Allegro Media Liquidation Drastically Alters Indie Labels’ Business Plans

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Allegro previously distributed CDs for numerous independent labels.

(Photo: allegromediagroup.com)

Allegro Media, one of the largest distributors of physical recordings for independent labels in the United States, seized its suppliers’ inventories in June and is selling them off to pay its secured creditors.

This follows several years of financial troubles that included late or non-existent payments to their client labels. But it’s the surprise seizure of assets that has delivered a significant financial blow to those small labels, including many who specialize in jazz.

“We hadn’t been paid for some time,” says Darby Christensen, president of Summit Records, “so we opted to change distributors in May of this year. We tried to have our inventory sent to our new distributor after we dissolved our relationship with Allegro in May, but they wouldn’t do it. I was later told by an ex-employee that they purposefully held it.

“We didn’t know of their ‘serious’ troubles till they suddenly announced in early June that they were closing their doors and keeping everybody’s inventory. They seemed to keep the facts from all their labels and employees and then surprised everybody with the announcement.”

Rather than declare bankruptcy and go through a court-monitored settling of its debts, Allegro has chosen to pursue an out-of-court liquidation of its assets. This move has led to legal questions about who, exactly, owns the CDs and DVDs that are provided by music labels to a distributor. The labels argue that they still own the recordings and can demand that they be returned at any time.

Ed Hostmann, the liquidation expert hired to handle the Allegro consolidation, argues that those recordings belong to the distributor and must be used to satisfy secured creditors before satisfying unsecured creditors. And because Allegro has the CDs in its warehouse, Hostmann is proceeding while legal actions are filed against Allegro.

“We’re in the process of collecting receivables and selling hard assets,” Hostmann told Oregon Public Broadcasting in June. He added, “Unfortunately, the way the laws are written, the secured creditors have the right to sell those items.”

This infuriates many owners of small jazz labels, who not only haven’t been paid for the CDs Allegro has sold since last year but also can’t get back the unsold CDs that Allegro has been holding.

“We were not notified by Allegro,” claims John Yap, the owner of Jay Records. “In fact, we received a purchase order for more of our CDs the day before they started to seize everybody’s inventory. We would have shipped them the CDs if one of their ex-employees hadn’t telephoned us to warn us on June 9, about six days after they have started seizing and liquidating inventory on June 3.

“It was only after that warning that we contacted Allegro, and this was the first time that we were officially informed by Allegro. … ”

“The liquidators offered the units to us for $1 per unit, plus shipping costs,” reports Scott Elias, owner of Random Act Records. “Eventually, they called this a service charge, similar to a re-stocking charge. This is, of course, ludicrous. No one should need to purchase their own stock—especially after getting stuck for already-made sales.”

Christensen, whose label won a Grammy Award for Best Large Jazz Ensemble Recording with Randy Brecker’s Night In Calisia in 2014, says he feels a “sick sadness” at seeing a longtime business relationship ending in unpaid-for sales and an apparently “carefully planned theft” of some 10,000 CDs from his label alone.

Nonetheless, he’s pressing forward, relying on a new distribution agreement with MVD Entertainment. He’s quite happy with the new partnership so far.

Elias’ Random Act label had the biggest release of its short life in 2015, when it put out Michael Brecker and the UMO Jazz Orchestra’s Live In Helsinki 1995 at the end of last year. The album was the subject of a four-and-a-half star review in the January 2016 issue of DownBeat. The appearance of a new album featuring saxophonist Michael Brecker (1949–2007) generated buzz among jazz fans.

“As a bit of an experiment—because we’re sick of ‘legal piracy’ imposed upon artists and labels by the streaming services—we decided to release the album in North America as a physical product only, with nothing available digitally,” explained Elias. “It was selling well, relatively speaking, and Allegro kept requesting more and more and more units.

“At first, we were happy to comply. However, it is now obvious that they were literally ‘stocking up,’ with an eye toward ultimately selling our discs as their own assets. Incredibly despicable, and premeditated. We’ve never received any monies from the physical sales of this great album.”

According to Elias, it’s not just the label owners who are suffering. Because so many small-label deals are structured around the artists getting a percentage of the sales, the musicians themselves will be getting no income from the unpaid money for the sales uncompensated by Allegro nor for the CDs seized by the distributor.

Downbeat reached out to Allegro Media, its parent company the Somerset Group and Hostmann for interviews. None of the three responded.



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