When a Forbes Hip-Hop Cash King boasting 24 million records sold and a social media following of 40 million chooses a four-person startup with no venture capital funding to distribute his music, you know a tectonic shift is happening under your feet.
On March 31, 2017, Ludacris released his first single in two years, “Vitamin D” (feat. Ty Dolla $ign), through an independent distributor called DistroKid. Fans could sign up in advance to receive a text message from Ludacris when the single came out—allowing the rapper to build a reliable database of direct-to-fan contacts for future communications and sales, in a manner similar to Ryan Leslie’s SuperPhone.
Ludacris started his career as an independent artist. He saved up $20,000 over five years to finance his first album Incognegro, which was released in May 2000 through his own label Disturbing Tha Peace (DTP) Records. That same year, DTP began operating as a subsidiary of Universal Music Group’s Def Jam Recordings, but the unusual release of “Vitamin D”—most of DistroKid’s clients are unsigned, DIY artists—suggests that Ludacris has parted ways with the major distribution infrastructure, and returned to his indie roots.
Rewind to February 2017, when prolific hip-hop artist DJ Jazzy Jeff, who first rose to fame alongside Will Smith as DJ Jazzy Jeff & The Fresh Prince, worked with over 30 collaborators to record his new album Chasing Goosebumps in just seven days. Jeff not only documented the entire recording process on Facebook Live but also decided to release the album independently through a distributor called Stem.
“I’ve been doing music professionally for over 30 years, and this was the first time I ever had full creative control,” Jeff told me. “I don’t normally get that emotional on projects, but when we finished up the album and I sat down and listened to it from beginning to end, I broke down.”
Stem gained recognition that same month as the distributor behind Frank Ocean’s album Blonde, whose stealthy release strategy circumvented the major-label system and sent shockwaves through the music industry. The Los Angeles-based startup touts a more public profile in the tech world than most other distributors, having raised $4.5 million in April 2016 from the likes of Upfront Ventures, Gary Vaynerchuk and artist-management magnate Scooter Braun.
Similar to DistroKid, Stem’s main selling points are its clean, artist-friendly dashboard interface and its automated, consensus-based model for royalty splits. “It was the perfect slam dunk: we cut up the revenue pie evenly and easily without any transparency issues so that we could just focus on our creativity,” said Jeff. “Three days after we finished the album, it was up on every major platform, and now I know exactly how much money I’m making from it.”
This incremental shift of major artists toward indie distribution suggests that the idea of a level playing field in the music business is not as far-fetched as we may think. Commenting on Ludacris’ move, DistroKid CEO Philip Kaplan wrote that “musicians at all levels increasingly have access to the same platforms used by the most successful artists in the world.” What is perhaps even more important is that the logic also travels in the other direction: the most successful artists in the world are now demanding access to the same tools used by DIY creators.
The concept of an “indie distributor” is neither new nor small. Some of the biggest players in the field, including CD Baby and Sony-owned The Orchard, were founded pre-Napster. DistroKid uploads nearly 600 new albums daily and paid out $2 million to its artists last month, while competitor TuneCore pays its artists over $40 million in total every quarter. Frank Ocean and pop-rap duo Jack & Jack are just a few examples of independently distributed artists who have topped the iTunes album charts.
Business models vary across distributors. CD Baby takes a 9% commission on digital sales atop fees of $9.95 per single and $49 per album; TuneCore charges similar fees for singles and albums, without taking a commission. Stem charges a 5% commission without any per-unit fees, while DistroKid bills a flat annual rate of $19.99 for unlimited uploads. Those with commission fees are incentivized to advise artists on digital strategy and playlist placement, fully embracing their role as artist service providers, while DistroKid “makes $19.99 a year per artist, whether their albums make a million dollars or nothing at all,” Kaplan told me. “Our incentive for helping artists get on key playlists to drive streams and growth is purely for the artists’ own good.”
Two trends raising the profiles of indie distributors across the board are the capability of artists to interact directly with their fans through social media—as Ludacris and DJ Jazzy Jeff accomplished through SMS and Facebook, respectively—and the unprecedented rise in streaming income.
