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Synchronous Communication - So You See, This Touch And Go Thing Is Nothing

brokenrecord

On the day that Touch and Go officially releases their last original full length, Tentacles by the Crystal Antlers, former StreetWise, Def Jam and Rough Trade employee, and current Hypnote label owner David Rothblatt takes us through his experiences of seven -- count 'em, seven -- distribution closures and bankruptcies.

On February 18, the day that Touch and Go owner Corey Rusk announced the closing of its Manufacturing and Distribution operation, shockwaves surged through the industry. It was immediately dubbed a “sad day for independent music” and seemed to morph into a game of “Chinese Whispers” (which, as racist as that British game sounds, somehow seems more appropriate these days than “Telephone” -- the American name for it -- which should probably at this point be changed to “Tweets”). Many people ultimately interpreted the event as tantamount to a bankruptcy, which it clearly wasn’t.

And while it is easy to understand the temptation to mourn the loss of the home for about a dozen labels, including such gems as 5 Rue Christine/Kill Rock Stars, Post Present Medium and Drag City, it is also easy to ignore their indie landfill product and the dated quality of many of the rest of the labels, and equally as easy to admire the company’s long-term commitment to them. The important thing is that this was a near-bankruptcy handled as honorably as possible by a well-meaning ethical party.

The loss of jobs -- as regrettable as it always is in a bankruptcy -- is probably what gave this event the air of a bankruptcy. But I disagree that it was a sad day for indie distribution. In fact, having someone close down this type of operation in a humane and ethical manner is miles away from my own experience of enduring at least seven distributor bankruptcies (I sometimes wonder if that might be some kind of record) and losing countless jobs along the way. To have someone choose not to close down in the middle of the night and pull a couple of trucks up to empty out the warehouse or sell off the company to their brother-in-law for $1 is arguably a happy day for indie distribution.

Not only have I been through, witnessed or even been a direct party to many a bankruptcy and two “MBO’s” (one a management buyout, the other a mob buyout), but I have also recently had the misfortune of having two of my main distributors go bust on the same day. Regrettably, Hypnote was the only American label that was principally signed to Pinnacle in the UK, which in 2005 seemed an awfully prestigious way to go, befitting an old-timer like myself amongst the venerable Cherry Red, One Little Indian and Rough Trade labels, even though my label had yet to put out a record.

But due to cataclysmic shifts in the UK economy, Pinnacle went into administration on December 3, cutting 94 jobs. When Woolworth’s -- a big music seller (yes, they were still around in the UK, with 815 stores) -- went under along with its distribution arm Entertainment UK, who also had the exclusive on selling to Zavvi (the former UK Virgin Megastores) and a huge number of other stores, this not only cut thousands of jobs, but devastated the UK high street economy just before Christmas. If that weren't bad enough, the long-standing Fusion3 in Canada also shut its doors that day, leaving me high and dry in that territory as well.

This shift in the market, to put it mildly, had caused at least half-a-dozen distributors that I am aware of to go bankrupt in the past year (and probably many more worldwide). It seemed to begin with the vinyl-specialty distributors. Seems the rise of different DJ technologies -- CD decks, DJ use of Ableton, Traktor and similar software, plus the rise of digital stores like Juno and Beatport where you can easily debut dozens of tracks in minutes -- coupled with the final death rattle of turntablism (and the already near-disposable life of a dance record to begin with) on to the average DJ spinning with vinyl first caused dozens of specialty closet-sized DJ vinyl stores to shut down, so it wasn’t long before the distributors who sold to them went under. In the U.S., it was Watts Music, Unique, Syntax Music. I was lucky to get my stock back from Syntax, because I had worked out ahead of time that my labels were there on a “consignment basis”, which seems to have a pejorative connotation in the U.S. -- it was a special arrangement, but I have it on good authority that more than 100,000 12” vinyl records were destroyed.

It is important to note the comparison of the typical U.S. distribution model to the U.K. model. In the early 90s, I did a deal with APT/Revolver in the U.K. (now bankrupt, but has basically held many of its labels through to Vital, now PIAS), which at the time had such labels as the early Too Pure, Wiija and Sarah -- need I say more? I was able to observe with interest that they, along with most (or all?) U.K. distributors operated off of a consignment model, and I became so interested that I opened up a small distribution operation here in the U.S. and elected to use it in connection with distributing labels like Teen Beat, Simple Machines and SpinArt along with many smaller ones like Shrimper, Dark Beloved Cloud, Road Cone, Baby Huey, Walt, Harriet and Audrey’s Diary.

In the U.S., when a label sells “finished goods” to a distributor (who, as far as I know, always has its own warehouse), the deal is made with terms, meaning that they will pay you based on, for example, 60 days net. Therefore, if the record hasn’t sold out in 60 days, they will pay you for what has been sold and return the rest. This can stretch, sometimes to the benefit of both parties, to 90, 120 days or longer. Sometimes you might be paid after 60 days and the distributor will hold on to the balance and keep selling it if it seems worthwhile.

