Utopia Music CEO Plans to Hold Onto Distribution Services Amid Company Cutbacks

Utopia Music has no plans to sell either of its U.K. distribution businesses, Proper Music Group and Utopia Distribution Services, according to the Swiss-based tech company’s co-founder/interim CEO, as it attempts to transition from a hyper-growth company to a profitable one.

Utopia Music acquired Proper Music Group, the United Kingdom’s leading independent physical music distributor, in January 2022 amid a frenetic two-year buying spree that saw the firm rapidly buy up 15 companies spanning distribution, artist and label services, publishing and fintech.

Utopia Distribution Services was launched in September when Utopia acquired the assets of Cinram Novum, one of the United Kingdom’s biggest physical home entertainment suppliers that provides warehouse, fulfillment and distribution services to a range of labels, including Universal Music Group, Sony Music Entertainment and [PIAS].

The past 12 months have, however, seen Utopia undertake a series of extensive cost-cutting measures, including several rounds of layoffs and the divestment of three companies: U.S.-based music database platform ROSTR, United Kingdom-based publisher Sentric and, most recently, distribution and music services company Absolute Label Services.

Last week, Utopia, which is headquartered in the Swiss town of Zug, announced the closure of its research and development offices in the United Kingdom and Finland, resulting in the loss of another 25 jobs. In under one year, the firm’s global workforce has been trimmed from approximately 1,200 staff to around 440.

The company’s recent troubles also include legal action from U.S. music technology company SourceAudio over a stalled acquisition deal (Utopia says it hopes to settle the dispute in the coming weeks) and reports of unpaid tax bills in Sweden and employees not being paid on time (a spokesperson for the company says the tax debt was cleared in the spring and late payments for staff are all being resolved).

“It’s been quite painful,” co-founder/interim CEO Mattias Hjelmstedt tells Billboard in a rare interview. “Any type of readjustment is hard. I would be lying if I said it isn’t hard to take a hyper-growth company [and turn it into] a sustainable-going-into-profitability company. It’s not something you turn around in one day.”

Hjelmstedt says the streamlining measures he and the company’s board have implemented over the past year are having the desired effect and Utopia is now on a “clear path to profitability,” although he declines to discuss financial figures. (Earlier this year, Hjelmstedt told Billboard that the company generates over €100 million [$110 million] in revenue a year, although this was prior to it offloading Sentric and Absolute).

Key to its future growth, Hjelmstedt says, will be its two main physical music distribution entities: Proper Music Group, which provides distribution services for over 5,000 indie labels and service companies, and Utopia Distribution Services (formerly Cinram Novum).

“Those are fantastic businesses for us and they are actually golden when it comes to industry insight and relations,” says Hjelmstedt. He insists neither company is up for sale and says the ongoing importance of physical music distribution is often overlooked by other parts of the music industry.

“Physical distribution is still a substantial part of the business and a very big part of what makes a hit [album] today. When it comes to revenues, for us those are two of our golden companies,” says Hjelmstedt, a serial entrepreneur who co-founded Utopia in 2016 with Thomas Gullberg and has been acting as interim chief executive since former CEO Markku Mäkeläinen exited the company in January.

According to its most recent financial filings, Proper Music Group generated revenue of £42.1 million ($54.4 million) and a loss after tax of £1.2 million ($1.5 million) in the year ended March 31, 2022. The company said the loss was “mainly due to increased operating costs” and was “taking steps to return the group to profitability.” Financial figures for Utopia Distribution Services are yet to be filed.

Evidence of Utopia’s commitment to physical music came in May when it announced a long-term partnership with UAE-headquartered DP World to provide warehousing and logistics for physical music in the United Kingdom and its export markets. As part of the £100 million-plus ($125 million) deal, the two companies have opened a new 25,000-square-meter warehouse in the U.K. that is able to distribute over 30 million units a year.

Addressing the recent reacquisition of Absolute Label Services by its original owners from Utopia, Hjelmstedt says both parties amicably reached an agreement that “the company will probably operate better outside Utopia,” although says he is unable to discuss the terms of the deal. That includes confirming if Absolute’s owners paid any money to Utopia to regain control of the business — or, as indicated to Billboard by music industry sources, whether Absolute changed hands after Utopia failed to meet the financial obligations of its original acquisition deal.

“They were able to reacquire it on good terms between ourselves, so it’s good for them and good for us,” is all Hjelmstedt will say. Absolute Label Services declined to comment.

Referring to Utopia’s recent downsizing, the interim CEO dismisses the idea that mistakes were made during Utopia’s busy buying spree but concedes that some of the companies it bought “didn’t really glue together with the rest to be able to actually serve the industry as we wanted.”

Looking ahead, Hjelmstedt refuses to rule out further cost-cutting measures but says there are no immediate plans for more layoffs or streamlining. “We’re very data-driven now, which means that part of what we have to optimize and implement is performance versus cost.” He says the company’s recent actions have significantly reduced outgoings but warns that if more savings need to be made the company will “take action to get there, but right now that’s not the case.”

“The idea and concept of [our] acquisition strategy was never just to scale up to build value,” says Hjelmstedt. “It’s always been about the long game when it comes to Utopia. We’re not naive enough to think that you can change the music industry in one year. It’s going to take time.”