Indie Landslide Starts At Pinnacle

The collapse of one of the U.K.’s leading music distributors has sent shockwaves through the independent sector and caused its trade organisation to call an emergency meeting.

The news that Pinnacle Distribution is in danger of tanking has left dozens of indie labels wondering how they’ll get paid, how they’ll reclaim stock and how they’ll get their records in the shops.

Pinnacle supplies CDs, DVDs and games to retailers such as HMV, Amazon and WH Smith, and is one of the U.K.’s largest independent distributors.

It reportedly had a 3.8 percent share of the albums market – mainly indie releases – in the third quarter of 2008.
Its collapse into administration comes a week after EUK, Woolworths’ entertainment distribution arm, was forced to stop trading.

Pinnacle has appointed Matthew Tait and David Gilbert of BDO Stoy Hayward as joint administrators for companies listed as Pinnacle Entertainment and Windsong Holding.

The distributor serves so many of the leading U.K. indie labels, including Dramatico – which has The Katie Melua Collection – Bella Union and One Little Indian, that its demise is likely to cause serious problems throughout the sector.
Pinnacle’s move is basically the same as Chapter 11 bankruptcy in the U.S.

“I think this could seriously hurt labels if they sold records and don’t get paid,” Orchard co-founder Scott Cohen told Digital Music News. “Labels are scrambling for new distribution.”

“This Pinnacle thing will put a number of labels out of business,” said Rich Masio, senior director of content acquisition at digital distributor IODA.

The sudden collapse of Pinnacle prompted the Association of Independent Music (AIM) to also hold an emergency meeting in London Dec. 4.

AIM has sent a letter on behalf of 92 labels to BDO Stoy Hayward terminating the labels’ agreements with Pinnacle and asking for confirmation of when they can collect their stock from Pinnacle’s premises.

AIM chief exec Alison Wenham says the organisation will do everything possible to help the affected labels minimise their exposure and manage all necessary legal and financial matters as quickly and as cost-effectively as possible.

Tait, a BDO business restructuring director, released a statement saying Pinnacle has been “affected by the sudden and steep downturn in the U.K. economy.”

Pinnacle handles distribution for about 300 independent labels. Millions of albums, including the Melua collection, are waiting in the pipeline.

Many indie and major labels were already suffering from shrinking CD sales, lower consumer spending and serious liquidity concerns.

Labels that desert Pinnacle may get dropped to the back of the line when it comes to recovering money and product, according to Digital Music News.

If it’s true, it could starve a lot of indies that can’t afford to not get paid but have no money to continue working through Pinnacle.

Analysts including UBS are predicting the collapse of Woolworths is likely to have an effect on HMV, which publishes its interim results Dec. 11. They believe the short-term flood of heavily discounted stock from Woolworths may eat into HMV’s sales and margins.

Dresdner Kleinwort also doubts the company will be able to match last year’s strong Christmas sales, mainly buoyed by a games division that has already said “we do not think that HMV will be immune” from the general economic downturn.

Woolworths is “increasingly unlikely” to be sold as a going concern, according to Financial Times. The paper spoke to potential bidders for the 800-store chain, but reported that all are worried about re-stocking the stores while EUK is in administration.

It’s hard to imagine a bleaker time for High Street record stores, said The Observer, predicting that many may struggle to stay in business.

The leading Sunday paper says an already declining industry and the financial problems threatening big distributors may lead to a future without small independent record shops. It said the future of the CD may also be in jeopardy.

Recent market research predicts digital channels will soon account for 80 percent of singles sales, further squeezing the High Street stores.

It’s also shaping up to be a disappointing holiday season for U.S. music retailers, according to Reuters, which reported that sales immediately before Thanksgiving were down anywhere between 5 and 12 percent.