Independent music: A rough trade gets rougher

Britain's struggling independent music industry is used to dealing with hard times. Bitter competition from corporate labels, the rise of digital music stores and internet piracy have all taken their toll, leaving a trail of bankrupt indie record-stores and labels in their wake.

But the news last week that one of the Britain's largest independent distributors had filed for bankruptcy sent shock waves through an already battle-hardened community.

For the smaller independent record labels, Pinnacle Entertainment was the company that made sure your albums were seen in stores and got into the hands of fans. For the independent record shops, it was one of the few remaining distributors that could keep shelves stocked with less mainstream records, giving you an edge over the high-street chains. But all that came crashing down last week when administrators were called in.

The fallout has been enormous. Hundreds of indie labels, many of them small and financially vulnerable, lost millions of pounds and are struggling to reclaim an estimated 10 million albums sitting in one of Pinnacle's four nationwide warehouses. Indie stores, meanwhile, have seen one of their main suppliers wiped off the map, and their stocks are running dry.

The timing could hardly have been worse. Christmas is a vital time for music labels who count on a big spike in record sales over the festive season. According to the BPI, the record industry's trade association, more than one-fifth of last year's album sales were made in December.

Alison Wenham, chief executive of the Association of Independent Music (AIM), says: "Pinnacle was a major distributor of independent music products and its collapse could not have come at a worse time. For the independent sector, Pinnacle was the heartland – it was how you got your music out. People I know from small record labels have been in tears to me on the phone, literally unable to trade at the busiest and most important time of the year."

The biggest problem for the independent labels is that they have almost certainly lost any sales they made through Pinnacle over the past 60 days. To make matters worse, they now have to try to reclaim any stock that has already been shipped out to Pinnacle's warehouses and find a new distributor in time for the last week of pre-Christmas shopping.

"We're £250,000 out of pocket and have 600,000 albums with Pinnacle," says Iain McNay, chairman of Cherry Red Records, which specialises in reissues. "We have to get that stock back before Christmas, otherwise it will be a disaster."

Officially, Pinnacle represented close to 400 record labels and had a 4.3 per cent share of the UK music market last year. But independent record stores with specialist music tastes would have had about one-third of their stock distributed by the company.

Not that the Pinnacle fallout is limited to small labels. Until recently, the Kent-based distribution company was responsible for getting out albums by The Strokes, The Libertines and Morrissey. They also distributed to the high-street chains WH Smith and HMV. But it is the independent sector that is, as always, most vulnerable to such seismic shocks in the music industry.

Quick to realise the significance of Pinnacle's collapse, the AIM organised an emergency meeting for the record labels as soon as the administrators were called in, aiming to minimise the impact and do what they could to get the labels' stock back. "Within 48 hours, we had our lawyers representing more than 100 record labels who were renegotiating their contracts and demanding their stock," Wenham says. "It has left the administrators in no doubts whatsoever that these labels want their property back."

The exact number of albums, DVDs and items of software stuck in Pinnacle's supply lines has not been officially released, but insiders say there could be as many as 10 million albums in limbo in its warehouses.

Martin Goldschmidt is the founder of Cooking Vinyl Records, which recently released new discs by The Charlatans, Less Than Jake and Nitin Sawhney. He relied on Pinnacle for his company's entire UK distribution network, and is now trying to get hold of stock still in the distributor's warehouse.

"We actually saw this coming and had been setting up our own distribution company," he says. "Had Pinnacle filed for bankruptcy a week later we would have been shipping our own stock. Instead, what was going to be a record year for us will now probably be a miserable one."

Many in the industry believe a number of small independent labels will now go bankrupt, too. "I think it's somewhat inevitable that a number of the smaller labels will fold," says Martin Mills, founder of the Beggars Group network of independent labels. One of his labels, Rough Trade, relied on Pinnacle but has since been able to switch to the distributor's main rival, Pias.

But Mills believes smaller labels will not be so fortunate. "Obviously, it's not good for any label to lose out on a couple of months' trading but small labels will find it particularly difficult to recover."

With CD sales down by 27 per cent this quarter on the same period last year, 2008 has hardly been an exemplary year for the industry. Now, bankrupt distributors are adding to its woes.

Why Pinnacle imploded is not entirely clear, but it certainly wasn't helped by the collapse of Woolworths and its entertainment arm EUK, which supplied DVDs and music to high-street retailers and supermarkets. EUK's demise initially appeared to affect only the high-street chains (Zavvi, for instance, was forced to suspend its online sales briefly until new suppliers were found), but now it appears that Pinnacle itself was owed a significant amount of money. Many observers say that it's something of a bitter irony that Woolworths, which only distributed mainstream records, may have inadvertently dealt a severe blow to the independent sector.

