Stem
The pop duo LANY released their first four albums on a major label. But when they completed their contract, they decided to hunt for a different kind of business partner, one that would give them more control over their operations. “Autonomy is the future,” manager Rupert Lincoln told Billboard. LANY ultimately chose to work with Stem, a distribution company.
For decades, major labels demanded long-term contracts, obtaining multiple albums from the acts they signed, and made most of the money from those acts’ sales. The balance of power has shifted dramatically in the modern music industry, however, and so have artist contracts. More and more acts want distribution deals — short-term agreements where they retain ownership of their work and keep the majority of the income their music generates.
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As these have become more desirable, competition for high-performing artists seeking distribution deals has gotten fierce, according to a pitch deck Stem has sent to potential investors, which was obtained by Billboard. Stem “has lost numerous deals historically as it wasn’t able to be competitive with advances,” the deck states.
Other companies have also seen prices rise. “It is a much more competitive market” than it used to be, says Jorge Brea, founder and CEO of the distributor Symphonic. “All distros have to be well-funded to ensure they can put up money for deals.”
Historically, digital distributors didn’t help artists much with marketing or radio promotion; they were basically tech companies that made music widely available on places like iTunes and Spotify in exchange for a small percentage of sales. These low-overhead operations were a world away from an old-school major label, which had lots of manpower to promote artists around the world.
But ironically, as the distribution landscape has become sexier — “There have been more entrants,” Brea notes — many of these companies are starting to resemble labels. Increasingly, they try to differentiate themselves from rivals by offering bigger up-front payments to artists and more label-like services: assistance with digital marketing, playlist pitching to streaming services, or radio promotion.
Concerns about up-front payments and services feature prominently in Stem’s pitch deck. The company estimates that it lost out on $45.6 million dollars worth of business in 2022: $19.2 million in scenarios where Stem couldn’t meet an artist’s ideal “check size,” and $26.4 million in situations where it couldn’t compete on “check size + other services (Intn’l, radio).”
By Stem’s count, the number of lost business opportunities ballooned in 2023, tripling to $134 million. (If accurate, this number helps demonstrate how popular distribution deals have become recently.) “We’re tracking all the lost deals that we were actually in the conversation on,” says Kristin Graziani, Stem’s president.
The pitch deck zooms in on two artists in particular whom Stem lost to rivals: Aaron May, a rapper with a laid-back delivery who took an advance of $2.2 million elsewhere, according to the deck; and 6arelyhuman, an electronic act specializing in glitchy, thumping tracks who took an advance of $1 million. (A source close to May contends the number cited in the pitch deck isn’t accurate.) In both these cases, Stem couldn’t match the final check, though the presentation doesn’t say whether those artists also wanted services that the company couldn’t provide — or picked a rival distribution outfit for another reason altogether.
In July 2023, Stem announced that it had set up a $250 million credit facility from Victory Park Capital to provide artists with advances. But “some of the dynamics of our deal with Victory Park were still a little bit constraining in terms of allowing us to win the type of deals that we were seeing,” says Stem CEO Milana Rabkin-Lewis. “There are many other types of capital out there that have less restrictions,” she continues, “and those are the conversations we’re having” now.
Other companies are doing the same — Billboard reported in August that at least half a dozen independent music distributors that have been fundraising or exploring a sale. That said, investors may be wary of providing some of these businesses with additional money to help them win bidding wars over talent, according to Erik Gordon, clinical assistant professor at the University of Michigan Ross School of Business.
Stem’s adjusted EBITDA — earnings before interest, taxes, depreciation, and amortization — was -$5.2 million in 2022 and -$4 million in 2023, according to the company’s presentation; it’s projected to be -$3.8 million in 2024. In Gordon’s view, “investors are likely to take three consecutive years of EBITDA that is negative, even after management adjusts it, as a sign of problems.”
Rabkin-Lewis says that, although “the distribution business is profitable, the overall Stem company is not because we’ve invested a lot into Tone, which is a newer product.” (The adjusted EBITDA for the distribution part of Stem’s business was -$1.3 million in 2022 and $400,000 in 2023, according to the deck.) “We’ve been prioritizing gross revenue growth,” Rabkin-Lewis adds. The deck indicates that gross revenue rose by a little more than 4%, from nearly $88 million in 2023 to a projected number around $92 million in 2024.
Meanwhile, distribution deals for proven artists continue to get more expensive. “A lot of companies are throwing out cash-heavy distro deals that we have never seen before,” says Karl Fowlkes, an entertainment attorney. At Symphonic, Brea has watched some of his competitors enter into agreements he believes are “ridiculous.” “We’re aggressive when going after deals,” he adds, “but not to the point where it’s not going to make [economic] sense.”
