‘The digital revolution has strengthened many labels – especially in the independent sector’

If recent major label acquisitions are anything to go by, the label services and distribution market is gaining in vitality.

Just over a year ago, Sony acquired UK-based Essential Music & Marketing from Cooking Vinyl for £3.6m, in addition to Germany’s Century Media.

In May, Sony-owned distributor, The Orchard, bolstered its operation in Europe with the full acquisition of two rivals: Germany’s finetunes and Norway’s Phonofile.

The major label was also recently involved in discussions with distribution and label services specialist, Believe – but the French firm ultimately chose to raise funds for its own acquisitions.

So what does all of this consolidation mean for the independent companies left in the market?

One of those is Netherlands-based firm FUGA, which has spent the past decade growing its network of label partners to over 5,000 worldwide.

Is CEO Pieter van Rijn concerned about the recent shifts?

“Market share gives negotiating power and we must be very careful that does not harm the independent industry too much, which is something Charles Caldas has raised concerns about,” he tells MBW as part of an exclusive interview below. 

“ I do believe that consolidation [in the independent distribution sector] will be ongoing. But the independent industry is resourceful enough and has resolved to always make a very serious impact.”

pieter van rijn, fuga

“On the other hand, you might also argue that these companies that have been acquired still provide services for the independent industry so hopefully that service provision will continue as usual.

“Ultimately, I do believe that consolidation will be ongoing. But the independent industry is resourceful enough and has resolved to always make a very serious impact.

“We just have to make sure that the independent industry is empowered by the tools that we make available.”

Those tools, provided by FUGA’s flexible content management and delivery platform, include distribution, marketing, trends and analytics and royalty accounting.

It has a catalogue of over 3 million tracks, and delivers more than 2.5m songs and videos per month to over 250 DSPs worldwide.

Horsepower like this is attracting new clients, including mtheory and London-based Ignition Records, whose roster – including Courteeners (pictured), Primal Scream and The Coral – is now being serviced by FUGA worldwide.

As well as staying at the forefront of distribution technology, royalty accounting and analytics, FUGA’s ambitions include expansion into other areas like neighbouring rights, performance and publishing.

It’s clearly a company to watch and – as van Rijn explains below – one which deeply believes in the importance of independent influence in the global music market.

In what markets are you looking towards in future for growth in streaming?

Latin America is a focus for the coming years because of high expected growth, and there is potential for the independent sector to take matters into their own hands and have more control and transparency over their business.

When it comes to Asia, the right word there would be ‘potential’ rather than ‘transparency’, because that is still difficult in China.

I think it’s going to take a while before the Chinese market will mature when it comes to payout levels.

How can independent companies make money from streaming in those emerging markets when subscription fees are so low in comparison to the Western world?

There are different challenges depending on the market. In South America, it’s more about payout rates, but in Asia we need more transparency— without proper sales reporting it makes it very hard to define and understand where income comes from.

Some of our clients are entering into minimum guarantee deals so that at least they have some kind of revenue generation. I think more transparency will happen but it’s not there yet.

Whether price per-stream in South America will go up depends on the subscriber base, the kind of plans that are being rolled out and the frequency of consumption per user.

Can you envisage a time when those markets are real money makers for the independent sector?

There is good money to be made across those regions, especially in the Asian markets that are already big in entertainment like Korea, India, China and Japan.

I do believe all of these markets, including many in South East Asia, will develop and become serious revenue drivers for both local and international players.

The same would apply to South America and Latin America. I think that each of these markets will develop a paying subscriber base in one form or another.

How much potential is there for FUGA in the US?

We have clients in over 40 countries but the US is definitely our largest single revenue-driving country. We see a lot of potential not only because of the size of the market, but also its position.

“We see a lot of potential in the US market. There are many labels coming out of deals that they’ve been in for years, and are now wanting more control and transparency.”

There are many labels coming out of deals that they’ve been in for years and are now wanting more control, transparency, and are learning how to become competitive in their own right.

For me this feels like it’s the beginning in a sense, there is a lot to gain. We see opportunity there in terms of streaming but also in selling other services like technical delivery or royalty accounting.

