Distributors Raiding Rivals’ Record Labels

Having gobbled up most of the independent labels in sight, record companies are now trying to increase their market share by finding more music to distribute.

The latest example of the stepped-up competition came this week when IRS Records--just 15 months after entering into a five-year domestic distribution deal with MCA Music Group--jumped ship and signed a long-term manufacturing and distribution pact with Capitol Records’ sales and distribution arm, CEMA Distribution.

The defection occurred six months after CEMA lured another label from MCA, Curb Records, and highlights a major realignment in music distribution that is taking place amid the increased concentration of the record industry over the past decade.

“I think the whole thing is spiraling out of control,” said IRS Records President Jay Boberg. Today, “economics and business judgments are smaller considerations. Companies are into a maniacal pursuit of (sales) volume and market share.”

CEMA Vice President David Kronemyer acknowledged that his company has its eye out for more distribution deals.

Six large corporations--Time Warner, Sony, MCA, Thorn EMI, Bertelsmann (which includes BMG and RCA) and Philips (which includes Polygram)--now account for 93% of the sales of recorded music, according to the Recording Industry Assn. of America. Their distribution units typically receive 10% to 25% of an album’s wholesale price for placing the product in record stores and other retail outlets, although many deals also include manufacturing, which can produce additional income.

The six major record companies have gobbled up so much business that only about a dozen independent distributors remain, compared to more than 20 in the early 1980s, experts say. And, unlike the past, it seems that no label is too small or too controversial for the majors today.

In a deal valued at more than $3 million, for instance, Time Warner’s Atlantic Records this month agreed to manufacture and distribute Luke Records, which is the home of the controversial rap group 2 Live Crew. The company has been embroiled in several lawsuits, including one in federal court in Florida that resulted in a major obscenity ruling against Luke Records.

Other recent deals include BMG’s multimillion-dollar pact in March to distribute Windam Hill Records--formerly handled by A&M; Records. Meanwhile, Geffen Records will switch to MCA Distribution Corp. next year as a result of MCA’s $545-million purchase of Geffen in March.

“There are not too many options open to the record companies in terms of increasing their market share,” said Roger Lifeset, an independent record consultant. Major record companies are “absorbing everything at this point.”

Independent labels that are not handled by one of the majors must rely on mail order or an informal network of regional distributors, such as California Record Distributors Inc. in Chatsworth and Lanham, Md.-based Schwartz Bros.

Stuart Schwartz, chairman of the Lanham concern, conceded that “the pickings for independent distributors have gotten leaner over the years.” But he said his company, which reported net income of $707,000 on sales of $98 million in 1989, has managed to survive by expanding its territory as far north as Maine and as far south as Florida.

Major companies, however, have the staff and financial clout to distribute records to virtually every shopping mall and mom-and-pop store in the country. But as they gobble up more music, experts say specialized music can get lost in the shuffle.

Boberg said IRS Records was on good terms with MCA but left because CEMA offered a better financial deal. CEMA will handle all manufacturing and distribution for the label starting Sept. 1, and eventually about 52 titles released through the IRS distribution deal with MCA will shift to CEMA. But under an earlier agreement, IRS’ biggest selling act, Fine Young Cannibals, will remain with MCA and won’t be part of the new distribution deal.