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CEO War: INgrooves Blasts DistroKid. DistroKid Fires Back.

ceo-war
On Monday, Robb McDaniels, the CEO of INgrooves, one of the largest digital distribution companies in the world, penned an op ed on Hypebot: “5 Musings From A Digital Music Exec Who’s Been Doing This A Long Time And Isn’t Even That Old.”  It was somewhat informative, a little bland, but nothing too controversial. Until point 5, which he titled “Too Good To Be True.” He wrote:

“Remember when your mom used to tell you that if it is too good to be true it usually is?  Well, I think that this is the case with some of the DIY services out there, especially the ones offering to distribute all the music volume you want for a fixed fee.  Inevitably, this model breaks down as their fixed costs rise higher than the low fees they charge you and artists and labels will be stuck without a distributor or, worse yet, out some money that is never passed through.  There are some great DIY services out there, like Reverbnation, that are part of long-term, stable companies that aren’t a bunch of smoke and mirrors. ” – Robb McDaniels, CEO, INgrooves

Now, unless you know the digital distribution field quite well, this seems like he could be talking about anyone. But there’s only one company out there that operates this way. And that’s DistroKid. For $19.99, any artist can distribute unlimited songs or albums to iTunes, Spotify, Deezer et al. Both the founders of CD Baby and Tunecore have publicly endorsed DistroKid (since leaving their companies). Derek Sivers of CD Baby wrote “This is exactly what I would have created if I didn’t sign a non-compete agreement when I sold CD Baby. I’ll be sending everyone I know to DistroKid, now.”

+Want To Know Who The Best Digital Distribution Company Is?

Philip Kaplan, the CEO of DistroKid, happened to spot this and penned his response. He fired back:

“Your concern that we won’t be able to keep up with growth, is based on a mistaken assumption that we incur some sort of incremental cost with each artist or album we distribute.

 

We don’t.

 

Our entire process is automated.

 

I’m new to the music industry. But I’m not new to scaling large technology businesses. A previous company I founded, which had around $100M in sales and was later acquired, was a digital ad network called AdBrite. We handled more than 1 billion pageviews per day. Each pageview performed a real-time auction to select the best ad from millions of potential ads—and did this all in less than 50 miliseconds per pageview.

 

If DistroKid processed every single album on Earth, every day, forever, it wouldn’t reach a small fraction of that scale (so far we’ve distributed over 100,000 songs for 20,000 different artists). ” – Philip Kaplan, CEO, DistroKid

With those serious numbers that DistroKid has acquired in under a year, it’s no wonder INgrooves is worried and shooting out a bit of FUD.

Kaplan recalled a Forbes article he read on McDaniels years ago where he was quoted saying “People thought I was nuts. I didn’t know anything about the music industry. I just said ‘Here’s how I think the business should operate.” Kaplan admits, that now he’s the new guy. DistroKid launched less than a year ago. Kaplan wrote:

“But this time, you’re the incumbent. And I’m the one you’re calling nuts.”

Kaplan also stated “you endorse ReverbNation (without disclosing that they use your company, INgrooves, for distribution……), but I think you might find DistroKid inspiring if you gave us a try.” He finished his rebuttal on a cheeky note:

“One last thought- If INgrooves has an incremental cost problem, which it seems you may, perhaps you should use DistroKid to distribute your artists’ music. We’d be happy to have you as a customer and partner. I’m serious.”

Your move McDaniels.

Ari Herstand is a Los Angeles based singer/songwriter and the creator of the music biz advice blog, Ari’s Take. Follow him on Twitter: @aristake

 

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Comments (20)
  1. Geir

    Hi,
    Just wanted to let you know that its best to leave the use of large letters to the ingress in articles
    Using larger format in the quotes and in general is a big No..because it becomes harder to read and almost like shouting.

    all the best!


    Reply
    1. Ari Herstand

      Good call. Fixed!


      Reply
  2. JTVDigital

    I have to say I’m 100% with Robb on that one…

    There are incremental costs indeed, the more catalog you (as a distribution company) have to handle, the more storage, bandwidth, staff, accounting…etc. costs you have. Automated process or not. Simple maths.

    It would simply be impossible for these “flat fee” companies and all giving out 100% royalties on sales to be financially viable if the assumption at their end was not the following: generally speaking most indie artists don’t have that much content available (a couple of albums at most), so let’s offer them a plan with unlimited distribution for a flat yearly fee, the risk that content handling costs go over the yearly or monthly fee charged to them is close to 0, or at least there is only a tiny % of these clients who’d cause more costs than profits. I know you only have a couple of songs so I am offering you the option to deliver 1 million songs or more for a cheap price, looks like a great deal, right? I know you will never (or rarely) make any sales so I’m offering you 100% royalties…These business models are a lure.

    Jeremie Varengo – CEO
    JTV Digital


    Reply
    1. Philip Kaplan

      Hi Jeremie,

      Respectfully, I think you and Robb are looking at the flat-rate that DistroKid charges artists, in comparison with the fixed-costs that *your* companies incur for each album you distribute.

