by Ira Mayer
America is losing its independents. In music--business terms, the "indie" is a company that distributes records to retail outlets but is not connected to a major LP manufacturer. By contrast, a branch distributor is linked to one of the six giant entertainment conglomerates CBS, Warner Communications, Polygram, Capitol/EMI, RCA, and MCA. Since 1978, the indies have been losing a significant amount of business to their branch counterparts. to the point where today the "Big 6" account for about 85% of the U.S. recorded music market.
A&M, for example, which had once experimented with its own branches in the southeast, pulled its $100-million annual business away from Alpha Distributors in New York. Record Merchandising in Los Angeles, and more than a dozen other in-dies and gave it to RCA, which had also just acquired the Elton John Rocket label and 20th Century-Fox records for manufacture and distribution. United Artists recently left the indies for Capitol. And in-die-distributed ABC was absorbed by MCA. That leaves the independents with Arista, Chrysalis, Fantasy, and Motownall relatively large labels--along with many smaller ones whose product flow is too slow to sustain a full-time distribution operation. And although those four labels all steadfastly deny contemplating any move from independent distribution. all are The author is the popular music critic for The New York Post, known to have recently "talked with the majors." (Arista's recent acquisition by Ariola-Eurodisc will not affect its indiedistributed status.) A well-oiled branch distribution system is generally believed to have the best potential for getting records into the stores, which-after all the radio airplay, ads, and personal appearances--is where they have to be if sales are to be made.
The branch spends its parent company's money to function on its behalf. That means that certain corporate priorities must be met, such as which records are going to be pitched most actively to radio stations (the field promotion staff usually works out of the branches) and which are going to be pushed most heavily into stores. The parent company will also determine what kinds of "special deals" (discounts. long-term credit. free goods. etc.) its branches can offer retailers in exchange for pushing those records. The branches exchange local market information with national headquarters, and together they arrive at effective regional promotional strategies, enabling the parent corporation to force-feed its records into the national marketplace.
The indie, by contrast, spends its own money. It too must meet certain priorities. in this case those set directly by the labels themselves. (Indeed, if it doesn't meet them. his client will simply take his business elsewhere.) Still, the in-die has to base its business decisions directly on what has moved best in the past. or on what new acts appear to have the best potential in its market.
Typically, the bulk of an independent's line includes a couple of the larger independent labels and several dozen smaller jazz, Folk, blues, or other specialty lines. At a peak season say eight weeks before Christmas. fewer than a dozen LPs will come in from any one of its clients, maybe one or two of which will be "superstar" product. During that same season, a CBS will release 200 or more albums from all of the labels it distributes, many by their biggest superstars. In fact, in any given month the number of releases the indie services to stores is a fraction of what one of the Big 6 sends out. Relieved of bulk, the indie can concentrate on the LPs it does have, be they established hit makers or, in some instances, unknown "big pushesfrom the larger accounts.
Historically, independent labels and distributors have been specialists of a sort, spearheading musical trends, testing the market for the majors. It makes sense: You go into business because you believe you can offer a product no one else is offering. Early "race records"black artists performing jazz and rhythm & blues--were on such labels as Okeh. Vocalion, and Brunswick: current disco hits are on such labels as Dash and Juana (both owned and distributed by the Florida-based T.K. Records). And these independent labels have been distributed by indies. Prior to its success with K.C. and the Sunshine Band, in fact, T.K.'s major business was distribution. a fact that con tributed greatly to its ability to break records in the southeast region of the country.
The advantage of independent distribution for a label--beyond the per-unit dollars-and-cents issues we will discuss shortly--is "the ability to control your own destiny." as Chrysalis marketing vice president Sal Licata puts it. At a branch operation (and Chrysalis was distributed by WEA before going indie), the many labels that the parent corporation distributes compete with each other for attention: marketing and policy decisions are made through corporate channels. so one label's priorities will inevitably take precedence over another's. In a well-run indie operation; without that higher-up clearing house. each label gets something much closer to customized service.
