The true value of Indie Labels in today’s Music Industry
Indie labels are quietly driving the music industry’s biggest successes. Find out the true value of indie labels despite their smaller size.
The true value of Indie Labels
by Keith Jopling via Network Notes
Indie labels put in more value to the music business than they take out – will that ever change?
I’ve been thinking a lot about what it is to be an indie label lately, in the context of the continuing growth in the music industry overall.
Over the past few years the “artist services” sector (aka ‘distribution’) has seen hypergrowth, alongside massive investment – often from investors entirely new to the music business. For these investors looking to ‘get in on the action’, the distribution sector has everything: a growing addressable market (independent artists), disruptive brands (from incumbents like TuneCore to upstarts like Gamma), an ever expanding product portfolio (i.e. a growing array of artist services) and most importantly, a global marketplace.
The ‘connectors’ between independent artists and DSPs have grown exponentially by being in the eye of the needle of the perfect ‘2-sided marketplace’: massive growth in music production/supply and massive growth in music consumption. Some were blessed with ‘official partner’ status by the likes of Spotify and Apple Music – pouring rocket fuel on the growth of DistroKid, TuneCore, CD Baby et. al.
This relates directly to the indie labels sector, one which tends to grow organically with very little outside investment whatsoever. When investors get stuck into due diligence on distributors, they are often looking for the ‘secret sauce’ – in other words the added value these companies can bring to the music industry. What’s fascinating about the due diligence process, is that no secret sauce is ever found. Of course it isn’t, because it does not exist.
Distributors have scale, and they operate in a global market, but in terms of value-add to artists – the central core activities of A&R and marketing – are the same in scope as those of indie record labels. So are many other associated services, such as royalty accounting and payment, analytics and so on. Although effectiveness and service levels vary, these direct services to artists have very little to differentiate them, between distributors themselves and indeed between distributors and their indie label counterparts. Furthermore, due diligence also reveals that the most valuable aspect of many distribution players isn’t direct/independent artist services, but label services – those offered to indie labels.
This transfer of monetary value is fascinating to me, because in truth, it is the indie labels that create the majority of the value here, in the truest sense. It is the indies that find, develop and market artists that actually have fans, and potentially careers. Although they are fewer in number, their releases are what scales activity for the distribution players – which in turn attracts the interest from investors. The indie label sector is a huge filter of quality – a true differentiator from both the mass of ‘DIY’ artists (famously once referred to by a major label boss as ‘merchants of garbage’) but also the highly trend led pop put out by major labels.
On reading Darren’s Network Notes post ‘recognising the true value of indie labels’, it struck me that well, the true value of indie labels is exactly what they have always done better than anyone else – develop and market real artists, especially those artists that really do not suit the majors.
In that post, Darren also posed an oxymoron:
“I’d be genuinely curious to hear if there are labels readers feel have truly risen up in the last couple of years from genuinely humble beginnings to looking like long-standing, permanent fixtures. Personally, I feel the list is short – and getting shorter”.
Some immediate names did come to mind for me. The UK labels Partisan, Dirty Hit, and Communion. The US-based Secretly (a group of four indie labels not unlike Beggars, but including its own distribution services operation) and ATO Records. I’m sure that there are plenty of examples from outside of these two markets. But Darren’s point still stands, in that the number of growing businesses in the indie label sector is far fewer than in the wider “artist services” market. Yet I’m convinced that the former is driving most of the value in the latter.
The ‘buzz’ around artist services has probably peaked now. Although investment is still flowing in (note that Chicago-based firm Flexpoint Ford recently took a stake in Create Music Group for $165 million, for example) the due diligence is proving trickier. It may even be that investors are finding the sector previously overvalued. Believe/TuneCore came out of public ownership partly for that reason. Believe structures its business in two divisions: Premium Solutions and Automated Solutions. Although the delineation is not fully understood outside the company, it is Premium Solutions that seems to be creating more value for the company. That’s more on the licensed artists and owned labels side of the business than the open distribution platform part of TuneCore.