      And are both coming to the conclusion that it wouldn’t be financially feasible for your companies to offer the same pricing that DistroKid does.

      Philip Kaplan
      Founder, DistroKid


      Reply
      1. D

        Hi Philip,

        Would love to talk tech, what are you the details of your stack at the 100foot view?

        On the per incremental costs: I can see there being a *tiny* overhead per release in storage costs and bandwidth if you used S3, or you could pay a flat fee for another provider, but to be honest that would be a rounding error in costs unless you onboarded another 100k masters.

        If you put a bit of thought in the design of the system – let’s face it, it’s not going to be an overly complex piece of kit as distrokid only serves , iTunes, Spotify, Google Play, Amazon, Beats, Rdio, and Deezer so that’s only two specs you need to support (unless you are on the 3.7 roll at the moment), do you support take downs? And I’m guessing there will probably be only download and streaming usetypes, and do you support updates to metadata after delivery?

        From the infrastructure standpoint we are probably only looking at maybe three servers (frontend, RDS and a “job” server which probably handles delivery/encodes/async processes(for encodes I used transloadit when I designed mine))

        Let’s face it, the real value in companies like ingrooves is that a mid-to-large label has someone that they can call up and shout at when a release is not out by street date, so they need those account managers to act as the middlemen to the label and the multitude of DSP’s, and those account managers need technical operations teams (so on and so on). When you are dealing with six DSP’s and only indie artists you could probably get away with one person doing everything, as I doubt it that an indie is going to be working to a street date.

        (Just having a quick look at distrokid.com the frontend is running on AWS so I’m going to make assumptions that you are using the full gamut of services)

        D


        Reply
      2. JTVDigital

        Hi Philip,

        Thanks for posting a reply, apologies I did not see it before today.

        It’s probably not the right place to discuss company costs-related topics, but I still think Robb made some valid points, the more catalog you have to manage, the more costs you’ll have, whatever these costs are (technical, human resources, marketing…etc.).
        I’s not fair to say these costs do not exist (or are negligible) and everything can be sorted by automating the processes.
        You cannot automate client support (not FAQs, personal client support), relationships with digital retailers, system front and back-end development…etc.

        I tested DistroKid, it works well, there is a lot of system intelligence with all the email notifications keeping the client updated on where and when the release was sent to…etc., and yes, the songs go to iTunes and others.
        The user interface is over-simplified and you are missing some important metadata info, but this will probably improve overtime.

        But still the initial assumption of services offering 100% royalties makes me uncomfortable (it’s not your service specifically, all the ones with the same model).
        These services have to bet on the fact people will never (or rarely) sell anything, otherwise additional costs will start to appear (accounting, bank/PayPal costs…etc.).
        Same problem for the number of songs per artist, at 19.99 $ a year, there is a tipping point where you start losing money if the artist uploads too many songs.
        Reading your comments, and since your tech costs seem to be very low, this tipping point is probably high, and you are certainly safe up to a huge amount of tracks per year per artist.
        Assumption here as well here, do you know a lot of indie artists who release more than one album per year? There are certainly, but what % of your client base do they represent?
        Honestly I could launch the same offer tomorrow, and even cheaper.
        But I don’t want to take the assumptions that indie acts won’t sell anyway and that “unlimited” means about 12 songs a year.

        Let’s be clear, there is no point in bashing each other and this “CEO war” does not make much sense.
        We’re dealing with different audiences, with different situation and goals.
        Major record labels and big indies are using services like INgrooves, there must be a reason for that, right?
        Indie artists on a budget with small catalog are using DistroKid or TuneCore because they think the yearly subscription is cheap/appealing and they will make more money with 100% royalties (whereas 100% of 0 is the same as 90% or 80% of 0).
        There is room for different models, companies and strategies.

        All the best with DistroKid,

        Jeremie


        Reply
    2. James Hong

      First of all, saying that fixed costs increase due to increased demand violates the very economic definition of the phrase fixed costs. Yes, marginal cost vs demand can be noncontinuous, but that doesn’t make it fixed. But here’s the larger point: most of the costs these guys are describing are also cost factors that are decreasing over time.

      When I ran HOTorNOT, we supported over a million users each day. This was over a decade ago, on way more equipment with much higher cost per computing cycle, back when transit cost $1,000 per Mbps. Last year, Instagram sold to Facebook for over a billion dollars with over thirty million active users and nine employees. NINE.

      Bandwidth today can be had for under $1/ Mbps. It will continue to drop. Storage costs drop over time as well. That is why Gmail came out with the “x Gigabytes free” model, because they knew that cost per user would drop over time anyway.

      Customer Service costs? They would go up if your company’s response to more questions would be to hire more heads rather than adjust the product to not lead to those questions in the first place. I know at HOTorNOT by taking that approach, it only took me 2-3 hours a day to support 10 million monthly visitors and over 100,000 paying users. That kind of mentality can be applied to most other functions including accounting.

      My only conclusion is that these guys think Distrokid’s model can’t last because they are projecting their own cost structure on Distrokid.. but here’s the painful truth: that’s wrong if Distrokid is just doing things more efficiently than you. Less people working there leads to employees that care more, less meetings that waste time, and better product that scales better/cheaper.

