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Turmoil In Digital Music Distribution

PART 1 IN A SERIES: DIGITAL MUSIC IN TRANSITION

Read Part 2: Orchard Voices MySpace Music Concerns here.

A TALE  OF RISING  COMPETITION  &  SHRINKING MARGINSTunecore

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 Royaltyshare_2and 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.

Orchard_4Last 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 Ingroovesfrom Universal who apparently found value in the company's technological platform more than its catalog or revenue.

Carolinedistirbution_2 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.

RumorsEarlier this year there were rumors of offers from at least two major label groups for Ioda 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?

Share your opinions and experiences on the state of digital music distribution.

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