IRIS Distribution: The Evolving Digital Music Distribution Market Explained

Matt Laszuk, President of IRIS Distribution, gets the digital music distribution game.

DUMBO, BROOKLYN: We are programmed to receive – and do it digitally. But before we can get all receptive, understanding digital music distribution is a must for pros of every stripe.

Originally founded in San Francisco in 2003 by Matt Laszuk and Bryn Boughton before the pair relocated to NYC in 2006, IRIS Distribution has a grasp on hitting the gap. Launching at roughly the same time as the Apple iTunes Store, IRIS was in the right place at the right time. Today, IRIS distributes to around 400 storefronts that operate online (iTunes, Amazon MP3, Emusic, Spotify) or via mobile (Verizon, Orange, Telus), servicing these retailers with about 250,000 songs worldwide to these retailers.

That’s good, because today digital distribution of music covers every internet-connected country in the world, either by web, mobile, or both. IRIS’ slice is part of a global digital music market worth $4.6 billion dollars in 2010, drawn from a pool of over 13 million songs.

A DJ, Brown University-certified mathematician, and constant combinator of music and technology, Laszuk’s big ideas for distribution came together while he was at Encirq, then a start-up company focused on bringing demographically targeted advertising to web applications. He met Boughton during a stint as a label manager, and IRIS was born. The rest, as they say, is mystery, but Laszuk, President of IRIS, does his best here to demystify the crucial world of digital music distribution.

Why is it important for today’s artists/producers/engineers/music pros to understand the digital distribution end of the business? What do you think are the common misperceptions they have about it, and how could they help their careers by understanding it better?
Music is hard work, and most of what an artist, producer, or engineer does is hands-on. Selling music, however, can happen 24/7 without constant attention. Once your marketing, publicity, and tour strategy is in place and the music is in distribution you can begin pulling income even when you’re not in the studio.

Good point. So how did you first get interested in digital music distribution?
I was swept up with the techno/rave movement on the East Coast in the early ’90s when I first started college. I loved the music and the spectacle, but also was taken by the DIY attitude and the feeling that I was witnessing the genesis of a new music scene.

I spent free time at college DJing and promoting techno around New England. After college I started my career in software development, working on web application projects moving data from point A to point B and then back again.

Once dotcom 1.0 popped I took a long look at the recording industry and saw that much of what I’d learned from software on the web wasn’t present in music retail or distribution. After that it was just a matter of applying that DIY ethic to digital music distribution to help create a forward-looking music market that independent labels could participate in.

You make it sound so easy. What would you say the digital music distribution landscape was like in 2003 when you and Bryn Boughton founded IRIS?
Prior to 2003 there was a handful of digital retailers, and for various reasons none was compelling enough to be a real market-maker. iPod was still very new, bandwidth was slow, and the biggest news in music was how important big box retailers had become to music sales.

Then, in April 2003 the iTunes Music Store launched, and for the first time everyone cared about the digital music market.

Yes, that qualified as mega! Now, in 2011, what core components of that landscape remain in place? Just as importantly, how has that landscape changed/shfted/evolved?
Distribution is more important than ever. There are more than 400 digital music retailers worldwide, and even more “storefronts” that consumers see online and through mobile and other devices. It’s still very much an ecosystem of artist, label, distributor, retailer, and consumer, in that order. But we’re seeing momentum behind artists who want to disconnect from labels to manage their careers and everything around themselves differently, including distribution.

Can you explain the “signal path” whereby a digital distributor moves its product? Where do you get your content, and from there how do you move it on physically/digitally to retailers?

IRIS is one part of 2010's $4.6 billion digital music market.

90% of our deals are with record labels, with about 10% direct with artists. Once we’re setup with the label or artist we bring in their audio, artwork, and metadata, load it into our systems, process to the different retail specifications, and then push out via the Internet or hard disk. Once it’s been pushed we start sending emails and pick up the phone to let the music editors at each retailer know what’s coming and why it’s important.

In addition to music we also have a growing catalog of spoken word content, audio books, comedy, and sound effects. That stuff is fun to work with because it’s merchandised and marketed in a very different way than music; and in many cases the copyright issues are much smaller, allowing us to be more flexible with how we sell content.

On the biz tip, can you briefly explain how a distributor like IRIS earns revenue? Are there many different various revenue streams for a digital distributor, and how do you actually get paid for moving inventory?
Our distribution business works on a percentage of gross revenue earned from retail – when the music we’re distributing sells, everyone makes money.

