Published on September 28th, 2012 | by Hugh Hession0
The business of music distribution
Note: This post is part of makingitinmusic’s MusicBiz101, a category that was created to answer common questions about the business of music.
Music distribution is the process of getting the records an artist makes (both physical and digital), into brick and mortar and online retail stores. All the major labels have their own distribution arm with the capacity to reach global markets. Currently, it’s down to the big three – Universal, Sony and WEA (Warner/Elektra/Atlantic). You also have independent labels who either work with true, independent distributors (usually on a regional or national scale), or have inked a deal with one of three majors. In essence, distributors are wholesalers or middlemen (and women) between the label and retail stores.
Which brings me to another point, just in case you were confused. When I talk about records, I’m not referring to vinyl, but rather any medium or device that transmits both audio and/or audio with visual images such as a DVD, CD, mp3 and yes, even vinyl!
A lot of work goes into the business of distribution. The marketing department works the releases and coordinates the placement of product through multiple outlets. The sales team works one on one with specific accounts while inventory managers handle order requests and are responsible for making sure that there is enough product on hand to meet demand.
Physical product distribution
I know. The CD is dead, right? Wrong. True that sales are in a slump (as of March 22, 2012, CD sales are down 14.4% from 2011), however the quantity of CD’s sold still surpasses its digital album counterpart. With that being said, CD’s are still a major part of the sales mix for a successful music artist.
Nowadays, the problem is not only the limited shelf space for CD’s, but the lack of retail outlets that carry them. The majority of music is sold through the big box stores – Wal-Mart, Target and Best Buy. They typically stock well-known artists with the ability to move 100,000 units or more. At this level, music is treated more as a loss-leader. The big box stores use CD’s as the “dangling carrot” that brings consumers in with the intention of buying more stuff with a higher margin (Who ever walks out with just one item?). Then you have other national chains like Wherehouse, F.Y.E and Barnes & Noble. The last in line are independent retailers. It’s these type of stores that you will see indie distributors working with the most, often on more of a regional level.
Digital product distribution
Getting your music on sites like iTunes involves working with an online, digital distributor. The most obvious are CD Baby and TuneCore. By signing up with these companies, they will then distribute your music to a wide variety of online retail stores, including Spotify, CD Universe, Amazon, Google Play, Rhapsody and more.
There are also larger, full-service digital distributors such as The Orchard and IRIS, that work more with established indie labels and artists. These companies have staffs that actively promote their artists and labels and have more leverage in regard to placement on retail online sites.
How distributors make their money
Distributors usually charge a percentage fee which varies depending on the type of deal and often, sales volume. Typical rates go from 14% up to around 25%. The higher the sales, the lower the rate. Online distribution is somewhat different. CD Baby for instance charges an up front fee upon sign-up. If you wanted to put your album into the online distribution pipeline, then you’d pay CD Baby $49 (current rate). Singles are $9.95. From there, they take $4 for every CD you sell, no matter what price point you set. Online single downloads are 25% and other digital distribution sites, they take 9%. Here is CD Baby’s current pricing structure. TuneCore is flat rate – initial album sign-up is the same price as CD Baby’s however there is a recurring annual charge. This is a comparison between CD Baby and TuneCore.
Distribution is important, but be practical about it’s functionality in regard to where you are at in your career. Like many tend to think, a distribution deal is not magic. Securing a deal is only part of the equation. The goal of a distributor is to sell records, period. That won’t happen unless you have initial, proven demand, along with an effective marketing and promotional plan, with a sizeable budget to get you there.
Likewise, online distribution gives you the potential to get your music out to a global marketplace – however you are still stuck with the proverbial needle in the haystack dilemma. It may initially seem like the easier route, however It’s no different than selling any other product or service. If you write a book and print up a thousand copies…what next?