Major labels are paying out $1.2bn a year to independent labels and artists, says report

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It’s long been a cause of controversy for the music business – and a particular cause of tension between major and independent labels.

But today, one of the loudest debating points in the modern industry may have been laid to rest.

According to a new WINTEL report from the Worldwide Independent Network (WIN) – authored by Mark Mulligan of MIDiA Research and edited by Dave Roberts of MBW – some $1.2bn was handed to independent labels and artists by major labels and major-owned distributors in 2016.

This is potentially an explosive figure.

When Universal, Sony or Warner has a distribution agreement with an independent label or artist, whether online or physically, the majors will become the first point of collection for revenues.

Each of the ‘Big Three’ will then typically slice off their agreed percentage commission, before passing the lion’s share of the money on to the indie partner.

The big question: When a company like Spotify or Apple, is working out key deal points during negotiation, how should they analyze the global power of the music copyright market: (i) by distribution revenue (ie. putting the distributed label share in with the majors); or (b) by copyright ownership (ie. putting the distributed label revenue where it ultimately ends up – with independent labels and artists)?

WIN says the market standard should be the latter – and that $1.2bn in annual revenue in 2016 is being wrongly attributed to the major label sector behind closed doors.

“It speaks volumes for the tenacity, passion and entrepreneurship of independent labels, and the public’s desire for musical diversity, that even in these times of global dominance by major corporations, almost 4 out of every 10 dollars spent on music goes to the independent sector.”

Martin Mills, Beggars Group/WIN

Big Machine, Concord Music and even Disney Music Group, for example, are all companies you would expect to generate an eight or nine-figure revenue sum from music each year, who have a straight distribution agreement in place with Universal Music Group.

The same is true for other indies which go through Sony Music/RED and Warner Music Group/ADA. (WINTEL’s figures do not count licensing deals with majors, no matter how short-term they may be.)

Mulligan’s work in the WINTEL report (which you can read in full through here) suggests that, in copyright ownership terms rather than distribution terms, the independent sector claimed a 38.4% market share in 2016 – up from 37.5% in 2015.

In total, say Mulligan’s estimates, independent labels and artists brought in a whopping $6.0bn, up 6.9% on the $5.6bn they saw in 2015.

Some $2.1bn of last year’s revenues at independents came from streaming, which jumped 80.4% compared to the $1.2bn indies saw in 2015.

This streaming growth was slightly greater than the 78% by which the entire market grew in 2016 – meaning the independent label market share of streaming revenues increased by 0.6%, up from 39.4% to 40% over the same period.

Martin Mills, Founder of the Beggars Group and Vice President of WIN commented: “It speaks volumes for the tenacity, passion and entrepreneurship of independent labels, and the public’s desire for musical diversity, that even in these times of global dominance by major corporations, almost 4 out of every 10 dollars spent on music goes to the independent sector.“

Alison Wenham, CEO of WIN said, “The WINTEL 2017 report tells the story of another strong year for the independent sector. It has seen solid growth overall and an astonishing increase in streaming revenues. Both are trends we are confident will continue.

“It is important when making sense of the global market for independent music that we continue to use ownership rather than distribution as the method of calculation. The claiming of market share through distribution by major labels distorts the true value of the independent market and creates a false picture of the amazing growth and vitality of our sector.”

Music Business Worldwide

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