Manage for Success: Consolidation, Newsletter #122, March 2012


"Manage for Success" is a free occasional newsletter for record label executives who want to operate their companies efficiently and successfully. It's published by Keith Holzman of Solutions Unlimited, a management consultant, troubleshooter, and trusted advisor, and is based on his many years as a senior executive in the music industry.


Copyright 2012 by Keith Holzman, Solutions Unlimited. All rights reserved.


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There’s been a great deal of consolidation in the music industry in the past ten years, but it's happening more rapidly.


In fact, events during the last ten days or so promise to have a greater impact on the music industry -- particularly the independent label sector. Whether that's good news or bad will depend on circumstances surrounding your own label, and how well or poorly these events transpire.


The first was the news published just over a week or go that INgrooves, the digital aggregator, is purchasing Fontana, the "independent" distributor owned by Universal Music Group. The deal means that labels that are currently distributed digitally by INgrooves will be able to have their physical distribution handled by INgrooves/Fontana as well.


Universal bought 51 percent of INgrooves in 2008. Then, to complicate matters somewhat -- or to confuse you, Shamrock Capital acquired part of that stake in 2010, reducing Uni's share to between 15 and 20 percent.


According to an article by Ed Christman in Billboard.biz, Shamrock is buying the majority interest in Fontana for between $5 and $10 Million, but Uni will still own somewhere between 15 and 20 percent.


Christman  "estimates INgrooves' revenue at about $45 million, which means the company will now have revenues of about $135 million, making it the fourth-largest U.S. indie distributor behind RED, Alternative Distribution Alliance, and eOne Distribution."


Note that RED is owned by Sony Music, ADA by Warner Music, and eOne by Koch.


Christman continues by writing "UMG benefits by being affiliated with an indie distributor that plans to grow with the backing of the deep-pocketed Shamrock Capital. A bigger, complementary INgrooves/Fontana operation with a revitalized game plan could benefit by the changing indie distribution landscape, with Warner Music Group's ADA further integrated into WEA, and with the fate of Caroline/EMI Label Services Group up in the air due to its pending absorption into UMG.


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If you need advice on how to make your label successful, let me help you as I've helped so many others "manage for success." Email me so we can discuss how I might improve your business.
<http://www.holzmansolutions.com/contact.html>.


Or if you're considering creating your own label, I recommend "The Complete Guide To Starting A Record Company." The new and improved Third Edition is now available! You can read the complete Table of Contents of the Second Edition, and download its introductory chapter at <
http://www.recordcompanystartup.com/ >.


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The same day I saw Christman's Billboard.biz article, I read that Universal is trying hard to divest itself of about $650 million of assets to help pay for its proposed acquisition of EMI's label units. (An investment group that includes Sony/ATV Music Publishing and various financial types is planning to acquire EMI's music publishing operations from Citigroup.)


All of this is in anticipation of regulatory approval of the Uni/EMI merger -- which is hardly a forgone conclusion!  Many parties, both in Europe and the U.S., are opposed to it, including IMPALA, AIM, and Warner Music.


Then early last week I read that two of the largest aggregators of digital distribution are themselves merging -- The Orchard, and IODA (the Independent Online Distribution Alliance.) Sony Music will be a "strategic investor in the combined entity," per Billboard.biz. Sony already owns just over half of IODA, but will quickly have to acquire the balance so it can secure its deal with the Orchard.


It behooves labels that are currently distributed by any of the above operations to keep a very close eye on what will happen over the next few quarters of combined operations. It might work out very positively for some, but could also have a very negative result for others, both in terms of how effective the distributors become, and how well and quickly they pay their distributed labels.


Caveat Emptor!


Until next time,

Keith Holzman -- Solutions Unlimited

Helping Record Labels Manage for Success.


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Copyright 2012 by Keith Holzman, Solutions Unlimited. All rights reserved.