Distributors have to be especially careful when it comes to chasing expensive deals, because the short-term nature of their contracts gives them little time to make their money back. And successful artists often decamp for a rival company, lured away by a bigger check or the promise of a more powerful services division that can propel them to even greater heights. Brent Faiyaz, who worked with Stem among other companies in the past, subsequently partnered with UnitedMasters, for example.
On October 4, Stem updated its terms of service to say that it is guaranteed a five-year license on any new music uploaded through its system. (As always, artists with more leverage can negotiate a shorter term.) This change raised eyebrows in some corners of the music industry, because the ability for artists to disentangle relatively quickly is a big part of why they choose to work with companies like Stem. “We feel like we’re finally at a point, from a services perspective, where we can demand longer licenses,” Graziani says. A five-year term is more in line with what a major-label-owned distributor like AWAL would ask for in negotiations with an artist.
This points to another lane for competition — not just check size and services offered, but license length. Independent distribution companies face an ongoing challenge: It can be hard to prevent artists from heading elsewhere without offering agreements that look more like the ones handed out in the major-label ecosystems.
“The supply of distribution is now almost infinite — you can get it anywhere,” says Emmanuel Zunz, founder of the independent label OneRPM. “In order to make money in distribution, you have to create value elsewhere. If you’re unable to create additional value, you get stuck.”
After LANY completed its four-album deal with Interscope early last year, the Los Angeles pop-rock duo decided to be an independent act.
“You’ve built your career on a major [label] model, and you’re like, ‘We’ve got what we’re going to get out of the system – let’s get back some control,’” says Rupert Lincoln, the band’s manager.
LANY had a big following, and multiple streaming hits, including 2018’s “Malibu Nights,” which has more than 403 million Spotify plays, and the 2020 album mama’s boy, which hit No. 7 on the Billboard 200. But without a label, the band needed help – and money – to market music and shows to its fanbase.
So Lincoln and the band talked with some of the many distribution companies now vying for independent artists’ business with advances and marketing services. They selected Stem Disintermedia, founded nine years ago by United Talent Agency veteran Milana Rabkin Lewis and which a year ago secured $250 million in credit for artist advances from Victory Park Capital.
LANY self-financed a new album, last year’s a beautiful blur, with help from Stem and Virgin Records, its label for international territories. The band made a deal with Stem to handle marketing and promotion. “Stem made an investment,” says Seth Faber, the distributor’s general manager, adding that LANY took “a few advances along the way to fund different aspects of the project.” Stem set up a TikTok marketing campaign, taking advantage of the social-media giant’s commercial music library, which allows new and indie artists to make their tracks available for brands to use in video clips. Then Stem and Lincoln pooled their radio connections and pushed “XXL” onto iHeartMedia and SiriusXM playlists.
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Stem launched a TikTok campaign, and fans shared footage from the band’s fall tour in Asia, helping “XXL” hit No. 46 on the TikTok Billboard Top 50 last September. Then the company took the track to radio — “shook hands, kissed babies,” according to Faber — and peaked at No. 26 on Pop Airplay in February. “Considering what we were going up against, major labels and their pockets, it’s a pretty good magic trick to pull off,” Faber says. The band performed on Jimmy Kimmel Live! and Today in the fall, and its U.S. spring tour was in clubs and theaters. “XXL” has 14 million Spotify plays and more than 3 million YouTube views.
“The splits are very favorable with Stem,” says Lincoln. “We felt incredible support from the top down.”
Stem began as a typical indie distributor, helping artists to put out physical and digital music and seeing to it they received their streaming revenue. After working with top indie artists and labels, from Frank Ocean for his Blonde album to Big Loud Records, home of Morgan Wallen, Stem pivoted to a new model in 2020, emphasizing advance artist payments; last year, it spun off a new company, Tone, to “modernize the music industry’s financial infrastructure,” as Lewis said earlier this year.
Stem is one of many indie distributors that does not require artists to give up long-term rights to their master recordings in exchange for advance payments — DistroKid, CD Baby, Create Music Group and Secretly Distribution operate a similar way, simplifying the process of putting artists’ music out and helping to arrange timely royalty payments. But what distinguishes Stem, according to Faber, is the ability to “add value” to artist deals by emphasizing major-label-style promotion and marketing campaigns. Instead of distributing numerous artists, Stem selects acts, like LANY, who have track records of sales success and potential for high-quality new material.