When Stem’s Co-Founder and CEO Milana Rabkin first broke into the entertainment business as a digital agent at United Talent Agency in 2010, only five YouTubers had 1 million subscribers. Now, there are nearly 100 accounts on the platform whose subscriber counts exceed 10 million—half of which are managed by independent creators, as opposed to official hashtag channels (#Music, #Education) and VEVO accounts. Juxtaposed with Spotify’s accelerating paid-subscriber growth, which surpassed 50 million last month, this growth leads to more potential for long-tail artists to make money from a wider variety of content—as well as a greater demand for better tools to manage digital royalty flows.
“When I talk to more tech-focused companies like Upfront Ventures, I frame Stem as a financial application,” Rabkin, who maintains entirely different decks and pitches for investors across a spectrum of entertainment expertise, told me. “The world of financial tools has historically catered largely to the service class, but there’s a creative class that remains completely underserved.”
Record labels are normally responsible for administering mechanical royalties, but many artists find that the traditional value chain sacrifices transparency and efficiency for bureaucracy. “When you sign to a major label, there are just too many middlemen, too many people who have to tell you why or why not something can or can’t happen,” Ludacris said last week in an interview with Power 105.1FM’s The Breakfast Club. “If you do it independently, all you need is the press of a button to get things done.”
A recent report by the Music Managers Forum revealed that contractual nuances could leave artists with as few as three cents for every dollar of record sales, after accounting for deductions from compilation releases, TV ad campaigns, packaging fees, international fees and other expenses. Seldom are these deductions disclosed transparently or in a timely manner to artists, leading to a black box of knowledge that ultimately benefits labels.
Another common criticism of the mainstream music industry is that its narrative of success tends to pit blockbusters against “starving artists,” without considering the possibility of sustainable middle-tier careers. “Say you’re an indie dance label releasing 25 to 30 EPs a year, and you sell 40,000 units of each EP at $4 apiece,” said Jeff. “That’s almost $5 million in annual revenue, which is incredible. But a major label would drop you and deem you a failure if you’re shipping only 40,000 records.”
Indie distribution improves transparency not just through greater financial empowerment—artists can keep the majority of their royalties, determine success on their own terms, and access their accounting with a simple login—but also through more productive, streamlined dialogue in an increasingly collaborativemusic ecosystem.
“When you upload content to Stem, we mandate you to have a conversation with your collaborators and agree on revenue splits before we officially release the content,” said Rabkin. “It makes our data much cleaner. We were shocked to see that few other platforms are based on a consensus model, which means that artists often don’t agree upfront about who owns what.” Stem also performs an audit with all new clients, advising them directly on what metadata is missing from their accounts on YouTube, Spotify and other streaming sites.
If indie distributors are so heavily invested in their artists’ careers and have proven business models, what good are traditional labels for? Money and resources—particularly for big-budget projects such as music videos, terrestrial radio placement and studio time. “At this point, artists themselves can handle everything else that a label has to offer, especially digital distribution,” said Kaplan.
Ironically, some distributors are starting to act like the very labels they were originally intended to replace. For instance, TuneCore just began offering cash advances to qualifying artists, to be repaid through future sales.
“What we do best is provide innovative tools and solutions based on our members’ needs,” Scott Ackerman, CEO of TuneCore, said in a statement. “We know that being a successful independent musician requires a supportive team, and more than anything, that’s what we want to do—support our artists. TuneCore Direct Advance was built from direct artist feedback—many of our members need easy access to their to future sales income without giving up the rights to their work, and that’s exactly what we’ve given them.”
To Kaplan, however, replicating label structures defeats the purpose of going independent in the first place. “If a company is selective in taking on artists and then claims a percentage of their revenue in exchange for promotion and distribution, they are by definition a record label,” he said. “You can’t just tell artists that you’re better than a label, and then become one yourself. At the end of the day, are you maintaining the status quo, or really trying to innovate?”
Note: this piece has been edited since publication to include a statement from TuneCore about its Direct Advance initiative.