If so, it falls in line with those impressive results from XL and Beggars, as well as the continued growth of the “4th major” BMG. Yet, outside of the big hitter indies, the indie label sector’s growth remains underpowered relative to both consumption (streaming + social platforms), distribution, creator tools/music software and indeed, the live and merchandise side of the music industry. Indie labels power talent into all these lucrative layers of the music industry but take relatively little out.
The reasons are pretty obvious – indies do not operate in a global market – only Beggars has a true global perspective and that doesn’t quite compare with what majors and distributors have in terms of infrastructure, operating model or staff numbers. Indies manage small, curated rosters of artists and so cannot jump on the bandwagon of scale and ‘customer acquisition’ in the same way distributors can. And when distributors get these big investments, where does the money go? A large chunk of it will go on advances, in the hope of attracting higher quality artists. This is because distributors know that artist services deals can bring a 20+% share of a lot of streaming cash, whereas the long tail of creators brings low-tier subs revenue but high churn.
Yet indie labels do the best job of talent acquisition and artist development in music, don’t they? Even when hot artists are passed between them (Fontaines D.C. recently moved from Partisan to XL in their ascendence to global stardom) or are eventually ‘lost’ to majors (Wolf Alice moved from Dirty Hit to Columbia in their ascendence to global stardom), indies still attract the best, most exciting new talent. As a result, labels like XL have enormous brand value among the creative community – probably far more so than any distribution brand or major label. The same goes for Secretly Group’s ultra cool portfolio JagJaguwar and Dead Oceans. The kudos associated with these labels is huge, the only downside for artists is that the budgets are smaller than if they were signed to a major.
When it comes to marketing, it’s harder to say. Marketing comes down to individual talent and effective small teams – and those exist to varying degrees across the whole gamut of music organisations. Yet indies are often blessed with a real love and passion for their artists – something that makes a tangible difference to marketers and publicists. I don’t mean to take anything away from passionate marketers at majors or distribution/artist services companies here, but just by way of a more focused roster, indies are in the stronger position to give their artists the ‘personal touch’. That does not leave indie labels with a fancy pitch to investors about AI assisted marketing at scale, however. That’s the latest ‘secret sauce’ for distributors – to be more tech and less label. Strange really when everyone is in the same business – finding and marketing music talent.
ORCA
This brings me to ORCA, another recent development in the indies space. ORCA is clearly a cooperative move to level the playing field and make the indies sector add up to more than the sum of its parts, even if the call to action and commercial potential is not yet clear. The work of Merlin, AIM and A2IM cannot be faulted in representing the collegiate of indies in the streaming age i.e. more global, more scalable, yet none of those are vessels for investment or value creation outside of licence negotiations and trade marketing/networking. None of them enable indie labels to be ‘more tech’. Could ORCA play this role I wonder?
For ORCA (or the others) to succeed in re-directing industry value towards the indies sector it will need to assist indie labels in attracting investment, growth, taking on in-house distribution (something that has worked for BMG in its latest set of results) and expanding their ability to build artist businesses outside of streaming space – into the growth areas of physical retail, merchandise and live productions. And yes, probably become more tech without overpaying the distribution sector.
Finally, I would not give up on the ability to leverage media in favour of indie label artists. While radio, TV and press are a shadow of their former selves from a music marketing standpoint, the ‘indie’ media sector is blossoming. If indie media such as So Young, Dummy, Colours, Pitchfork, NTL et. al. can be nurtured and supported, they will continue to punch above weight for indie-signed artists simply because the quality and ethos is well-aligned. For many artists, being a ‘cover feature’ is as important as landing on a streaming playlist when it comes to building a fan base. Perhaps ORCA can work with innovators like Pytch in this area. And one would assume forging even deeper links with the likes of Bandcamp too.
Going the extra mile has always been in the blood at indie labels. To scale, indies must have help picking through the fragments in a way that ‘big companies’, whether major labels or distribution players, can rarely be bothered to do, or simply have lost the ability to do because they are stupidly busy with various forms of ‘buzz’ marketing. Perhaps indie’s true value is to stay focused on the smaller details that can make the biggest difference to their artists. I’d like to see investors, funding organisations and ‘big music’ appreciate this more.
Keith Jopling is an independent consultant working across investment, artist services and labels. He is the founder at Song Sommelier Productions.
Cover photo by Ian Schneider on Unsplash