Not that this is the first time the independent labels have felt the pinch. Ever since they took a bite out of the music industry pie, storming on to the scene in the late 1970s, hand in hand with the punk movement, indie labels have had to fight both each other and the much larger corporate labels in an increasingly competitive industry.

In the past decade, the larger labels responded by launching their own supposedly indie offshoots; labels specialising in finding unusual talent and promoting less popular music, but which are essentially funded by the big guns.

Manufactured pop music now dominates the charts more than ever, making it increasingly hard for the smaller labels to sign little-known bands that then make the big time and bring in profits to help develop other artists on the label. The age of the internet – and in particular music sites such as MySpace – has reduced the influence and power of the indie labels.

Pre-MySpace, young hopefuls needed to ply the pub circuits in the hope of being discovered by an indie label and signed. Now, acts can market their music, image and ethos to millions of fans at the click of a mouse. The file-sharing age has forced bands and labels to look for other ways to make money from music, apart from album sales.

The few remaining independent distributors, and the more mainstream labels such as Universal and Warner, are now hoovering up where they can, trying to sign new bands. "In the past few days, everybody that Pinnacle represented, big and small alike, have been scrambling to find new distributors," says Graham Jones of the independent distribution company Proper Music Distribution. "The collapse of Pinnacle is good for us, but for the wider industry it's an appalling situation. You're talking about 400 labels suddenly without any means to get their records into shops, and 400 labels that are not being paid for the records they have sold."

Independent record stores, meanwhile, are engaged in an equally frantic scramble to replenish their stocks. Alan Jordan has been running his own record stores since 1982, and now owns Reflex in Newcastle. "It's already been a very tough year, but this has made things even tougher," he says. "It's early days yet, but we've already noticed that a number of fairly specific releases have just not materialised. Sigur Ros, for instance, have reissued their first album and we ordered 50 vinyls, all of which we would have sold, but they just haven't turned up."

For specialists shops like Reflex, which is regarded by music fans as something of an institution in the North-east, Pinnacle's staff were able regularly to send out boxes filled with specialist items and interesting new releases that many of the high-street chains could not get hold of or never even thought about ordering. That gave many independent record stores – 540 of which are thought to have closed in the past five years – an edge over their larger corporate cousins who constantly undercut them on price.

Jordan says he would place at least two orders a week with Pinnacle, and its collapse leaves him struggling to fill a major supply gap. "I know some in the industry are saying that they saw this coming, but for ordinary retailers like myself it came completely out of the blue," he says. "I remember placing an order on Tuesday afternoon last week and it came through the next day. When I phoned up a few hours later to place a new order I was told that the company had gone out of business."

Jordan believes he is relatively fortunate because he has been running indie stores for the past 25 years and has built up a bulging contacts book of phone numbers for the record labels. "We've been going direct to the labels to see whether they can send out parcels themselves, or to find out who their new distributors are," he says. "But I must admit I worry about the newer independent stores. Many of them might not have the kind of contacts I do and could be struggling to replenish their stocks at a really important time of year."

Lornette Smith, another veteran indie music-store owner, has been running Jumbo Records in Leeds with her husband Hunter for 37 years. She says she's heartbroken by the fall of a distribution company that had served them for almost as many years as they have been open. "It's a tragedy," she says. "They were probably our biggest account, so at the moment we're running around trying to find more stock. Speciality genres like reggae and jazz are really hard to come by at the moment; you really have to search around."

Another concern is that, with the fall of Pinnacle, the number of distributors that can cater to the tastes of independent record stores has dropped to a point where it will be difficult to find much difference between those that remain. "I don't like the idea that distributors are now going to be consolidated in the same way that record labels are," says Nigel House, co-founder of Rough Trade, a chain of independent music stores with outlets in Notting Hill and Brick Lane in London. "There's no way the remaining distributors will be able to concentrate on all their clients with as much diligence as they did because they are suddenly going to have to distribute albums to 20 per cent more customers."

But others are less pessimistic and believe that Britain's independent music scene will always be able to bounce back, even if some of the smaller labels go under. "You've got to remember that the indie music scene is full of tough characters who have been here before," says Cherry Red's Iain McNay. "My record label went through the same thing with a different incarnation of Pinnacle in 1982 and we still came through. There's a great sense of camaraderie within the indie music scene and although some may fall, others will pull together and survive."