Disc Makers’ CEO Tony van Veen shares his history with the company, the changes in the industry, and where things are heading.
It was early August of 1987 when I first walked into Disc Makers (called Diskmakers back then). The company was a small, $5 million-a-year regional vinyl record pressing plant selling low-margin record pressing services to labels whose preferred payment terms were “Net Never.”
The emergence of the DIY music industry
My friend and semi-legendary drummer/showman, Martin Atkins, recently told me he visited Disc Makers back in 1986 and “rats were running around the presses, and everyone was smoking.” That’s how it was when I got there for my job interview, having just graduated college. I had played in punk rock bands in college and was enamored with the rush of writing my own songs, recording them, performing them live, pressing them on wax, and selling them at gigs and in stores. This was what I wanted to do for the rest of my life! Little did I know those 31 years ago, as I walked down the steps to the basement of the decrepit building where Disc Makers was located, that indeed, this was meant to be my forever home.
Morris Ballen, Disc Makers’ owner, and I were a perfect match. He was an amazing mentor who trusted my understanding of the nascent DIY music market as the company pivoted away from commodity record pressing for labels to value-added record pressing for independent artists. We popularized the complete vinyl record package, invented the cassette package, and eventually pioneered CD packages for independent artists.
As we focused on emerging artists, we taught ourselves to become world-class direct marketers while our competitors stayed focused on selling low-margin discs to record labels. As manufacturers, we also believed we could make just about anything, which led us to start our own print shop. Being the only disc factory in the US to manufacture the discs and print the covers meant we could deliver almost twice as fast as most of our competitors. Before long, we were the 800-pound gorilla in disc manufacturing for indie artists.
The dawn of file sharing
Fast forward to 1999. A little company called Napster burst onto the scene and it scared the living daylights out of the industry – and out of me. All of a sudden, music did not require a physical product! If we didn’t figure out how to help our artists get into this game (and make money at it), we were going to be a dinosaur… That was 20 years ago.
Of course, in the early days of peer-to-peer downloads, there was no revenue to be made. Instead, I made a deal with a plucky upstart online CD store called CD Baby, which allowed our artists to sell their CDs online. Eventually, in 2004, as Apple was getting ready to launch the iTunes store, CD Baby founder Derek Sivers digitized the entire CD Baby catalog and delivered it to Apple on a few hard drives. Just like that, CD Baby was in the digital distribution business, and Disc Makers’ artists now had instant access to a global market of fans looking to download their songs at 99¢ a pop. This was a good thing, but it didn’t get us into the digital distribution business. Long term, we’d need to own our own digital distribution solution.
In the ’70s, ’80s, and ’90s, Morris Ballen was a typical entrepreneur and had his wealth tied up in the business. In 2006, now in his late 60s, Morris decided he wanted to “take some chips off the table” for retirement and sold a majority share of the company to a private equity fund in New York. With the bonus I got paid from the sale, I bought into the business (as did a few other execs). I was an owner! A small minority owner, but an owner nonetheless. In early 2007, I became president of Disc Makers and its parent company, Audio & Video Labs (later, AVL Digital Group).
Being owned by private equity was a revelation to me. Growing our company up to this point had meant doing more, better, and smarter marketing; having the right price offers; and being better at selling than the competition. All of a sudden, backed by the access to capital provided by private equity ownership, we had a new weapon in our arsenal – acquiring other companies – and I knew exactly who I wanted to buy…
We welcome our first “Baby” into the family
On August 4, 2008, I closed a deal with Derek Sivers to acquire CD Baby after the strangest M&A process I’ve ever been through to this day. I stood on the CD Baby loading dock, being peppered with questions by a very skeptical CD Baby staff. But I loved the CD Baby brand and the mission it represented: helping artists get their music out to every market worldwide, and monetizing it. I still love that brand and its mission.
Despite signing the usual non-disclosure agreement, Sivers immediately disclosed to the media we had paid $22 million for CD Baby. In fact, at the very same time Lehman Brothers was slipping into bankruptcy and the stock market started sliding off a cliff in the fall of 2008, we had just taken on a fresh $25 million in debt. Immediately, our revenues dropped, we started tripping bank covenants, and within months, we had laid off 100 people between Disc Makers and CD Baby. Sitting in a conference room and telling group after group of employees that we could no longer afford to keep them in order to assure the survival of the business was by far the most difficult thing I’d had to do in my 20 years at the company. We had no choice. It was a scary, scary time.