The point is crucial: in the U.S. “Net Terms” model, any stock you give to the distributor actually becomes an asset of the company, whereas in the U.K. “Consignment Model,” the stock remains your property until the exact point at which it changes hands to the purchasing party and at no point does it ever become the property of the distributor. I found that to be a morally superior model and believe to have been the first to adopt it for U.S. distribution. Interestingly, this model has led to the proliferation of several “bolt-on” operations -- basically, front-office sales operations that call themselves distributors but rely on the warehouse and general fulfillment operations of a big distributor, a company like Pinnacle, for example. None of these bolt-ons are especially forthcoming about their set-up, nor are they immune to the bankruptcies of the bigger fish onto which they have barnacled.

While the different models do not appear to have had any impact on the actual number of bankruptcies that have taken place in either of the territories, it does actually, in theory anyway, provide the label with the ability to get its own stock back (which, thankfully I’ve just done in the U.K.). In a U.S. bankruptcy, those 50 7-inch singles you own will become part of a huge lot of goods that will be bid on in bankruptcy court and sold off for pennies on the dollar. The chances of the label getting its own stuff back is slim, unless you feel like bidding on a huge skid of records, which might be in the same lot as a few desk chairs or file cabinets. If you look in the newspaper, you can see that there are speculators who thrive on these types of sales, as though it were a yard sale.

But despite whatever moral high ground one model might have over the other, neither seems to have prevented bankruptcy in a business that is shrinking every day. That does not mean that the U.K. hasn't seen its share of shenanigans under the very clear terms of consignment -- there's been no shortage of owners and even administrators taking the piss. The bankruptcy of dance distributor Amato, almost exactly one year after that of Intergroove, evidently involved an administrator who was the best man in the owner’s wedding (who began the operation out of the trunk of his car). Aside from apparently triggering the bankruptcy of Neuton in Germany and Cisco in Japan, it took quite a bit of aggressive intervention in this bankruptcy for anyone to get their stock back.

While my dealings with Pinnacle during the bankruptcy have gone very smoothly overall, it is really quite amazing the hourly rates that the administrator is charging for its services: £775 an hour for a “Partner” down to £74 hourly for a “Trainee.” At these prices, I really can’t imagine that there will be enough left to pay the labels even pennies on the pound for the balances owed them, some as much as £250,000. Personally, I can’t see how a label would let a distributor's debt run this high in the first place. But you also have to wonder what sane person would pay the administrators any of Pinnacle’s receivables without any incentive? What store would be foolish enough to settle their bill with the former Pinnacle at this point? I can remember when rumors that Rough Trade was going under started to hit, we (well, they) hired a guy who specialized in “Collections,” also at a rate that made him possibly the best-paid employee. I happened to sit next to him and I could hear all day long as he tried to collect amounts owed by retailers and was told, “Oh, we heard you were going bankrupt so we aren’t going to pay. We’d rather wait and see what happens.”

While the bad news in the eUK/Pinnacle bankruptcies was that it was impossible for most labels to get their big titles back before Christmas (and even then, who to sell them to?), at least they will ultimately be getting their stock back and the entire process will hopefully have been quite legitimate.

Which leads me to the bankruptcy I probably know the best, as it cost me my job at the time, the U.S. Rough Trade bankruptcy. This was an unusual one, in that it involved the U.S. wing of the legendary label, a very ambitious “P&D” arm (or “M&D”, basically manufacturing and distribution) and a very large finished goods operation that was actually responsible for most of the company’s profits. The auction itself was legend, with artists like the Butthole Surfers, Mazzy Star and Miracle Legion who had subsequently signed to major labels, but wanted their early titles back. Guess who else did? The major labels that had signed them. The result? Gibby and Mark Mulcahy and other indie stars of the day bidding against the major labels they were signed to (unsuccessfully of course). Strangers snapped up all manner of artist contracts and even the Rough Trade name was purchased by someone. Amazingly, the label has blithely continued to function using the name, probably at this point under the legitimate protection of some iteration of presumptive trademarking. As owner Geoff Travis told me jokingly (admittedly in private), “someone will probably come up and serve me backstage at Madison Square Garden.”

So you see, this Touch and Go thing is nothing.

David Rothblatt's bio
Educated at the University of Pennsylvania with a dual focus in social sciences and marketing from the Wharton School of Business, David Rothblatt began his career in the mailroom of Arthur Baker's StreetWise label in 1984. He went on to become the first employee at Def Jam before moving on to the marketing department of the USA Cable Network, where he started the music video segment of a program called "Up All Night". He was then hired away from the network by Rough Trade, where he was made Marketing Director. After the bankruptcy, he became General Manager at Shimmy-Disc where he remained for nearly five years, opening up a distribution operation and adding a second label -- Kokopop -- to round out the company's direct-to-retail activity. In 2005, David began the Hypnote label and what is now a "label group", with two other in-house labels and more coming.

Synchronous Communication - So You See, This Touch And Go Thing Is Nothing