No one would question that a big part of the future of music sales is the digital delivery component. However, what isn’t necessarily obvious is who is going to be a dominant player in the market, other than Apple, in the years to come. One company that has made a significant name for itself on the digital side of the music industry is San Francisco based IRIS Distribution. Since 2003, they have provided a variety of technical and marketing services to their clientele consisting of independent artists and labels. In this interview, founding partner and Chief Marketing Officer, Bryn Boughton speaks about the value that IRIS delivers to its labels and how they stand apart in this competitive industry.
I: Can you discuss the beginning of IRIS?
Brin: My background is in physical distribution, marketing, and working with independent labels. In 2002, I was working at an independent label in San Francisco, and had hired my current business partner to launch a remix label to act as a sister label to my rock imprint. We had talked about the state of the music industry, and where things were moving. At this time, there wasn’t much of a market in digital. Emusic and PressPlay were around, but there wasn’t anything that was very compelling at that point. We saw that was the direction things were moving. We initially started talking about things from the perspective of the label: how our labels could participate, and how we could actually start seeing revenue or at least promote the music online. Then we got word of the iTunes store launch, which we thought would be a market maker for digital music. At the same time, the record label started having financial issues. We say that we’re lucky the label started struggling, because that freed us up to explore starting IRIS.
What we saw after iTunes launched, was that most of the companies that started as retailers in the digital space were larger corporations. It was Sony, MSN, Apple, AOL… These were companies that didn’t really understand the independent sector or how things were different in the independent world versus the major label world. For example, they didn’t allow label searches. If you’re in the independent world, that’s really important because someone will buy something because it comes out on Quantum or any particular label. Each label has a brand and reputation of its own. So we saw what was happening and we also saw that independent labels overall were struggling to understand the phase and technology. They wanted to participate, but they just didn’t know how to get into it, and they felt that they weren’t getting a fair deal. So we launched with a union-type model. We quickly found that the real value in the service was more than just the including of the music, delivery, and the contract negotiation, but really in the marketing of the music and helping them increase their sales online. So, it evolved pretty naturally into more of a distribution model. Shortly after that, we started working marketing outside of our retail partnerships, and we launched Blinker Active, which is our interactive marketing division of the company.
I: How many employees are working with IRIS?
Brin: We have seven full-time employees, and we have a slew of contractors and whole stable of interns.
I: As a CMO what do your daily duties consist of?
Brin: It really changes everyday. Right now I’m focused on Blinkeractive and we’re building that up. I mainly oversee all of the marketing initiatives of the company for both the marketing we do as a corporation and the marketing we do on behalf of our clients.
I: A physical distributor obviously has to offer a lot of hands on assistance with the release. One of the stigmas of digital aggregators is that they are perceived to be just collectors of content and not necessarily marketing partners for a label. What does IRIS do that goes above and beyond the services of TuneCore, which offers music to online digital retailers?
Brin: It really depends on the need of the label or artists. TuneCore always compared themselves to Fed-Ex. They’re the Fed-Ex of the music industry, and they just deliver. So why are you paying a percentage of your income when they’re just delivering the music, which makes sense for their service. We always cared more about what was being delivered than what we feel is a commoditized service at this point, which is just encoding and delivery. From the beginning, we’ve built our reputation on our customer service and marketing. Because of that, we’ve put our focuses on primarily mid to large sized independent labels, or larger established artists that are looking to take back control of their careers.
We’ve kept the size of our client roster manageable so we can exceed the expectations of our clients in that way. Once you get to the volume of music that some of our competitors have, there’s just really no way to manage that or market it effectively. So to us, that was what was really important. That’s why we’re considered boutique. Even though we have about 650 labels, which might not sound boutique if you’re comparing that number to a physical distributor. In comparison to some of our competitors, who have in excess of over 8,000 clients, it makes a big difference.
I: Obviously with physical music we have a variety of marketing opportunities within the store such as co-op advertising and a variety of positioning and pricing programs. What kind of marketing opportunities exist on the digital side?