Four years ago we launched BlinkerActive, our marketing and special projects business, to allow ourselves to work with technology that was too young or too different to funnel into the distribution business. Podcasts are a perfect example of a technology that has a lot of consumer and label interest but doesn’t necessarily have a central system or monetizable transaction like traditional retail. BlinkerActive can extract the value of the medium by using podcasts to market an artist or album outside the digital retail network.

That sounds like a good tool to have at your disposal. Of everything we just talked about, what have been the biggest areas of growth, and in contrast which seem to be on the decline?
Our distribution business is still the core of the company — it’s the infrastructure that so many labels and artists depend on for their digital sales income. Last year we saw around 20% growth in our distribution business.

That said, the digital distribution market looks to be plateauing in the US. That concerns us because it’s still a relatively small market, and, most importantly, digital revenue is not replacing the lost revenue from the global decline in CD sales.

Technology got us here, and I fully expect technology will provide the opportunity to grow the music industry another order of magnitude. It’s very likely, though, that we’ll see a permanent fragmentation of revenue sources and business models that make up that future music market.

You have competition, so what separates one digital distributor from another? How does IRIS gain an advantage in the marketplace?
A lot of distribution is commoditized: The retail contracts, the distribution technology, and the retail reporting are all necessary components for any digital distributor. What we’ve been good at doing over the last eight years has been marketing the hell out of the music we distribute. We’ve got a team of creative and dynamic thinkers who understand music and technology and aren’t afraid to blend the two in new ways to make music pop.

You said to me in an earlier conversation that with distribution, and digital retail in general, the biggest issue is “what’s next”. Can you expand on what you mean by that?
That sounds dire, and I didn’t mean it that way. By “what’s next” I mean we’re all anxiously waiting for another opportunity to get music in front of a music lover. Activity in the mobile space, from new mobile music retailers and from mobile music applications, has been an exciting development for the industry. Home networks and the various devices in the home like Internet-connected TVs and Internet-connected gaming systems are another opportunity for the music industry. And on top of all the new technology is a number of yet-to-be seen business models and consumption models. It’s all very exciting stuff!

Show us how this all comes together — what’s a specific project IRIS has worked on lately that shows the challenges and rewards of what a distributor can accomplish?

Show 'em what you can do, hey! IRIS rocked the Arab Strap reissues.

A good example of a typical record release with IRIS is the reissue of Arab Strap’s first two albums. We created buzz around the reissues by promoting custom podcasts and videos on social networks and in online communities ahead of the releases at digital retail.

I guess it sounds really simple, and maybe it is. Like so many great things it’s about distilling an idea down to the basic components and then running with it.

Some shining day I’ll be able to do just that. Are there other music business innovators that are providing you with inspiration right now?
I’m still the boy who likes to take the thing apart to see how it works. I’m a technologist and love to play with things, regardless of whether or not I’ll be able to put them back together! Music is similar – I love experimentation and wonkiness. But then I like rhythm on top of that, and, if I’m lucky, I’ll get a good bit of bass too.

As for innovators, there are so many, but the truth is that most of the innovation in music business is coming from outside music these days. It’s really a testament to the power of music itself – people who aren’t musicians keep trying to work in music because they’ve always wanted to be part of the sound, the scene, and give back to those who make the music they love. I’m exactly that way. I guess the underlying theme is experimentation?

The HQ of this company is a California-to-NYC transplant. Why work out of Gotham when you could have stayed in the sunshine?
We started the business in San Francisco at a time that it could really only be started in that part of the world. From San Francisco to San Jose you have an unparalleled market of inventors — with dotcom 1.0 and everything surrounding it it’s no surprise that the digital music market was made there. But the Bay Area isn’t known for its media dominance. If you want that you go to New York.

For us that media is no longer just music. Its advertising, blogging, social networking, magazines, web sites, online video, and every other media that can be or will be digital. 10 years ago New York wasn’t the center of technological invention, but it’s always been the center of media exploitation. It’s no surprise either. Media is about reaching people with information, and New York has a long history as the biggest market. It’s scrappy and you can bet there’s a person here who knows how to turn just about anything into a living.

In 2011 you have a very different technology scene in New York. Many of the people who cut their teeth in the Bay Area last decade moved away from the Bay, and New York always attracts driven people. So today the technology scene here is significant, the funding is here, and New York is innovating on the edge.

— David Weiss

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