Portland's Allegro Sought Inventory On The Verge Of Liquidation

Several hundred small music labels and recording artists around the world are faced with buying their own music back from a Portland distributor, as Allegro Media Group proceeds with an out-of-court liquidation.

Brothers  Joe, Vince and Rico Micallef have run Allegro Media Group since 1982, getting indie music label CDs and DVDs in front of customers.

For years, labels would send boxes of their media to Allegro's warehouse. Allegro got the music placed in stores — Tower Records, Borders, Barnes & Noble, and others — then send out checks when the discs sold. It was like clockwork.  

F J Forest is the managing director of Waveform Records, an imprint that produces bubbly electronica records. Speaking from his home in Maui, Forest told us, "Originally everything was fine; we were paid on-time. We were happy with the relationship."

And then the digital revolution happened. Former employees say the company did OK at first, adding digital music distribution to its menu of services. But when music streaming caught on, the bottom really started to fall out.

William Tennant is a former product manager for Allegro's classical music lines.

"There's been such huge contraction," Tennant said. "In the '90s there were seven major label groups; now there's basically two. And the same thing has basically happened with independent distributors."

Tennant was among the lucky ones who saw the oncoming train. In 2007, he left Allegro to become managing director for the Portland band Pink Martini. He maintained a business relationship with Allegro to distribute Pink Martini's records. But last year, Tennant suspected Allegro was going down fast.

“There were delays on our checks,” he remembered, “then we weren’t being paid.”

Tennant didn't wait long to act. "In this climate, you want to move quickly when you sense there's trouble." He secured a new distributor for Pink Martini just months before the word came out that Allegro was laying off employees and liquidating most of its business.
 
The company has hired consultant Ed Hostmann to administrate the liquidation. Hostmann describes music distribution as having "gone the way of the buggy whips." 

"We're in the process of selling assets and collecting receivable, and selling hard assets," Hostmann said.

According to state documents, 17 liens have been filed against the company. Three units are being liquidated, including Allegro's main distribution arm. So, is there any way for music labels to get their CDs and DVDs back from Allegro, short of buying them back?

Related: Allegro Liquidation Leaves Labels In Lurch

"If that's their intent," Hostmann told us, "we'll be happy to talk to them about that. Unfortunately the way the laws are written, the secured creditor have the right to sell those items."

The Micallef family did not return repeated messages asking for comment.

Several labels and artists affected by the liquidation told OPB they were not notified by the company about what was happening, and they have been desperate to get information.

Forest from Waveform Records said, "I still have not got any official communication to them they're shutting down."

Waveform wants the return of a thousand or so CDs still housed at Allegro's warehouse in East Portland. Sources close to the business indicate there are hundreds of other labels in the same boat. While the company is a year or more behind on some sales payments, Allegro was still sending out purchase orders requesting more merchandise until very recently, says Forest.

“The last purchase order we got was June 2. It was one day before they called employees into a conference room and let them go with a check and said ‘So long’.”

Based on published reports and interviews with former Allegro employees, it appears about half the staff have lost jobs.

For some suppliers who relied on Allegro for digital sales, the picture is even worse. The vocal music ensemble Cappella Romana has recorded 22 albums  drawing on the Byzantine, Greek and Russian Orthodox traditions.

Executive Director Mark Powell says Allegro owes the group $15,000 in back sales. He's pessimistic about recovering that money, Cappella CDs or digital sales.

"If you want on Amazon or iTunes you'd find all our recordings," Powell said. "And you could purchase them. Theoretically the money will flow back to the holding company and we won't see it."

Andrea Coles-Bjerre directs the Business Law Program at the University of Oregon School of Law. She says the rules for consigned inventory are governed by a series of federal regulations — the Uniform Commercial Code. Those rules put the burden on the labels to protect their own interests.

"Essentially they have to file a financing statement and give notice to those preexisting lenders." Coles-Bjerre said. "If they don't do that, the liquidator can sell those assets and pay the creditors of the merchant."

There are exceptions for consigned goods valued at $1,000 or less. But Coles-Bjerre says the state rules governing these are less precise. In any case, small labels who haven't filed liens to become secured creditors just don't have as much status.

"The rules about secured creditors is that secured creditors rule," she said.  

The dwindling of the music distribution industry is neither new nor surprising to anyone working in the business. But many observers expressed dismay that the Micallefs are trying to settle their debts on the backs of suppliers.  

Greg Pastic is the former head of SRI Records, a Canadian classical  distributor that worked with 150 labels, until it had to shut down in 2013.

"When I closed the business," he said, "a lot of owned inventory was mine. Some I returned. But for the consignment labels, I contacted them and said, 'Where would you like this to be shipped?' I thought it was the fair thing to do. In most cases I'd worked with these labels a decade or more."
 
The Oregon Attorney General's office has one open complaint in its consumer division about Allegro's behavior during the liquidation.

Other labels who are unhappy are deciding whether they have the resources to try to fight to reclaim their music.