So why the relatively sudden multi-label defection from independent distribution? And why are so many new labels looking directly to the majors for distribution on every album they sell? The specific numbers change constantly-Motown recently lowered their wholesale prices while WEA and others upped theirs-but for reference purposes, we'll use the following. based on a $7.98 list price:
Indie | Branch
Purchase price from manufacturer: $3.60 $3.47
Resale price to retailer: 4.30 4.08
Distributor profit: $0.70 0.61
The chart suggests the paradox that is at the heart of the indie/branch distinction: From a strictly per-unit dollars-and-cents perspective. it is most advantageous for a label to sell to an independent and for a retail outlet to buy from a branch.
An indie pays more per LP in order to get a label's business. The branch can afford to work at a lower profit margin because distribution is merely one step in the parent company's (presumably profitable) business. The branch's cheaper prices. augmented by those previously mentioned "special deals," encourage the dealer not only to make volume purchases. but to take risks on new acts--both central to any record label's survival.
The indie simply does not have the branch's muscle, and that muscle is more than a matter of attractive wholesale prices. It includes getting good display space in stores. in-store airplay. money for cooperative advertising campaigns. and the leverage to say. "You want 10,000 copies of Superstar X's new LP? You've got it--just take 100 each of ten of our new acts in the same order." The branch, with a multitude of labels and big-name artists, has this leverage at its disposal often: the indie. with but a handful of superstars. gets such opportunities far less frequently.
And then there is the matter of volume: With costs at every level of the recording and record-promoting processes escalating, typical rock/pop/soul/ disco debut LPs are costing between $75,000 and $125,000 even before any serious marketing or advertising campaigns are undertaken. No longer is a record company breaking even (let alone showinga profit) on an LP that sells, say, 50,000 copies. Success today is more in the area of 300,000 discs sold. (The superstars are making even these numbers skyrocket. It is said, for instance. that CBS will have to sell 2 million Wings albums before it breaks even on its investment in Paul McCartney.) That means that the distributor branch or indie-is going to have to move a lot of records through its warehouse in order to provide a record company with the volume it needs. The branch. using its parent company's money, is a lot more likely to risk big orders of both established and new artists' records: for the independent. tying up its own cash and space in inventories by newcomers makes no sense.
It's the hits that keep the inventory moving and the cash flowing.
Today, the largest independent distributors--such as Pickwick, Handleman, and Lieberman--almost constitute branch systems of their own. Some of the smaller ones have looked at consolidation as a possible route to survival. In California, for example, Record Merchandising, Record Distributors, Inc., and Record Rack Service merged under the first company's name in the interest of creating the strongest regional distribution in the western United States. Such consolidation and centralization is indeed being encouraged by the likes of Arista and Chrysalis. Arista executive vice president Elliot Goldman explains:
"I don't want to make it sound like every single independent distributor out there is either efficient or able to survive a difficult period. But those who've been around a long time have been through this kind of thing before, and they know how to weather it. For some of them that really have a problem, rather than knocking each other's heads apart. they might see some merit in doing some things on a joint basis."
One major impediment in the relationship between independent distributors and labels has been the fact that their operational agreements traditionally have been oral and short-term. And with all of the shuffling about lately. this has led to fears of desertion on both sides. At this year's convention of the National Association, of Record Merchandisers (NARM). Goldman suggested that indie labels and distributors set up formal contracts that would insure allegiances and guarantee services and incentives. Both Arista and Chrysalis are pursuing just such arrangements-albeit with Pickwick. their largest and most branchlike distributor. for starters. Says Chrysalis' Licata. "If we make a contract with one distributor, that would be sufficient because that would show them that we're with them for two or three years, and if we're going to be in business with one. we're going to be in business with all of them." But Licata is equivocating: he's making his contract with Pickwick and assuring them that he'll be with them for two to three years. That, however, offers no guarantee to anyone else beyond the implicit understanding that Chrysalis will maintain its independently distributed status. And he openly contradicts himself when he points out that the number of distributors he uses "will probably go down" to fewer than the sixteen the company now has. Someone's going to get the ax.
