NEAR TRUTHS: INDEPENDENTS' DAY (PART 1)

DISTRO’S DISRUPTION: The top U.S. major labels are going through a huge transition regarding their A&R process. This change is being fostered by the new distribution model, the Latin explosion, the changing face of country music and the K-pop phenomenon.

Distribution is becoming the great A&R filter, a richly stocked talent pond in which the U.S. labels are learning to fish. The movement is powered by artists drawn to the freedom afforded by a DIY path that largely comes through distribution.

All this is occurring as indie labels completely outside the major-label system are competing with ever-increasing vigor and the distribution playing field is made more level by the likes of The Orchard, Virgin/Ingrooves and others.

This has had a dramatic impact on the A&R process, alongside the overwhelming volume of analytics that have turned that process upside down and inside out.

The distro model is built on much smaller margins than the major labels are accustomed to. But for the most part, today’s majors are less incubators of untried talent than investors in projects that show traction. Artists can demonstrate their viability—verified by hard data—and majors can build on the buzz.

It’s been a longstanding mantra of the major labels that they were the essential, dominant piece for the creation of international superstardom. Then came BTS and Bad Bunny.

Waving a check doesn’t have quite the same magical effect it had in decades past. But majors are finding ways to claim a significant chunk of a bubbling indie/DIY marketplace.

MAJORS AND MINERS: A very similar dynamic is at work in Latin music, which has become a globally dominant force at the DSPs. Again, the frontline majors have attempted to dip their beaks into this lucrative sector, sometimes bypassing their own Latin divisions and sometimes in partnership with them.

Sony Latin ruler Afo Verde and UMLE boss Jesús López have presided over the Latin mainstream for years and continue to lead super-profitable divisions in this new landscape. But there is pressure for change as the Latin market in the U.S. balloons.

Sony’s slice of the Latin market is a whopping 51% of currents; The Orchard leads the group with 26.3, while Verde’s infamous division, with vital assistance from U.S. Latin President Alex Gallardo, has a 20. Gallardo, who originated his career with Sony Spain, has worked closely with Shakira, Maluma (both of whom have hotly anticipated albums in the works), Rauw Alejandro, Farruko and more. He also hired Txema Rosique away from Warner Latina, and Rosique signed hitters Fuerza Regida to Sony.

UMG’s 25% is dominated by Lopez’s 15 share, while Ingrooves has an additional 6.5%. Warner Latina’s share is up to 10% of currents under the leadership of Alejandro Duque, whose influence is becoming relevant.

The evolution of The Orchard, with its distribution of breakout giants including Rimas’ Bad Bunny and Double P/Prajin’s Peso Pluma, has grown Sony’s marketshare dramatically. The Orchard’s Jason Pascal is said to have played a major role in the Bunny-Noah Assad-Rimas deal and now the Peso-George Prajin label deal.

On the UMG side, John Janick’s Interscope made aggressive plays by hiring erstwhile Sony Latin exec Nir Seroussi in 2019 and setting up IGA’s Latin HQ in Miami, the global epicenter of the Latin-music explosion, and inking Karol G once she became a superstar. The former move is said to have upset the intramural apple cart somewhat.

Lopez and Monte Lipman's Republic have partnered once again on Anitta, as they previously did on the Luis Fonsi-Daddy Yankee giant “Despacito.” Meanwhile, Capitol threw its hat into the ring with its Wave Group deal, which leads off with viral act Young Miko. Columbia, in tandem with Sony Latin, recently inked teen phenom Yahritza and continues to grow global hitter ROSALÍA. Warner’s Bay-Schuck made some noise with bilingual BNA nominee Omar Apollo.

MARGIN CALLS: Both Latin and country are 7%+ of the total market—a significant 10% spike—while R&B/hip-hop is down 2+ points (-10%) to 27% at the halfway point.

The smaller profit margins of distro deals are a marked contrast to the margins made by label divisions in the Latin business. Latin labels are frequently also management partners and/or concert promoters, thus partaking of lucrative 360 deals. As artists increasingly go to high-profile U.S. firms for legal representation, these labels are getting pushback about “overreaching” on some of these deals, and attorneys are urging artists to choose from the menu of distro deals being offered by The Orchard, Virgin/Ingrooves and others. This has created a new balancing act for the Big 3.

Less risk means less reward as some artists are going DIY and creating their own demand. A case in point: Rimas’ Noah Assad went for a distro deal for Bad Bunny with The Orchard, believing he would be able to create much of his own demand there. But he recently moved Karol G from UMLE to Interscope’s aforementioned Latin division. The yet-to-be-announced new Sony-Rimas-Bad Bunny deal, said to be a whopper, should shed more light on the changing nature of this complex narrative.

If you can control your own destiny, like Bad Bunny or, say, BTS, such that you don’t need a major’s clout, there is a huge financial upside.