Brin: On the [digital] retail side, it’s totally different. Like you mentioned in the physical world it’s all co-op and much of the merchandising is paid for. That doesn’t exist in digital; at least it’s not widely available. It’s a benefit in some ways because a lot of times music wouldn’t be featured if the label wouldn’t be able to actually have purchased a spot. The idea behind it is the merit of the release and not the size of the label’s pocketbook. It can be hard when you’re a label competing against the major labels for a limited number of slots. What it comes down to for retail features and marketing is the relationships with the stores. That’s where the quality of our catalog, our expertise, and our focus on marketing and customer service comes into play, because we have really superior relationships with each store. We’re not trying to push a bunch of music that we know really isn’t going to work at their store. We spend a lot of time when we’re going to have these conversations or meetings with the stores to make sure what we’re suggesting to them is actually going to be beneficial to that particular store. We found that it works really well. Our general marketing philosophy is [that] we just don’t push stuff out and throw things against the wall to see what sticks. We’re very deliberate and very strategic about our campaign. We spend a lot of time getting to know our partners to figure out a mutually beneficial relationship. For example, some of the stores have particular genres they prefer, so you just have to know what the personal tastes of the different editors are.
I: So, it’s basically a matter of pitching to the editorial side? There’s no premium placement of music that involves buying space?
Brin: In most cases you can’t buy the space. Some of the retailers have certain portions or certain private property they will sell ads on, but in general, iTunes set the standard, which is completely editorial. The currency for features, beyond just the quality of music and the relationships, is really exclusivity or some extra content that we’re not servicing other retailers. That’s what the currency is, as opposed to actual advertising dollars.
I: Regarding digital units sold for an independent release, what would you say is a successful number for a premiere week of a release?
Bryn: It’s really all across the board. Every label has its own expectations. We have labels that if they sold a few hundred downloads they’d be really excited, and we have labels that would consider that a real failure. So, that’s hard to say. I would say we measure our success more in terms of the overall percentage that digital represents of their sales. Most of our record labels see an excess of seventy percent of their sales coming in from digital.
I: Is it because they don’t have physical distribution?
Bryn: No, the vast majority of our labels also sell physically. Independents do skew more towards digital, but our labels definitely have a higher percentage (in digital sales) than the average. We attribute that to our marketing.
I: Can you talk about the progression of video distribution? I noticed that outside of iTunes, on the paid side of things, there isn’t a lot of digital video distribution happening, especially with anything longer than a few minutes.
Bryn: There’s definitely more buzz than an actual market for digital video now. A couple of years ago everyone was talking about the potential there. It seems like a natural progression for digital music distributors to get into digital video distribution, but I think that everyone was surprised that it didn’t take off the way everyone thought it was going to. I think on the music video side that had a lot to do with the fact that people grew up getting music videos for free. So, it’s just consumer behavior. As far as longer videos, indie films, live performances, or anything more than just the standard music video, I think it’s definitely coming. It’s just a little slower than people thought.
As for ourselves, we do a little bit of video distribution, but it’s pretty limited. We still primarily work with video as a promotional tool. It requires a pretty substantial investment. So we want to make sure that we’re smart about it, so we build things out properly, so we don’t have to go back and redo everything.
I: Who are some of your video retail partners?
Brin: I-tunes is one of the only video retail partners we work with.
I: Can you tell me how you differentiate your company from some of your competitors?
Brin: It goes back to the focus of the company. We’re considered boutique. We work with larger labels as opposed to smaller unsigned artists. It’s much more a hands on, high touch approach. We’re in very close contact with all of our clients, we just couldn’t do that if we had a large line of clients.
I: Can you tell me about the mobile ringtone side of your business?
Brin: Mobile is still an area that’s growing for us and for independents. You might have read recently that things have reached a plateau, and that people are disappointed that there wasn’t the growth in the U.S. that was seen in Europe and Asia. On the independent side it’s a little different because independents didn’t have access to mobile until fairly recently, so there’s still a lot of growth happening there. But in terms of the overall market, there’re still problems in the U.S. because of the difficulty between handsets and carriers, the connection speed. Just in general, people are weary about buying things from their phones. They’re not sure if it’s going to work, or exactly what’s going to show up on their bill. It’s a different market from what’s going on outside of the U.S. where people are using their phone for everything. Also, now with most handsets you can side-load music on to your phone, or even full-length tracks that you buy on your phone and set them as ring tones. The ring tone market doesn’t look like it’s going to have a very long life. There are other mobile assets like full tracks. People are pushing ringbacks now because those are controlled by the carriers, so you can’t actually set a ringback yourself.