There is also a musical question that looms darkly on the distribution horizon: If power and competition are increasingly being centralized among the six majors. with each looking for the biggest mega-platinum-selling artists. are we not in for a still greater homogenization of American popular music? Yes, but not necessarily because independent labels and distributors are losing power and visibility. At this time, homogeneity is more a result of major label artists attempting either to cross over--from country to pop, pop to soul, soul to rock and disco--or to simply modify their sound to sell more records. There has also been a tendency o' late for gold-selling acts to switch labels
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(among the Big 6) in search of platinum sales figures.
Perhaps the indies will eventually save us from this kind of vinyl inflation. We have already seen that they are a source for new trends. be it early race records, rock & roll (Elvis and Jerry Lee Lewis. for instance. started on Sun), or disco-the latest and biggest example. It was the in-dies who experimented with the use of discos as a promotion vehicle for their records and who paved the way for every major label-two years later-to start up their own disco divisions.
And a look at this year's charts shows that even the majors, especially in a weak selling period, are breaking new artists who are not stereotypical of the pop scene. Wherefore Dire Straits and Rickie Lee Jones? Joe Jackson? The Cars?
All critically acclaimed and widely purchased (though not in "Saturday Night Fever" numbers) from Warner Bros. A&M, and Elektra.
America is losing its independents, a trend that will doubtless continue in the coming years. Those that survive will prob ably do so by consolidating in order to maximize their buying power and create more efficient-and branchlike-operations. Even Clive Davis. Arista founder and president. was cautiously diplomatic when responding to a New York Times query about rumors of Arista'a change from indie to branch distribution: "We are certainly appraising whether we have the best of all possible worlds. But. up to now, independent distribution has worked extremelywell for us." The trend right now is definitely toward centralization, and although the U.S. Justice Department continually warns the Big 6 that it is investigating possible antitrust violations. it is unlikely that the basic structure of things will change in the near future. But the picture is not all bleak. The indies are a hardened species that has survived death knells in the past.
Indeed, a significant part of their attractiveness to labels is their resourcefulness.
What is likely is that as new technologies enter the market-video discs, for example--the record industry will be forced to refocus, redefine, and respecialize. That will require experimentation and risk--taking, and it will be the people "in control of their own destinies," who can do that. And regardless of their numbers, those people will still be known as the independents.
THE BIG 6:
Who Distributes Who
Because distribution agreements change at breakneck speed, and because sometimes no sooner than a label is unveiled does it disintegrate or become dormant, this list is not "definitive." It also does not include the many classical labels that most of these companies distribute.
CBS
Arc Bang Blue Sky Caribou Columbia Columbia /Stiff Epic Epic/Stiff Jet Kirshner Lorimar Nemperor Pavillion Philadelphia Internat'l.
Portrait T-Neck Tabu Unlimited Gold
POLYGRAM
Capricorn Casablanca Charisma Curtom Delite
DJM
Harem Magnet Mercury Monument MVP Panama Polydor Radar Riva RSO Spring Zappa MCA Back Beat Butterfly-Hickory Infinity
MCA
Montage Mike Curb Recs.
Source
WARNER COMMUNICATIONS
Atco Atlantic Bearsville Big Tree Cotillion Dark Horse
ECM
Elan Elektra/Asylum Elektra/Curb Emerald City Island Manticore Number One Planet RFC Rolling Stones Scotti Bros.
Sire Swan Song Virgin Warner Bros.
Warner/Curb Westbound Whitfield
RCA
A&M
Grunt Hologram Horizon Millenium New York Internat'I. Pablo Panorama
RCA
Roadshow/Nature's Music Rocket Salsoul Solar 20th Century Windsong
CAPITOL/ EMI
Ariola America Capitol EMI
EMI America Harvest United Artists
(High Fidelity, Oct. 1979)
Also see:
Jensen speakers (ad, May 1981)
Radio Shack (ad)