Concord has officially closed on its deal to acquire music distribution platform Stem, the companies announced Monday.
The Hollywood Reporter first reported on the deal earlier in March. Neither Stem nor Concord disclosed financial details of the agreement, though they specified the deal encompasses only Stem’s distribution business, not Stem’s parent company, Stem Disintermedia, or its financial services company Tone.
Speaking with THR, Stem founder and CEO Milana Lewis and Concord Label Group chief executive Tom Becci say the companies had been casually talking for years, but that they began discussing the acquisition in earnest last July.
Concord is one of the largest independent music companies in the industry, with its portfolio including record labels such as Rounder, Loma Vista and Pulse Records, as well as a publishing arm whose catalogs include Rodgers & Hammerstein, Kiss, Daddy Yankee and Phil Collins.
Lewis says she made the deal with Concord to address what she calls a “graduation problem.” Artists would begin on Stem but as they grew more successful, they needed more investment and resources than what Stem could offer on its own.
In Stem’s deck it presented to Concord during the deal process, the company included a list of artists who had previously worked with Stem, including Bad Bunny, Morgan Wallen and Conan Grey. Lewis hopes to retain artists of that size now that the deal has finished. Stem had sought to close the gap through financial deals like a $250 million credit agreement with Victory Park Capital, but Lewis said those previous efforts “put Bandaids on bullet holes.”
“Ultimately, we were competing against majors that had much bigger balance sheets to write bigger checks that were more risk-tolerant and had a longer horizon,” Lewis says. “Our No. 1 priority from about a year ago became to find a real partner that could allow us to not only retain the business that we created but, more importantly, continue to win and attract the type of business that came knocking on our doors.”
For Concord, acquiring Stem gets the company directly involved with indie distribution and a class of artists who may not be looking for a record deal. And if they do need more label help in the future, Becci hopes Concord would be their logical first choice.
“The goal is to let Stem continue to grow and keep its core values and not have artists just graduate out, that’s the plan. But if an artist is graduating out because they want to, we’re also available now for them to graduate to,” Becci says.
Stem will continue to operate as its own platform, and Becci confirmed that Concord would continue to use Universal Music Group for distribution for its frontline labels and catalog.
Lewis wouldn’t confirm other companies she’d been communicating with (one source previously told THR that both Sony Music and Warner Music Group were previously interested) but said she thought other suitors were interested as they wanted to take Stem off the market. Conversely, she felt Concord wanted to let them “keep doing more of what we’re really good at.”
“Our criteria really came down to, first and foremost, finding the right partner with the right balance sheet,” she says. “The second criteria was a partner that would allow us to maintain our values, and for us, those values are being autonomous, being fair and being flexible.”
The acquisition comes amid a hot market for distribution services. Back in December, Universal Music Group-owned Virgin Music Group announced a $775 million deal to buy up Downtown Music Holdings, the parent company to music distributors CD Baby and FUGA.
As indie artists continue to eat into the major label system’s market share and artists have more leverage for friendlier record deals, record companies are turning toward distribution services and label services to grow. Becci says getting Stem in its portfolio will help the company evolve with the rapidly changing music business and attract more artists.
“You don’t have to go far back to where you had a five-album, six-album contract with an artist and they got a 15 to 18 percent royalty, and now today where the deals are more in a profit split and the ownership resides with the artist.” Becci says. “Stem has balanced out the playing field where artists have more options in the marketplace. Not every artist is going to want to take on all the risk and work themselves. There’s still a purpose for labels, and both will exist for different reasons. But now we’re here for more of the market.”
Source: Hollywoodreporter