We buckled down, cut costs, and kept putting one foot in front of the other. There was no other option, we had to save the business. And I knew that the combination of Disc Makers and CD Baby could be a very special thing for artists if we could only make it through the great recession — which we did by watching costs and continuing to market our services.
A long time ago, I read the book Who Says Elephants Can’t Dance? by Lou Gerstner, the legendary former CEO of IBM. The one takeaway from the book I remembered was this: Market share moves in a recession. It may look like you’re going sideways, but if you stay in the game while all your competitors go backward, then you emerge from the recession with tremendous momentum when the economy improves. That’s exactly what happened with CD Baby. While Disc Makers’ sales started to slowly decline due to the maturing CD format, CD Baby hit the proverbial hockey-stick curve and took off.
Tracy Maddux, who I had brought into CD Baby and who quickly became its CEO, did a brilliant job improving CD Baby’s operations and leading its push into publishing administration with the launch of CD Baby Pro in 2013. He also championed CD Baby’s global expansion by building a CD Baby rep network in Latin America and later in the UK and Singapore.
In 2010, after everyone around me started getting Kindles for Christmas, we saw that the nascent DIY author movement was almost exactly like the nascent DIY musician market I had been part of some 20 years earlier. It looked like a huge opportunity for the company, and later that year BookBaby was launched to help independent authors get their content to market. We were an Apple launch partner when they introduced the iPad, and BookBaby has been an exciting growth platform ever since.
Big new changes
2016 was a huge year for the music industry. After 15 years of revenue declines, the massive streaming growth from the likes of Spotify and Apple Music finally drove miniscule industry revenue growth. 2017 saw industry growth rates accelerate, and with it came a rush of investment capital – and a steady trickle of inbound calls to CD Baby about whether we were interested in selling. We made one final acquisition in 2017, YouTube monetization platform AdRev and B2B digital distributor DashGo, which filled a strategic need for the company. Then, being owned by a private equity firm — and buying and selling being part of the private equity game — we began the AVL sale process in the summer of 2018.
On April 3, 2019 the company’s digital divisions (CD Baby, AdRev, Soundrop, DashGo, and HostBaby) were sold to Downtown Music Holding, one of the largest independent publishing administrators in the world (and CD Baby’s partner for publishing royalty collection). As always, Disc Makers and CD Baby will continue to work together as long-term strategic partners.
While I’m excited for my (former) colleagues to take their digital platforms to the next level, I’m even more excited for my next move: doubling down on physical media. We are going to crush it in the physical media space!
After 31 years in the DIY music space, there’s a lot to be thankful for
I’m thankful that for my whole career, I have been able to combine my passion for music with my profession. Not too many people are fortunate enough to be able to align personal passion with their ability to earn a paycheck.
I am super thankful to my fellow AVL exec team members and the rest of our management team. They run the business day to day. We’ve been through boom times and recessions together. We’ve had layoffs and periods where we couldn’t hire fast enough. During my tenure alone, we’ve been through five (yes, five!) technology life-cycles in music: vinyl, cassettes, CDs, downloads, and streaming. Not to mention DVDs, eBooks, printed books, and custom-printed apparel for our other markets. All along, we were in the trenches together, learning, battling, competing, and winning more often than losing.
I’m also thankful to our CD Baby and AdRev/DashGo teams. I’ve gotten great fulfillment from watching (and helping) these brands and individuals grow into industry leaders. And, of course, I’m thankful to every single one of our team members at Disc Makers, BookBaby, and Merchly. Amazingly, our staff in NJ has an average tenure of 10 years. On average, every single person here has dedicated 10 years of their life to making us the company we are. How amazing is that? This is a great team. They are part of me, I am part of them, and they all have a special place in my heart.
And finally, for the past 30 years, I have been – and continue to be – SO thankful to you, our creative customers. Almost every time I walk into a bar or club with live music and introduce myself to the band, they are a CD Baby or Disc Makers client! And the appreciation they’ve shown for what our companies do for them is truly gratifying.
Disc Makers was founded 73 years ago. For 61 of those years the company was owned by one owner. For 12 years we had private equity owners. Now we’re owned by the team that’s driving the company. Just like most of you, we’re fully independent, and damn proud of it.
Thank you for continuing to trust Disc Makers with your physical media needs.
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