'A fundamental shift': How major labels learned to stop worrying and love distribution deals

Major labels and distribution companies were once separate entities with different ways of doing business. In today's music industry, however, “distributors are starting to look like labels and labels are starting to look like distributors,” says the entertainment attorney David Fritz.

Each of the major label groups has its own distribution arm: Sony is based on The Orchard, Universal is based on Virgin, Warner has ADA. Confusingly, at various points over the past five years, many of the front-line carriers have also launched distribution offerings, be it Republic (Imperial), 300 (Sparta), Alamo (which is affiliated with both Santa Anna and a another distribution company, the Foundation), or Interscope. Sony also has AWAL, which focuses more on nurturing individual artists, while The Orchard usually looks to sign and support labels. These companies are all in competition with each other — and often with the various frontline labels.

For Kirk Hardingveteran artist manager and co-owner of the Bad Habit label, the point of all this activity is clear. “Everyone knows what the future is,” he says. “The major labels will be distribution companies with really big catalogs.”

This would have been hard to fathom just five years ago. “It's a fundamental change in the way we operate,” acknowledges a senior A&R executive.

Breakthrough major label deals typically come with budgets — for recording, marketing, and more — along with access to teams of people who can theoretically help artists find new songwriting partners, polish their TikTok clips, and raise money for to support a tour. Since the company invests resources and services in the artists, it needs a significant portion of the money they earn, as well as royalties for the songs they make.

Distribution deals are often the opposite. They usually come with much less money up front, few if any services and significantly shorter terms. Since the company offering the deal doesn't commit much, it doesn't take much.

Major frontline labels have historically been averse to offering distribution deals precisely because they tend to be short-term deals where most of the money made goes to the artist. That severely limits the upside for record companies, which over the decades have built multibillion-dollar valuations through long-term deals — often five albums or more — in which they acquire artists' recordings in perpetuity. Every major label group maintained a distribution arm for acts who insisted on a different setup or for indie labels who needed help getting to market, but the front-line labels almost always signed the stars, and thus were considered the real engines of growth.

Now, thanks to streaming, social media and advances in music production technology, artists can record songs, distribute them and build fans on their own, meaning they can afford to turn down unappealing deals. And it turns out that, given the choice, many artists want to maintain their flexibility — and make the most money from their art. “Every artist we talk to is asking for a distribution situation,” says A&R.

This puts the major labels in a bind. The long duration of traditional recording deals allowed them to build massive catalogs. This in turn ensured they had leverage in negotiations with streaming platforms — and protected them as catalog listening grew in the streaming era. The rise of short-term distribution deals, then, seems likely to erode the size of their catalogs over time, even faster than 35-year termination rights, meaning the majors are effectively mortgaging their futures for short-term profits.

But like politicians looking to win re-election, they may feel they have no choice. Even executives who think distribution deals don't make sense for them say they now feel pressure to offer them anyway. “The masters have had to adapt and start offering different types of deals just to be in the ring on some of these potential signings,” he says. Ghadar Savurmusic attorney.

Not only that, but major labels have lost market share to a slew of new digital distributors that are undercutting them by allowing artists to upload songs to streaming platforms for a negligible fee or a small percentage of royalties. This forces the gentlemen to play defense. “They see some independent artists coming out of distribution systems and think, 'I want that too,'” he says. Joey Mandaformer major label executive who launched Encore Recordings in 2021.

But offering distribution deals isn't just about defense. They can help major labels limit risk by signing artists earlier, when they have smaller fans, which makes deals cheaper. Artists who are doing well and need additional support can later be “promoted” to a more traditional front line deal. (And if the majors want to sign a viral act who's had a hit on a big song but has little other promise, a distribution deal might be the best way to do it.)

For artists, all the major label forays into distribution means they have potentially many different options available to them. “Artists want options. they want the option of high service or low service, long term or short term,” he says Mike Karenfounder of Artist Partner Group. “The options are out there, and some companies want to provide all the options under one banner.”

However, choosing the right one remains a challenge.

A distribution deal “isn't a label deal,” Harding stresses — even if it's with a label. “All you can expect them to do is distribute. If you want them to do more, you have to pay more.”

Young artists especially may not understand these distinctions or know which option is best for them. Caren warns that distribution deals “can become traps where confusing pitches lead to false promises of short-term high-service,” he says, adding, “This can be unsustainable and dangerous territory that can lead to many disillusioned artists.” .

Distribution deals often come with an upfront fee to cover all of an artist's needs, according to Matt Bassermusic attorney. “It forces artists to budget all these different buckets,” he explains. “It gives them a lot of autonomy. But if you don't know what you're doing, and you throw away all the money and you have to ask for more, the record company gets more rights, or a bigger deal, or something in return.”

It's not uncommon for artists to receive messages about distribution deals via Instagram just as they're starting to show growth — some companies don't even pretend to want to respond to the acts they sign. There are distributors who “play moneyball where they send very low-risk, low-effort offers to kids on a large scale,” he says Eric Parkerwho manages rising UK act Myles Smith, among others. “I've seen one distributor send the exact same deal to over 10 different guys.”

Parker calls this approach “race to the bottom of A&R-ing in the age of data analytics.” It's like using artists as lottery tickets — buy as many as possible as cheaply as possible and pray you get lucky.

Manda also believes that some artists “don't get the right guidance” when evaluating different offers from labels and distributors. “Artists need to spend time and talk with the people they might work with,” he says.

He takes a dim view of the major labels' decision to throw themselves into distribution. Majors “need to lean more on their superpower, which is signing, developing and breaking superstars for the long term,” says Manda. It's notable that, even as the majors expand their distribution webs, most of this year's recent artists—Sabrina Carpenter, Chappell Roan, Benson Boone, Teddy Swims—have come through traditional label deals.

Still, the major label struggle to land artists on distribution deals continues. “Everybody is now competing in the space of 'You don't wait and see what happens anymore — stick it in distribution,'” says one senior executive. “Every artist has two or three distribution deals after a video.”