October 18, 2016:FUGA talks US expansion, exclusives and the value gap

Independent distributor FUGA has opened a US office and signed up hip-hop label Tommy Boy Entertainment as a big-name client. The company, headquartered in Amsterdam, also has staff in Paris, London and Singapore.

This follows a similar move earlier in June where Nordic distributor Phonofile opened its own US office. The FUGA office in New York will be headed up by David Driessen, director of sales and client services, who has relocated from Europe.

The US is a key territory for the company, currently accounting for around 30% of its business (with 65% of its overall business happening in Europe).

Pieter van Rijn, CEO of FUGA, spoke to Music Ally about the expansion plans and also the key issues affecting distributors, artists and labels in the digital market.

“Our business is very international,” he said of the importance of the US to the company’s growth. “In the US, we want to be closer to our clients and we want to be closer to potential clients. First and foremost, it is about us offering more support and services to our existing client base, which means supporting them in their promotional activities locally. We have a lot of knowhow in Europe, so being there helps us export their content to Europe; but also it helps us export European content to the US as we will have closer relationships with the DSPs.”

New York is the first city FUGA is focusing on but van Rijn said that LA and Nashville are the next obvious places to open offices – although they have no concrete plans just yet to physically move into those cities.

“We have a lot of dance labels that travel well internationally,” he says of the growing opportunities for European artists and labels in the US in the slipstream of the EDM boom. “It is about giving them the presence and the promotion that they need in the country so it is better to be there.”

There is accelerated consolidation happening in the distribution sector at the moment – with Phonofile and finetunes merging at the start of the year, while Believe Digital acquired TuneCore in 2015 and also bought French indie label Naïve at the end of the summer. Plus, there is the fact that Universal has a stake in INgrooves and Sony owns The Orchard.

“We see some benefits in that consolidation,” is van Rijn’s take on what is happening in the sector. “It is the lack of completion [that helps us]. For some independents [faced with distributors owned by majors], they will start looking for other solutions as they want to retain their independence. That is why we exist – to create a level playing field for that independent industry. That is where we want to be.”

If the move to buying your way into market share dominance is turning into something of an arms race for distributors, is this something FUGA will have to follow suit on? The company is not racing into this but neither is it ruling it out.

“We do see opportunities for our business to scale,” suggested van Rijn. “In smaller markets there are smaller local aggregators who have a local presence and local clients but don’t have any scalability and might be looking to partner. As an international company, it is very easy for us to scale our platform. That could be interesting for us to take a look at.”

He is now, for now, unduly concerned that major labels, by investing in indie distributors, are gaming the system to give themselves and their acts greater visibility on digital platforms. “What we are seeing is that services like Spotify need to be versatile in terms of their offerings so they will always have a big chunk of room for promotion and content,” he says. “They will need to have that as it is good for their own credibility. There will always be room for independent content and independent promotions.”

That said, analytics is something the company is keen to have parity on. “We feel that our clients need to have access to the same data and get the same transparency from the DSPs that the majors do.”

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There are arguably three themes dominating the digital music business in 2016 – the value gap, exclusives and concerns that subscription streaming uptake could soon plateau.

On the first topic, van Rijn is forthright about where the problems lie and what the key concerns are.

The first thing to say is that we believe there is a value gap and it is definitely caused by huge lack of transparency at the level of YouTube,” he says. “I am not saying that is something they are deliberately doing, but it is how it has been structured. I think the artist is definitely not seeing enough income from there. I also agree that it’s up to the rights organisations to be far stronger. Beyond the value gap, in general [YouTube] has to change and become more market-savvy in terms of being there for the artists and the rights owners.”

YouTube is trying, it seems, to make some overtures to the music industry, appointing Lyor Cohen as its new global head of music at a time when relations with record companies have never been more strained.

“I am really curious what will happen there,” says van Rijn of the appointment. “YouTube is also struggling with a lot of things – such as their offering. They have some serious initiatives with things like YouTube Red. They are trying to do that but it is not how or why the service was set up. So it will be very difficult.”

On the topic of exclusives, he is somewhat more sanguine, regarding short-term exclusives as smart marketing but long-term exclusives as inherently anti-consumer and damaging to the overall business.

“There is a difference between keeping something exclusively for the whole time or maybe during a certain promotional time,” he suggests. “With that, I don’t have a big problem. That is a marketing decision that can be made if any artist feels it benefits them most or the label feels that it should do it. It benefits all, including the artist, if the content is there where the consumers are. That’s what it’s about and it should be made available everywhere. I do understand that some content owners only want to go to the DSPs that actually generate money for them.”

He adds, “In the long run it doesn’t help the industry. Maybe it will help a few high net worth artists because they have such a big name, but overall I don’t think it’s a good sign or development. If an artist wants to be exclusive on a DSP, that is more of a marketing decision and I don’t see that as particularly harmful. But being exclusive in the sense of choosing one platform and keeping the content on that platform, I don’t think that beneficial for the business.”

On the topic of windowing on Spotify – where certain new releases could initially only be made available to paying subscribers (as almost happened with the release of Radiohead’s most recent album) – he is more assured this is the right thing to do.

“I think it’s good,” he says. “I am thinking more about the business and artists trying to make money. We all know that subscriptions are a higher paying model than the freemium model. I think windowing makes all the sense in the world from a financial perspective. The hope is that Spotify will win over [free users]. I think this strategy would help them in converting more users to a subscription model. That is something I applaud.”

He is optimistic that subscriptions will not slow down any time soon and with Spotify just arriving in Japan, the second wave of streaming growth could be significant.

“Subscription streaming feels like it’s the model that will stay,” he argues. “That’s the winning model and makes all the sense. There are still some major markets that are underdeveloped – like Japan. We are pretty active in China at the moment and we see the market developing in South America. I think there’s a lot of opportunity in Germany.”

While the distribution and monetisation of music digitally has been disrupted, he feels that things are settling down and will start to work efficiently for everyone, but the issue of neighbouring rights and how payments flow is the area they are preparing for most – and also the area of the industry that needs to be shaken up the most.

“The market for neighbouring rights and publishing is not a very dynamic and competitive one,” he says. “The organisations are doing very good work in collecting all the royalties they can to pay out, but there is huge inefficiency for content owners and labels to get all the information in the right way from all these organisations at the same time. There are all the right intentions, but there is still a lack of transparency in that part of the market. It also takes ages before you get paid.”

He concludes, “We are now at the forefront and that part of the industry has to start reinventing itself just as the distribution part of the business already did when it comes to efficiency, controlling your rights and transparency. We see a lot of opportunity there and we have already expanded our platform – from distribution to neighbouring rights.”

Eamonn Forde
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