Can FUGA do everything that a label can for artists?

No we can’t, and we don’t want to. We come in when a song is released; we leave artist development to our clients.

We have a very good position as an international distributor —we have created a worldwide network through great relationships which is something many labels might not have.

What is the role of a label today in your view, and how has that changed in recent years?

You see a trend whereby artists are coming to a label later than they might have done years ago so they are generally a little bit more established with a niche audience.

When it comes to contracts, you can also see a lot of instances where they leave earlier. So the life cycle of an artist within a label is changing and there is a bit more flexibility than there used to be.

“the life cycle of an artist within a label is changing and there is a bit more flexibility than there used to be.”

The other trend is that we see more artist services organizations that are a combination of a management company and a label, and use us – or companies like us – to provide them with the tools they need to perform services for artists.

That’s quite an interesting, flexible model that enables artists to pick and chose which services they want and in which part of the market.

But on the whole I think labels are as important as they have always been in breaking artists and managing releases.

The discussions in the beginning about whether digital music would diminish the existence of labels has not come true at all. It has strengthened many labels, especially in the independent sector.

How have you seen streaming subscription fees changing? We recently found that the average amount of money being paid for an annual Spotify subscription has fallen by more than US $30 since 2013.

It will be interesting to see whether family plans at Spotify, for instance, will pressure payout fees.

With streaming, payouts are also affected by the more streams that are generated per user, and not in a positive way.

What I hope is that there will be more competitiveness in the market.

It would be good for the consumer and content owners to have a level playing field when it comes to streaming services.

Charles Caldas (pictured) recently said the fact Spotify agreed a deal with Merlin after Universal and before Sony and Warner was an indication of the improved perception of the independent sector. Do you agree—and how much power do the indies truly have in 2017?

The independent industry has increased power, in part thanks to Merlin, but market power is not just about the payout rate on streaming services – it’s also about the presence that the independent industry gets editorially on Spotify or Apple Music.

“The independent industry has increased power, digital distribution has given the independents more access to favourable positions on the shelf.”

The labels themselves have managed to get a stronger position there and we at FUGA feel that we have great access and are able to build a network internationally at the DSPs.

In the past few years I feel that digital distribution has given the independents more access to favorable positions on the shelf.

Still, the majors have a lot of market power and can use their might in the physical market to secure both physical and digital distribution deals with many larger labels. That might change in the future.

We did some analysis earlier this year that found just two tracks from 2016’s BBC Radio 1 Top 100 playlist could be categorized as ‘pure’ independent releases – as in acts that hadn’t been distributed by a company that was ultimately major label-owned. Is that a concern for you and the labels you represent?

The fact that a release is distributed by a larger company or a company that is part of a major does not say something about the potential of an independent to become successful. But it maybe says something about the majors having a very strong market share when it comes to mainstream audiences.

When it comes to different genres or more niche products, like dance or EDM, the balance would probably be a lot different.

We have EDM labels who are constantly in all the top dance and EDM charts, reaching massive audiences through being 100% independent.

There are also labels and specific genres that are focusing on niche audiences and therefore automatically not part of the mainstream.

There’s been lots of talk about the potential disruption that Blockchain could bring to the music industry. Do you think widespread adoption is feasible?

I do believe that there is going to be a structure whereby there will be more centralized points of truth and more efficient transactions. That will happen and it’s imminent.

Blockchain has the ability to enable that and to be disruptive there.

“I don’t think that there necessarily will be an all encompassing blockchain technology that every service is going to clip onto. I’m not sure if that would even be beneficial.”

I don’t think that there necessarily will be an all encompassing blockchain technology that every service is going to clip onto and I’m not sure if that would even be beneficial.

From a FUGA perspective, we want to lower the barrier to entry and be that door to the blockchain.

We do not know how it is going to evolve but I do feel that there will be a lot of services around the blockchain technology and we can play a role there.

Final question, how open would you be to the idea of being acquired by a major company?

That is not a discussion at all.

We have a very trusting and dedicated shareholder group and they will continue to invest in the business when we embark on new projects.

Together with them we’ve managed to establish a great company internationally.

Music Business Worldwide

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