Should Africa-based label services and distribution companies adapt their model?

In 2021, this writer penned a long form piece about the evolution and dominance of label services companies and distribution companies in Africa. He also likened their synergy with digital streaming platforms to the era of playlisting and distribution at Alaba International Market, Lagos.

For around three years preceding 2021, streaming was tearing through Nigeria, as major streaming platforms sought to open African/Nigerian offices, due to the country’s young population and changing consumer behaviour. As a result of that reality, label services companies and distributors emerged.

Some of them were a step away from the world of 360 dominance that was operated by major labels. They furnished the artist long term ownership of his catalog, yet still offer them licensing fees/advance for past, present and future projects. This reality democratized the landscape of Nigerian music, and opened the door to a burgeoning, attractive reality/prospect of publishing.

Everything was for sale. This also brought on a brighter reality for Nigerian music producers, who began to sign various international deals in exchange for some of their rights to certain songs or albums. It also made the landscape tougher on freemium producer-artist services.

These label services companies and distributors did it because they knew that;

For other platforms like Platoon, which is owned by Apple – which also owns Apple Music, it was about gathering catalogs that could either be spun for revenue, or with a view to compete with the majors in 50-100 years.

“The increased access to money in Nigerian music over the past three years, especially, has been intense,” says a leading Nigerian producer. “Everybody you know can access at least $10,000 – even upcoming artists with little to no track record.”

The switch in attitude and approach

During a chat with Dan Runcie on the Trapital Podcast in 2021, Steve Stoute, the OG music exec and honcho of United Masters, noted the apparent change in approach for majors. In the past, the approach was to use A&Rs to scout, sign, develop and launch ready artists.

Sometimes, they would even take their time to put an artist through an intense artist development regimen. For example, H.E.R got signed to RCA when she was 13. This strategy helped them to sign artists with little leverage, which they could flip for millions, while owning their masters. It was a masterstroke that worked for years.

But as the years rolled by and the music industry revenue dipped in the mid-2000s, streaming became a solution, and it accounted for 40% by 2020. During its Q1 2022 report, Warner Music Group reported that streaming accounted for over $770 million of its $1.2 billion revenue, while direct sales amounted to just over $120 million.

At that rate, companies like EMPIRE Distribution disrupted the independent market for labels, who only retained their bragging rights to incredible leverage, incredible influence and a boatload of cash. Then there were other factors like the short attention span and economical instability, which meant record labels had to start signing artists with proven listenership, fanbase, social media following or earning potential.

Hence, Arizona Zervas could get seven figures from Sony and Bella Poarch could sign a major deal, because she could boasted ridiculous TikTok following. This was important for a post-internet reality, where young people had short or designated attention spans, and where proven dedicated following could mean healthy streams.

From Gen Z and Gen Alpha, followers mean that some people like you enough to be interested enough in whatever you have to offer. Followers are like a virtual loyalty card. So, it’s about the streams. Labels would rather spend money on an artist with limited talent, but proven earning potential, than a nobody with huge potential and little following, with zero proven earning potential.

At least, you know that you are guaranteed streams from the an artist with a proven followers and/or a track record of earning potential.

This became the reality of Nigerian label services/distribution companies. While a lot of them are still interested in upcoming or emerging acts, the lofty budgets and preference are reserved for artists with proven earning potential, track record and following. And why not?

Think about it this way: If in America and mainstream Europe, where consumer behaviour, purchasing power, digital behaviour and internet penetration are all great, major labels are going for artists with proven track record, earning potential and following, why in the world will label services and distros – which move with a form of major label gusto and panache in Nigeria – do any less?

Whatever streaming and internet reality plagues majors in Europe and America, 10x plagues Nigeria, with far worse infrastructures, systemic problems and behaviour. As Nigeria currently stands, we have less than one million premium DSP subscribers.

To ‘blow’ an artist, a label needs in excess of NGN70 million. While these label services companies and distributors offer money in dollars, they don’t have Nigerian ‘big boy-for-record-label money’ to truly establish an upcoming artist, and neither do they have the time. Minus that, it’s too risk intensive in a result-oriented numbers business, where people have streaming numbers and revenue targets.

Even though Nigerian music is crossing borders and a huge chunk of streaming revenue for Nigerian artists comes from Europe, the Americas and Asia; even though streaming can take a record beyond borders; even though TikTok can blow an record; the upcoming act who enjoys this reality is the anomaly.

Usually, it’s the more established artists who enjoy this reality. And most of them have had to prove earning potential in Nigeria first. But when Nigeria has under one million premium DSP subscribers on a tariff of NGN900, why would anyone place all their effort on the back of an upcoming artist?

As a matter of model, one of the biggest label services companies doesn’t do artist development/prospective deals at all. You either have catalog or you’re not worthless.

Already, a lot of these companies now operate like majors. The bulk of the revenue streams comes from the outliers who succeed, after they’ve taken a chance of tens of others who might not enjoy as much success.

Back to the opening paragraph: But right now, all the major artists are signed to one company or all the artists with proven earning potential have loyalty to another company. The problem now remains where the label services companies go from here.

While ‘1’ is easier, it’s capital intensive. You might also be interested to know that some of these ‘big’ Nigerian artists signed to six figure dollar deals, but have not started generating ROI for these companies. While some of these situations are a product of mismanagement or insufficient label services company influence, some of them are just due to lack of appeal to a young generation, which dominates streaming.

Option ‘2’ is easier, but it’s risk intensive. These label services companies and distributors have to create the channels, fan base, listenership and revenue channels. But on the upside, artists like this have little leverage, so labels can get themselves on some healthy 360-esque deals, which is already happening.

Already, label services companies are losing artists to majors, who now use label services and distributors as their scouting network. In fact, a company like Warner Music has been on an equity spree for label services and distributors in Africa, acquiring a stake in Ziiki Media, while recently acquiring AFRICORI.

In America, Benny The Butcher recently traded the loyalty of EMPIRE for Def Jam, where he has lost some leverage, but has also gained his first major Billboard Hot 100 hit with ‘Johnny P’s Caddy.’

Thus, label services companies need to earmark a certain quota for ‘blowing’ fresh artists with zero identity. It is imperative for their model, which guarantees artists some much needed semblance of independence.

When majors could have experienced something similar in the pre-streaming era, they fed off new acts. In the saturation of the streaming era, they focused on social media stars and label services/distribution stars. Where do the label services and distributors look?