Our take...
Digital distribution is a crowded and consequently a fiercely competitive sector. Small players are already engaged in a race to the bottom: for example, WaTunes scrapped distribution fees completely in March 2009, while TuneCore, unlike larger players such as CD Baby or The Orchard, charges a flat rate for each piece of content and does not take a cut on the royalties payments received from retailers.

Major digital distributors are increasingly looking for ways to also offer some form of physical distribution service. In a very similar deal to Sony Music/IODA, INgrooves took investment from Universal Music Group (UMG) and formed a strategic partnership with Fontana, UMG's independent distribution subsidiary, in March 2008. The Orchard gained a foothold in physical distribution through acquisition of TVT in June 2008. Another major player in the field, CD Baby has in fact emerged from what originally was a physical distribution business.

The Sony Music/IODA and UMG/INgrooves deals should also be seen in light of the scramble for new sources of revenue by the Majors. Unlike a number of more novel models trialed by big labels (such as artists relations, live music, merchandizing and other music-related endeavours, often labelled the '360 approach'), this is a direct extension of Major's traditional business as a significant share of physical sales of independent music has historically been generated through distribution partnerships with the Majors.