INGROOVES UNIVERSAL
2
Its nearly noon at the Hotel San José, and
music executives are still stumbling through the courtyard, casualties of the previous nights festivities. The entire industry has descended upon Austin, Tex. for a week of schmoozing and boozing at South By Southwest.
Robb McDaniels, 37-year-old founder and CEO of digital music distributor INgrooves, is in slightly better shape. Sporting a lightly rumpled button-down and a close-cropped beard, he sips his coffee at an outdoor table–and spots Griff Morris, an executive at Swedish label X5 Music. Griff! Whats up?
Morris sidles over. McDaniels tells him he spent the previous night on the couch of a fellow INgrooves executive rather than pay for his own room. Morris shakes his head. Ive got a house down here if you ever need a place to stay.
Youve got a boat in L.A., a house here, says McDaniels in mock exasperation. What am I doing wrong?Morris laughs. Not spending your money, apparently.
Thats something of a McDaniels trademark. A decade ago he launched INgrooves out of his spare bedroom. Since then hes raised over $50 million in capital and built a staff of 140, becoming one of the worlds largest distributors of digital music. INgrooves is home to acts from Mac Miller to Dolly Parton and small labels like X5 but also handles distribution for Universal Music Group, the worlds largest record company.
McDaniels was in Austin for a party hosted by his company and Fontana, the distributor of physical and digital music, which INgrooves recently acquired from Universal for a reported $5 million to $10 million. INgrooves lost money last year on $41 million in sales, up from $24.4 million in 2010. But Fontana should help send revenues past $125 million this year, when McDaniels expects to turn a profit. His gross margins: 25%.
His premise is pretty simple. An artist or label sends INgrooves a digital recording; the file is entered into a system, automatically converted into the proper format and pushed out to iTunes, Amazon.com , Spotify and 600 other online and mobile retailers. When someone buys the MP3 or streams the song, the artists royalties get passed along to INgrooves, which pools them from the different sources and cuts the artist a check. McDaniels charges retailers nothing; INgrooves takes 10% to 30% of the wholesale price (a typical album retails for $10 and wholesales for $7).
INgrooves: Proof You Can Make Money On Music, Even If You're Not Apple