump on them, but it doesn’t significantly change what we’re doing. We’re trying to be a great distributor. Working with Epitaph has given us insight into some things that we hadn’t had as much experience working with. And with Artemis, even more so. We’re trying to continually improve what we do.What are the advantages and disadvantages of not being hooked into a major distributor?
There’s additional product you can get—the way Sony is now feeding a lot of stuff into RED or WEA feeds stuff into ADA or Caroline gets fed stuff that doesn’t go through EMD. Obviously, the biggest disadvantage is that the people who run RED, ADA and Caroline are not in control of their own destiny. And they have no control over where their company is going to go in the future. Or they have control up until somebody says that they don’t. And that’s the biggest disadvantage. There are advantages and disadvantages for a label to go with us. The advantage might be that we’re not being ordered to focus on somebody being pushed by our parent company. Nor will they wake up one morning to find out that the parent company decided to shut us down or merge us. They’re dealing directly with the people who decide what goes on here. What is independent distribution’s role in digital distribution?
We have the same role in digital distribution that WEA or UMVD does. In order to do digital distribution, even with a third party, requires a lot of administration. We’d like to be in the middle of that in order to take care of many of these issues for our distributed labels. That’s something we’re looking to provide as a service. We can handle the administration and all of the work required to get the files up there in a visible fashion and so forth. So we’re seeing that there is a role for us. Over the next 10 years, do you see a proliferation of indies because of continued consolidation?
There might be more indies. I’d guess, in five years, there would probably be fewer and then in 10, there would be more again. My crystal ball’s a little cloudy there. There are many things likely to happen in the next few years or that are already happening. With more sales going to mass merchants, rack accounts and non-music specialty retailers, you’ll see there are fewer places to sell larger varieties of music than there used to be. That will hurt independent companies…as well as major labels’ attempts to develop new artists. At the same time, there are vastly more places to buy large selections of music now then there were when I was in college, back in the early ’80s. Obviously, that was at the end of the LP era, the beginning of CDs and the market had shrunk. Everybody was hurting . I don’t know that we’re at the end of the CD era and if we are, what will come next, because nothing has jumped to the forefront yet as the next format. I’m hoping that free file-sharing is not the next format. But even in those conditions back then, independents thrived to a degree. And now, there are even stronger independents. In 10 years, maybe you’ll see smaller independents coming up again. It will depend on what’s happening at retail, on what’s happening with digital distribution. All businesses are somewhat cyclical and right now you have a lot of independent labels. It’s a good time for independent labels and distributors. I think there will be tough times ahead as the overall U.S. market for music continues to shrink. If it becomes tougher, independents will come back again, as they always have.What’s the future hold for KOCH?
We’re not just a music distributor anymore. We’ve consciously made an effort to not just sell to music stores. I think some other companies are trying to do similar things. I know that at WEA, Jim Caparro has established a lifestyles sales force who are out there going to things like book shows and so forth. We’ve always tried to sell music to as many different places as we could. And now we’re a video company, too. In fact, Video Business Magazine named us one of the companies to watch this year. We have two video labels that we fund on our own. We’re going to put out foreign classics like Fellini’s La Dolce Vita later this year. We’re an entertainment software distributor, with music just one of the things we distribute. We fully expect video, and particularly DVD at this point, will catch up over the next few years. Maybe as soon as the next couple of years.
A HOLLY, JOLLY
HITS LIST
A December to remember (12/6a)
REVENUE CHART:
MALONE IS MONEY
Yet another post about Post (12/6a)
TAYLOR LIGHTS HER "CHRISTMAS TREE"
With lots of shiny tinsel (12/6a)
THE HAPPY WARRIOR OF THE RECORD BUSINESS
What a great guy (12/6a)
GRAMMY CHEW: WHO ARE THESE PEOPLE, ANYWAY?
Those who fail to learn from the past are destined to repeat it. (12/6a)
EGGNOG!
Ours is mostly bourbon.
MISTLETOE!
Delicious in salads.
CHESTNUTS!
Ours are roasting, but it could be these slim-fit jeans.
WEED!
An entire Christmas tree made of it. Is what we want for Christmas.
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