Physical Distribution's New Era in Canada
After a few dodgy months, the distribution of physical music formats in Canada is again running tickety-boo with fulfillment on DVD, CD, LP and electronic game orders again flowing seamlessly to Canada's chain stores, 200-plus independent music retailers and Amazon. As too, back-orders accrued on artist and record company direct-to-consumer websites.
Unreported until now, the nation’s largest home-media distributor, Technicolor Home Entertainment, closed its domestic operations at the top of the year and consolidated its Canada-wide B2B and B2P manufacturing and fulfillment services in its massive Nashville TN complex. Before 2021, Technicolor handled all the manufacturing and back-end delivery operations for Sony Music, UMC and Warner and each's respective affiliated and distributed labels from a facility north of Toronto.
Sony, Warner Music and BMG are now using Radiant Canada, which recently expanded to a 240,000 sq. ft. warehousing facility in Caledon, ON. The company describes the complex as a “tier-1 logistics campus with close proximity to eight major highways, CN & CP intermodal terminals as well as Pearson Airport." What it offers clients is a shopping list of logistical solutions that include warehousing, e-commerce technology and transportation and distribution services. You produce it. They deliver it.
Because of its massive catalogues, Universal Music Canada chose to continue its relationship with Technicolor. Among its proprietary imprints are Republic, Geffen, Island, Motown, Polydor, Virgin, Def Jam, Capitol, Interscope, A&M and Deutsche Grammophon, alongside a number of Canadian imprints such as Six Shooter, and another 30-plus catalogues represented by Cadence Music Group's Fontana North distribution arm.
Ashley Ballantyne, UMC’s senior communications' director explains as follows: “In Spring 2020, Technicolor advised us they were exiting the distribution business in Canada to further consolidate their operations.
“At this time, UMC did our due diligence and explored a variety of options – here in Canada and in other markets. As we evaluated potential partners, there was no other supplier that could handle our high-volume SKU-count (upwards of 30,000 SKUs, while maintaining our competitive advantage in keeping overall costs to labels, retailers, and consumers, and partners consistent. Ultimately, given their overall capabilities and our long-term relationship, we made the decision to shift to Technicolor’s Nashville distribution hub. The majority of studios in Canada also chose Technicolor in Nashville. We’re all part of a global marketplace, with most record pressing facilities and distribution houses supporting clients worldwide, and for the past number of years Technicolor in Nashville has been supplying UMC with finished goods in Canada, so now our distribution is now under the same roof.
She adds that “the cost of distribution has also significantly increased over the years, so UMC is focused on ensuring our distribution remains competitive and cost-effective, enabling us to distribute partner products and support retailers with competitive pricing.”
Feedback from the street confirms the strategy is working in spades, with initial hiccups resolved and fulfillment and prompt deliveries on orders now normalized.
The result of the realignment by the Big Three is that we can expect to see a significant upswing in weekly MRC sales data (formerly Nielsen SoundScan). Because of store shutdowns and the hiccups involved in transferring inventories to Radiant and Technicolor, weekly reports have been grim on the physical side. YTD comparisons with 2020 show CD sales down 43 percent, but in the past week these have bounced back with recent data showing over 46K sold for a week-on-week gain of 37.3 percent.
The vinyl LP continues to be remarkably resilient, posting a 30.7 percent gain YoY, despite lockdowns and fulfillment disruptions in the market. These gains can likely be attributed to artist website sales and Amazon’s dominance as an online retailer in Canada.
The shutdown and closure of Distribution Select on July 2 has hundreds of small imprints in Quebec in talks with independent distributors and the majors. It is highly likely that the a greater number will forgo physical sales and opt to go all-digital,l with Believe at the front of the list of providers.
There’s also Propagande Distribution, an established Sherbrooke QC-based firm offering physical and digital distribution and manufacturing. It currently handles logistics and manufacturing for a number of significant Québécois acts including Les Cowboys Fringants, Daniel Boucher, Ludwig von 88 and Philippe Brach. Notably, Propagande took on distribution for Outside Music after founder and president Lloyd Nishimura took his business away from Select last year.
The biggie that has both lasted and continues to have an enviable reputation for fill-rates and service is f.a.b Distribution, founded nearly 20 years ago by Iain Walker and Renée Papillon. Already a powerhouse distribution company with a strong lead in the resurgent vinyl LP business, the company took over distribution for the Beggars group of labels that count Beggar’s Banquet, 4AD, Matador, Rough Trade, XL Recordings and Young Turks and a catalogue of eclectic au courant artists ranging from Adele to Bauhaus, Beck, the Pixies, Gil Scott-Heron, FKA twigs, and The Prodigy. Other money-in-the-bank catalogues include Sub Pop, Polyvinyl, Constellation (home to Godspeed You! Black Emperor), Dualtone, Secret City, and Jagjaguwar. The Beggars account alone is worth millions of dollars in billings annually.
For Linus Entertainment, the umbrella company for a number of imprints, including True North and Stony Plain, the option has been to assign physical distribution, in this case to Fontana North, which in turn is distributed through Universal Music Canada. It provides certainty that shipments are going to be paid in full.
Linus president Geoff Kulawick has a legacy deal and a strong catalogue, so he has been able to negotiate a deal where Linus retains digital distribution which goes through IDLA, a Canadian entity created by and serving an amalgam of Canadian record labels.
While the significance of physical sales is often discounted, it still represents as much as 25-percent of the revenue stream for Canada’s music industry, accounting for as much as $70M in wholesale dollars. That’s a lot of dough, even if the margins are slim.
For artists and record companies, B2B and B2P sales remain a significant part of the recorded music economy and, depending on the genre, remain an indispensable tool in creating a buzz for new and developing acts. On the other flip side, legacy acts continue to be a gravy train with evergreen catalogues account for as much as 60-percent of all physical sales in today's market.
While the streaming economy leads in revenue for the major labels there's still handsome profits in multi-disc collector editions that can spin a single album into a multi-disc boxed set. The trend line indicates that the days of the CD and the LP are in fast decline, but for now physical is still an import part of recorded music's economy and for a great many artists and music aficionados that's a good thing. To logistics company it's even better than good. It's a profitable business that keeps the wheels of commerce churning.