Using this model, Stem works with indie labels such as Quality Control and artists such as R&B singer Brent Faiyaz, who received eight advance Stem checks to make his album Wasteland. Artists signed to Stem borrow what they need for music videos or digital-marketing campaigns, negotiating terms as they go along. “Now that we have the bandwidth to focus on a lower volume of more meaningful acts, all these acts get the human touch,” Faber says. “Our approach requires artists that see the big picture and are not just chasing the largest check that they could find — and are looking to make smart and calculated investments in themselves.”
Jim Caparro, a former Warner and Island Def Jam CEO who ran Polygram Group Distribution in the ’80s, says most artists don’t need a major label or even a major distributor, such as Warner Music-owned ADA or Universal Music-owned Virgin Music Group, to serve their fanbase with new music and social-media marketing. Artists like LANY, who’ve established themselves on major labels, simply need up-front money for recording projects and radio connections.
“It’s a matter of advances: Who can write the biggest check?” Caparro says. “Artists can do it themselves. They really don’t need all those partners to share their royalties with.”
Lincoln, who runs Hills Artists in Los Angeles and London, praises Stem for giving LANY a pathway to radio connections, including top execs at iHeartMedia and SiriusXM, which will undoubtedly be useful for future single releases. He also emphasizes that Stem’s success with LANY is due to a collaboration between the distributor and the management company. “It’s been a really great partnership so far,” he says. “Autonomy is the future of the business.”
Distribution company and payment platform Stem said on Tuesday it raised $250 million from Victory Park Capital to expand it’s popular advance check product. Stem first started offering the product in 2020 to artists at various career stages, including artists like Justine Skye, who used the capital as bridge financing when transitioning from a major […]
Last year, Milana Rabkin Lewis, co-founder and CEO of the distribution company and payment platform Stem, was among those who read a series of frustrated tweets from the rapper Meek Mill. “I haven’t got paid from music, and I don’t know how much labels make off of me!” Mill wrote in a since-deleted thread. “How much have you spent on me as an artist? How much have you made off me as an artist?”
“Why can’t he know that?” Rabkin Lewis asks. The problem has frustrated her since she was an agent at United Talent Agency and saw “just how messy the whole process” of royalty accounting was. “We were working with major artists who realized they had no visibility into when they were going to get paid and how unrecouped they were,” she recalls.
Part of the reason she started Stem in 2015 was to provide artists with more transparency. Now Stem is debuting Royalty Services, which aims to distill labyrinthine Excel spreadsheets into digestible dashboards and will be available to labels outside of Stem’s distribution network. (Some of the major labels also have their own version of a dashboard, though managers say they can be tough to navigate.) Users can view summaries of overall costs, earnings and recoupment status. They can drill down into more granular data — to determine which streaming platform or track is generating the most money, for example — with a click. And the process of linking bank accounts and sending money to partners is straightforward.
“It’s easy to see which song is doing the most each month on which platform, how much you’re making, when you will recoup,” Rabkin Lewis says. Stem’s chief product officer Brendan Kao calls the new dashboard “the next step in our mission to improve financial clarity for the entire music industry” for both labels and artists.
Royalty accounting has been a source of artist frustration for about as long as there has been a music industry. “The mystique of the music business is that, though profits are huge, accounting is incomprehensible,” CBS boss Walter Yetnikoff wrote in his memoir. Another company hoping to inject more transparency into an industry known for opacity is CreateSafe, which made a Record Deal Simulator freely available online so artists can input their advance, recording and marketing costs and get a rough estimate of how many streams they need to generate to recoup their deal.
If anything, royalty accounting has only become more complicated in today’s digital environment. Artists often release more music with more partners than in the past and work with more producers. And revenue comes from multiple streaming services as well as platforms like TikTok and Twitch. “We’re also seeing this trend of the admin and the responsibility of paying people out going more downstream,” Rabkin Lewis adds. “Motown pays out Quality Control, for example, but there are so many layers of people that need to get paid after that,” from artists to producers to engineers, and “often the people downstream from the major have no software.”
Quality Control has also started using Stem’s technology, as has Fool’s Gold. Rabkin Lewis says she hopes to have 50 clients by the middle of 2023. “Stem’s software makes royalty data easy to read to the point that I actually want to log in myself to look at trends,” Quality Control co-founder Kevin “Coach K” Lee said in a statement. “With any other solution, I would wait for my team to generate a report and then wait again while they pull the important details out of a massive spreadsheet.”
Justin Blau, best known as the DJ-producer 3LAU, is the founder of Blume Music, another label that quickly signed on to use Royalty Services. “We used to hire an accounting firm,” Blaus says. “We’d send them everything, they’d send paperwork back, and then we’d send payments manually to each rightsholder.” This system was “inefficient,” Blau continues, to the point that it was “just obnoxious.”
He was quick to sign up for Stem’s new product: “A lot of artists have been waiting for this.”
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