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distributors

Alliance Entertainment recovered from a post-pandemic slowdown through higher demand for direct-to-consumer (D2C) fulfillment, cost savings and continued demand for vinyl LPs and CDs.
For the fiscal year ended June 30, the Plantation, Fla.-based distributor had net revenue of $1.1 billion, it announced Sept. 19, down slightly from $1.16 billion in the prior fiscal year. But by emphasizing cost efficiencies and high-margin products, Alliance increased gross profit 24% to $128.9 million and gross profit margin by 270 basis points to 11.7%. As a result, net income jumped by $40 million to $4.6 million from a net loss of $35.4 million a year earlier. 

“Our strategic shift toward higher-value offerings is proving successful, and we expect to benefit from new hardware releases in the coming year,” Alliance CEO Jeff Walker said in a statement. “Similarly, in consumer products, we improved margins and pricing, demonstrating the effectiveness of our inventory rationalization efforts.”

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Music accounted for 42% of Alliance’s consolidated revenues—30% for vinyl records accounted and 12% for CDs. AMPED, Alliance’s independent music distribution business, had net sales of $78 million in fiscal 2024, up from $75 million. AMPED is the exclusive distributor for over 90 record labels and has exclusive relationships with such artists as Usher and ATEEZ. 

Video games were the company’s biggest segment, accounting for 31% of consolidated revenue in the fiscal year. DVDs and Blu-Ray products were 19% of revenue. Collectibles and consumer products were 4% of consolidated revenues. 

Higher-margin D2C sales accounted for 36% of fiscal year sales, up from 31% in the prior year, and helped improve profitability. “This shift highlights the effectiveness of our approach in meeting evolving consumer preferences, and it is helping to diversify and strengthen our revenue base,” Alliance chairman Bruce Ogilvie said in a statement. 

A leading distributor of entertainment products with more than 325,000 SKUs in stock, Alliance counts Walmart, Amazon, Best Buy, Target and Shopify as clients. The company also has a number of owned brands. The DirectToU divisions consists of ImportCDs, Deep Discount, Collectors Choice Music and Collectors Choice, among others. Mill Creek Entertainment is an independent studio for DVDs, Blu-Rays and digital distribution. NCircle is Alliance’s children’s and family entertainment brand. 

The latest earnings improved on a sharp drop in sales and a net loss after sales spiked during during the previous two years due to the COVID-19 pandemic. From fiscal 2022 to 2023, sales fell from $1.42 billion to $1.16 billion in fiscal 2023 and adjusted EBITDA plummeted from $60 million to a loss of $17.6 million. The company’s debt ballooned to $133.3 in fiscal 2023 from $45.6 million in fiscal 2020. Inventory rose, too, to a peak of $249.4 million in fiscal 2022 from $62.8 million in fiscal 2020. Both debt and inventory came down dramatically in fiscal 2024, to $79.6 million and $97.4 million, respectively.

Shares of Alliance, which trade on the Nasdaq, closed at $2.76 on Monday, up 35.3% since earnings results were released. The company’s shares briefly traded over the counter after a merger with the NYSE-listed Adara Acquisition Corp, a special purpose acquisition company, or SPAC, fizzled and left the company with a float too small to trade on the NYSE. The company had a small offering on the Nasdaq in June of 2023 and has a float of 3.1 million shares out of 50.9 million shares outstanding.

These days the music industry sometimes seems like a media business version of “Trading Places” in which every label wants to be a distributor and every distributor wants to become a label.
On March 7, Warner Music Group disclosed its interest in buying the French digital music distributor Believe, but all the label groups are focusing more on the distribution game – think Sony Music’s 2021 acquisition of AWAL and Universal Music Group’s October consolidation of Virgin Music and Ingrooves. At the same time, distributors are offering more of the services that only labels used to provide, including radio promotion and different kinds of marketing.

From the perspective of an independent creator, these two once-separate sectors have moved close enough that they’re competing – the majors are offering more flexible contracts that allow artists to keep their copyrights, while distributors are providing advances and an array of services to successful acts. For anyone who was in the industry before streaming became the standard, this seems like the music business’ Reese’s moment: You got your distribution in my label! You got your label in my distribution! To outsiders and young creators though, the distinction might not even make that much sense in the first place. Behind all the complicated corporate org charts, isn’t Sony just investing in, marketing and distributing Bad Bunny’s music (through The Orchard), just as it invests in, markets and distributes Beyoncé’s (on Columbia)?

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Sort of. Companies spend less, and make less, on the music they distribute, while acts signed to labels represent bigger bets both in terms of investment and potential upside. Distribution is steadier, while the label business involves more risk and some very profitable successes that more than make up for them. That’s not new. What is new, though, is how what was once a binary choice has become more of a question of finding the right point on a spectrum of risk and reward that has a traditional label deal at one end, distribution on the other and plenty of options in between.

It’s easy to understand why distributors are offering services that were once solely the domain of labels – pure online distribution has always been a low-cost commodity business, and label services offers are one way to get better margins. But what about the opposite? Why are labels getting into a lower-profit business that essentially endangers the best part of their existing business? Especially as label deals get less standard, companies make higher margins on acts that are early in their careers, before they score the success that gets them the leverage to negotiate a better deal.

Understanding why the major label groups are investing so much in a less profitable sector than the one they’re in requires seeing the issue like a media executive in the Internet Age, which is to say through the lens of disruption. This is the idea that companies which pioneer a good-enough product or service at a much lower cost will eventually challenge the market leaders – think of Netflix and cable television, for example. Although the theory isn’t as simple or as applicable as technology executives say it may well apply here: The market share of recorded music from traditional labels is slowly but steadily shrinking, in favor of distributors. The good news for the major labels is that much of that shift involves distributors they own, including The Orchard, owned by Sony, which raised its U.S. market share from 1.5% in 2021, to 7.1% in 2022, to 8.7% in 2023, according to Luminate. Much of that business comes from Bad Bunny, of course, but the company already has another bona fide Latin music superstar in Peso Pluma.

The labels basically just want to disrupt their own businesses before other companies can. If you think this kind of change is inevitable, it’s worth running toward it. (The music business has a reputation for being fearful of technology because it took so long to embrace the internet, but the business school idea of disruption doesn’t apply to pirated music; Napster wasn’t offering another product – it was offering the same product illegally.)

The second reason companies are buying distributors is, as MUSIC founder and CEO Matt Pincus recently told Billboard, “it solves a real stack problem for them.” Pincus was talking specifically about Warner, which like all label groups focuses on trying to break and market stars. A “stack” – programmer-speak for underlying technology – would let the company serve beginning creators and more emerging ones, as well as stars and a few artists that it wants to develop into stars. Warner already does this with ADA, which distributes independent labels, but ADA has tended to focus on a moderate number of mid-size indies, rather than a larger number of smaller ones.

But the most important reason labels are investing more on distribution could be the sector’s potential to serve as a kind of talent farm system. In the movies, label executives discover artists in bars or office auditions, but that hasn’t been the dominant way of doing business for a generation. These days, even beginning creators are distributing their music online, starting their careers on their own rather than trying to be discovered. Which means that by the time a major label gets interested in them, they may already have a deal. Since it’s easier to sign an artist who’s already involved with another division of the company, it makes sense to cast the biggest net possible. This is a defensive move, too: Now that Sony and Universal have big distribution businesses that can potentially serve as talent pipelines, Warner arguably needs one, too.

For that matter, the same applies to Believe. Most indie creators want to start their careers with basic distribution deals – but few of them want to stop there. Believe could be much more attractive to creators if it could offer them a place to grow to as well as services to grow into.