How I Came from Rags To Riches From Music Distribution 

Given the major events that have occurred in the industry recently, it’s now even more clear that the traditional business model of the music industry will not work in the new digital age.

Sales of physical albums are no longer significant, and income from digital sales and streaming have not made up the gap!

So how do independent music companiessucceed in 2014? Well successful companies now make the lion share of their revenue from branding artists, serving as content providers for the Internet, mobile phones, and tablets, integrating the use of music with emerging technologies, entering into collaborations with non-record companies, and coming up with creative marketing and promotional campaigns to reach new audiences.

Examples include Jay Z’s coordinated album release during the NBA Finals with Samsung, and Beyonce’s surprise release of her latest self-titled “visual album” with no traditional set-up. The latter was more impressive (sorry HOV, but it is your wife) because of its unorthodox method, the numbers, (it moved over 600,000 units in its first week) and this tactic likely saved her label a few million dollars in advertising, marketing and promo expenses!

These recent paradigm shifts, and the consolidation of the major record labels (Sony, Universal and Warner Brothers now exist), are creating new and different opportunities for independent music companies in 2014. To take advantage, they will need to align their business and legal practices with the rest of the Industry.

The following suggestions are intended to give you, the Independent Company owner, guidance and some insight on the issues that have become relevant in today’s new music industry.

1. Make Sure That Your Company’s Business and Legal Affairs Are In Order

The first step for any business is to handle its essential business and legal affairs.  Particularly, you need to make sure that the following company affairs are in order:

a) ensure that your company has the proper legal structure to minimize legal and tax liabilities and maximize profits.

b) protect your company’s intellectual property and intangible assets, such as domain names and confidential information.

c) secure agreements, clearances, and waivers with all company artists, producers and third parties with whom the company does business.

d) form or retain a publishing company designee that is affiliated with a performing rights organization.

e) raise sufficient marketing and promotional funds to adequately finance releases or collaborate with a complementary partner. and

f) staff your company with competent industry professionals that can operate the business.  These are the fundamental activities that need to be maintained on an ongoing basis.

2. Focus Your Company’s Efforts on Digital Distribution

The margins for physical distribution are low. The number of brick and mortar retail stores has decreased, automobiles are now being manufactured without CD players, and the younger generation has grown up accustom to downloading and streaming music.  If the Majors are struggling to consistently sell 100,000 physical units of their albums with multimillion-dollar marketing budgets, then it is highly unlikely that your company is going to achieve significant physical sales.

It makes more business sense for you to secure digital distribution through a digital aggregator and allocate more resources toward your company’s marketing and promotional efforts with the primary objective of driving traffic to the on-line stores, using the music to brand your artists, and looking for more opportunities.  Most deals with digital aggregators are limited to digital distribution so you can still pursue a worthwhile distribution deal for physical product, if desired, (maybe for touring) but the success of your product should not be dependent on physical distribution.

3. Expand Your Business To Revenue Share Opportunities

Your company should be set up to capture multiple revenue streams.  You cannot compete by depending solely on the income generated from recorded music for the reasons stated above. Your company needs to stay ahead of the curve by creating collaborative opportunities, and cross-marketing and promoting music with other services and products, such as, television shows, motion pictures, live performances, clothing, books, periodicals, Internet sites, video games, cartoons, merchandise, concert tickets, food, and sponsorships.

TV shows like The Voice, The X Factor, American Idol, Glee, The Sing-Off and Dancing With The Stars have created many licensing opportunities. Touring revenues continue to be strong as Live Nation and AEG Live had good years. Streaming, online radio and Video On Demand (VOD) is also growing rapidly. Services like iTunes Radio, iHeartRadio, Spotify, Pandora, and Rhapsody have developed, however, there are new services on the horizon that may affect this market, like the Beats, which is a collaboration between Jimmy Iovine, Dr. Dre and Luke Wood.

I believe that it is feasible for Independent Companies to create shared revenue opportunities like the ones cited above on a smaller scale. The large deals are going to be geared towards the more established artists and companies that have a broad following, but I am already seeing smaller companies that are not in the recorded music industry team up with record companies to cross market and promote their products, such as smaller concert venues, clothing companies, food and beverage companies, mobile apps, online stores, coffee shops, and even adult entertainment clubs. The industry is wide open, so any creative combination that makes business sense to both parties is possible.

4. Make Sure Your Agreements Capture All The Rights Your Company Needs To Be Successful

Make sure that your form agreements are up-to-date so that your company will control the rights that are necessary to be successful.  The “standard” agreements typically used by Independent Companies are limited to securing recorded music rights.  These agreements have to be broadened to capture, or at least provide the option to capture, rights that will allow your company, or a third party, to participate in other revenue streams.

Another point is that all of the Majors and larger indie distributors like RED, Caroline, and InGrooves have embraced in some form or fashion the concept of “360 Deals”, which consists of a traditional recorded music agreement plus an additional grant of rights of non-record related revenue streams.

360 Deals can take form as a single deal or multiple deals, where the label is entitled to share in one or more revenue streams from activities or services, including management (through an affiliate), touring, merchandising, publishing (the publishers have also consolidated and are under the same parent company as the labels…Sony/ATV recently acquired EMI Music Publishing, and Warner Chappell is the other giant), technology (Internet and mobile phone content), or any other passive opportunity in which your company, or its artists, may engage.  If your business plan includes entering into a deal with a Major, then you need to control these rights.

5. Federally Register Your Company’s Intellectual Property

Copyright registrations protect creative works such as recorded music, written compositions, album cover artwork, video concepts, and photographs.  Trademark registrations protect names and designs that identify products or services such as your company name, your company’s artist or group names, logos, and slogans.  Given the fact that it is now very easy for anyone to view or listen to your company’s intellectual property through the Internet (i.e. website, Facebook, Twitter, YouTube, Instagram, Vine), it is imperative that you protect it.

The Internet has severely weakened common law ownership (known in the music industry as “poor man’s rights”) to copyrights and trademarks because it is hard to prove the date of creation and scope of protection.  Federal registration of your company’s intellectual property will save you money in the long run because your rights will be documented and easily enforceable.

If you want to be the next success story like Macklemore, the indie artist who sold 6.4 million units of his single “Thrift Shop” in 2013, you will need to make sure you have your business in order.

If you found this article please take a moment to share or like it. I would truly appreciate it! If you have any questions or have specific subjects in the Entertainment Industry you want to hear about, please leave a comment below.

If you are interested in learning more about the Business side of Music Industry and how it works please download my Free Ebook “Making It In Todays Music Industry”.

In this EBook I spell out step by step what people involved in the Music Industry today, need to know about the business side to be successful.

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