      I remember a lot of people making these kinds of arguments against Google when they started out. The companies that made those arguments don’t exist anymore, and in some cases, the founders of those companies work at Google now.

      Good rule of thumb: the guy who is launching public attacks about specific competitors is doing it because he’s scared. The guy kicking ass doesn’t have to badmouth others, he just kicks ass and customers roll in. Kudos to Distrokid for kicking ass.


      Reply
  3. Willis

    Artists who create taking on DIY marketing and promotions is a recipe for reverse momentum most of the time.


    Reply
    1. Anonymous

      very true.

      to the point of making it not even worth doing.


      Reply
  4. GGG

    I use DistroKid for a couple acts, and I like it. Specifically, the lump fee is great for an electro-pop act I work with because as of the end of this year we’ll have released an LP, and EP, and a handful of a la carte remixes. Doing that through TuneCore or CD baby would have cost us way to much, having a fee for each single/album.

    Their customer support has also been very quick and helpful the couple times I’ve emailed them.

    I’m on Team Philip.


    Reply
  5. TonsoTunez

    Let’s be sure we all understand that all of these DYI services make their money off the losers – not the winners. Tons of people who have absolutely no chance at all sign up for these services and rarely sell enough product (if any) to cover the cost of the electricity needed to sign up.

    If you know how the music business operates globally, already have an audience and are good at marketing, these services could very well be of value.

    Sadly, what these services are really good at is making money for themselves and chocking interest with boatloads of crap.


    Reply
    1. TonsoTunez

      In other words ….”choking the internet with boatloads of crap.”


      Reply
  6. sigh

    High School.


    Reply
  7. Cmonbro

    So obviously point 5 made this a story but I was more taken aback (clutched my pearls) at #4

    4. “One of the great things about the Digital Revolution, which began with Napster’s emergence in 1999, has been that it has been based on a Meritocracy. Great music, regardless of its origins, rises to the top. No single creator or owner has been able to “pay” for promotion in the various digital retail storefronts, providing a level playing field for indies and majors alike.”

    Meritocracy? in the music industry? No one can PAY for promotion in digital retail storefronts? What kinda bullshit lies is he trying to spin here?


    Reply
    1. TrueDatBro

      Agreed. That paragraph sounds like the kind of hype folks were trying to shill ten years ago. I’m surprised that McDaniels still thinks he can get away with that sort of nonsense.


      Reply
    2. JTVDigital

      “No one can PAY for promotion in digital retail storefronts?”
      No, this is not how it works. Would be way too easy.


      Reply
  8. ask the hard questions please

    As a musician and label manager I would like to know what both Robb McDaniels and Philip Kaplan have to say in public about the following video:


    Reply
  9. AnAmusedGeek

    Interesting to see what Kaplan is up to…
    Though he only mentions Adbrite – old timers probably remember him better from the ‘Fucked Company’ website back in the dot bomb era. If I recall correctly, AdBrite was founded to serve ads for FC.


    Reply
  10. James Hong

    First of all, saying that fixed costs increase due to increased demand violates the very economic definition of the phrase fixed costs. Yes, marginal cost vs demand can be noncontinuous, but that doesn’t make it fixed. But here’s the larger point: most of the costs these guys are describing are also cost factors that are decreasing over time.

    When I ran HOTorNOT, we supported over a million users each day. This was over a decade ago, on way more equipment with much higher cost per computing cycle, back when transit cost $1,000 per Mbps. Last year, Instagram sold to Facebook for over a billion dollars with over thirty million active users and nine employees. NINE.

    Bandwidth today can be had for under $1/ Mbps. It will continue to drop. Storage costs drop over time as well. That is why Gmail came out with the “x Gigabytes free” model, because they knew that cost per user would drop over time anyway.

    Customer Service costs? They would go up if your company’s response to more questions would be to hire more heads rather than adjust the product to not lead to those questions in the first place. I know at HOTorNOT by taking that approach, it only took me 2-3 hours a day to support 10 million monthly visitors and over 100,000 paying users. That kind of mentality can be applied to most other functions including accounting.

    My only conclusion is that these guys think Distrokid’s model can’t last because they are projecting their own cost structure on Distrokid.. but here’s the painful truth: that’s wrong if Distrokid is just doing things more efficiently than you. Less people working there leads to employees that care more, less meetings that waste time, and better product that scales better/cheaper.

    I remember a lot of people making these kinds of arguments against Google when they started out. The companies that made those arguments don’t exist anymore, and in some cases, the founders of those companies work at Google now.

    Good rule of thumb: the guy who is launching public attacks about specific competitors is doing it because he’s scared. The guy kicking ass doesn’t have to badmouth others, he just kicks ass and customers roll in. Kudos to Distrokid for kicking ass.


    Reply
  11. wannabebanker

    A PE fund should bankroll Kaplan to buy InGroove and fire or redeploy 3/4 of their people by using Kaplan’s technology. If McDaniels can’t figure out how to scale a digital business without scaling costs his business is takeover bait no matter what their scale. “Synergies” await…


    Reply

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