I: I’m assuming that your deals would involve exclusivity for the content.
Brin: Yes.
I: With a traditional distributor you’re looking at three to five years. What are we normally looking at with the digital side?
Brin: It’s about the same. In the beginning we actually offered non-exclusive contracts and we didn’t have terms, but the space was so new that we didn’t feel we could ask a label to commit, but years into it we feel pretty confident about our services.
I: Regarding the splits, again with traditional distribution we’re looking at twenty-five to thirty-five percent, some of your competitors require fifteen or twenty-percent. Tunecore is strictly a per track fee. What are your splits?
Brin: The standard deal is fifteen-percent.
I: Can you describe what you see in the future for your company as far as any new services and what’s on the horizon within the music business?
Brin: Sure. I’d say one of the biggest growth areas for us right now is in marketing. We’re really expanding Blinker Active, our interactive marketing division, and we’re continuing to work with our distributing labels. We’ve also started to work with a number of labels outside of our distribution network. We’ve worked directly with some artists and with brands, which is a popular thing right now too. We’ve been working with a lot forward-thinking brands that are looking to incorporate music into their campaign. So, for example Scion is our client and Electrolux- the appliance manufacturer. So we work with brands, which typically benefit both the artists, and the brand, either through revenue or just through exposure. That’s a primary focus for us. Over the next year there are definitely going to be some exciting new developments here.
I: When you say brands, would that be more of a licening aspect of your business?
Brin: No, we have done some synchronization licensing. What I’m actually talking about is brands that are looking to incorporate music as part of their identity as a brand to help connect with their audience. Scion is the most integrated because they actually have a label arm, so they license music and put it out through our distribution network as a label. We also run some other marketing campaigns for them on top of that. They’ve licensed some tracks from Ghostface Killah and those tracks were one hundred percent promotional, so we made them available at some stores but they were completely free and we seeded them using viral methods and across the Internet. We had podcasters that picked them up and spread them around. They’re mainly looking for the credibility association from a particular artist or label. When they [Scion] sell the music as a label they actually give a hundred percent of the revenue back to the label that they’ve licensed from. They’re strictly using the music as a way to connect with people. So it’s actually pretty altruistic in comparison to some other brands. We’ve done other things that are a little less complicated like putting together digital-only compilations for brands to give away on their web sites. We’ve done download cards for brands to actually have cards to give away, and people can redeem music online. For Electrolux, we set up a celebrity playlist for their spokesperson Kelly Ripa. So there’s a number of different ways. Again, we spend a lot of time with each client to really figure out what their goals are. We don’t have a bunch of templated programs that we would try to fit everyone into. We’re really careful to analyze their needs, and make sure to help them to achieve the results they’re looking to see.
I: In the physical world, regardless of the terms of the contract and the length of the contract, at some point you’re going to receive unsold goods, and you’re going to be compensated for the goods that sell. How can you safeguard, as a distributor, when dealing with virtual inventory, that you’re actually being compensated for these digital units that are actually being downloaded?
Brin: We spend a lot of time before signing an agreement with a new retailer. We do a lot of research on them, and it has to be a company that we have a certain amount of confidence in before we even sign the deal and send them music. We want to make sure that there is going to be at least a minimal level of trust in them, and also so that we don’t waste resources delivering to them, and then have them go out of business the next day; which happened early on. So we have that initial check, and then we have a number of automated systems in place that monitor patterns so if there’s a significant drop in sales that will red flag us that we need to check if we’re being accounted to correctly. We also have audit provisions in all of our contracts, so if need be we can audit all of our retailers. That’s a good question and I don’t think anybody has a hundred percent fool proof solution to eliminate that risk.
–I. Vasquetelle
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