This section is about physical distribution: the distribution of records and CDs to high street retailers. Digital distribution is covered in the section called Music Business and the Internet.
What am I Going To DO With All These Records?
One of the main concern of the small independent label has to be distribution. This is the method by which the records that are produced find themselves in the record shops, the most important point of sale. There is little point in going through the process of recording and manufacturing what you consider to be great sounds if there is no way for them to reach the buying public, your record buying public. Self-distribution is not viable, carting records around the whole country in a van would be part of the way to madness, and would increase the costs many times. Apart from that the majority of shops won't take records off your hands unless you have the support of a legitimate distributor on your side.
What a distributor effectively does is take your records to a central location and attempt to sell them to the record shops on its already existing round along with records made and released by all the other labels they deal with. This makes delivery of the records relatively far cheaper as they form just some of the cargo of a van full of stuff, most of which is already established and more or less guaranteed to sell.
What does the Distributor actually do?
First task is to sell the recordings it has on its list. Once your records are with the distributor various things may happen, depending on the nature of the distribution deal you have agreed.
The distributor you approach will be expecting you to be offering an exclusive deal - in other words that they are the only company in the UK who have your records. There are contracts of varying levels of commitment.
Types of Distribution Agreements
1. The Direct or Simple Agreement
The record label has the records and covers, etc. manufactured and the distributor takes them and deals with them. In this case the agreements are often informal, working on a one record basis. This usually means that either party can pull out after the record has stopped selling, or if things go well they can agree to do the same again, ad infinitum if it suits both of them.
Under this system the distributor pays the label the wholesale price of each record sold minus a distribution fee of between 28 - 33% of that wholesale price. My labels sells copies of 7 inch singles to Cargo UK for £1.30 each - Cargo UK sell them to shops for about £1.70. The same for CD singles. On top of this the distributor will expect freebies which will be sent to shops/retailers. This is not unusual and acts as promotion for your product and the distributor generally.
Under this type of arrangement the distributor is making no monetary investment to the label, so it is useful for the label to seek an advance type deal in order to grow. The useful aspect of the simple deal is that in some ways the label retains much of the power, but simultaneously has all the financial liability.
If the distributor is hoping to contract such a label to the company then the label should be looking for an advance from the distributor in return for being tied to it. An advance can be considered to be a show of faith on behalf of the distributor.
2. The Manufacturing and Distribution Deal (M&D)
This kind of deal involves the distributor to a much higher degree than the simple arrangement outlined briefly above. M&D means effectively that the distributor pays for the manufacturing - the cut, the pressing of records, the printing of sleeves and labels, etc. These represent a major outlay to the record label, so not having to pay for them has distinct and obvious advantages over the simple deal. Recording is usually still paid for by the label however. The contract shouldn't be for more than one year, although (surprise, surprise) the distribution company will attempt to get it longer than that through options and extensions of time. A contract for one year with a one year option is not unusual, especially if the distributor invests a largish amount, say 20k+ in the first year.
The label will not receive any money from the distributor until enough records have been sold at the wholesale price minus the percentage (as mentioned earlier, 28 - 33%) to cover the costs the distributor has incurred on the label's behalf. The advantage of an M&D deal is that the money for manufacture should be fairly automatic and forthcoming, however, the downside is that if sales are poor the label could easily run up substantial debts to the distributor. These debts can tie labels to distributors and have continuing effects. For example, a successful release, say the third record by the label, might have to pay off the debts of less successful earlier releases. This may not seem too much of a problem until the band who recorded the relatively successful release comes knocking at the door for the money owed to them. This should never happen in the simple agreement discussed above.
With the simple deal it should be easier for the label to keep account of its monies, credit and debt, etc. With the M&D deal it is much more complicated. If the label does get into a position where it owes the distributor a load of cash, there may be ways out of it that the distributor can help with. For example, if the successful third release shows alot of promise, the distributor may advance the cash to pay the band - note, it is in the distributor's interest to help labels through some of the hard times because they have invested in them and there are financial rewards in dealing with solid relationships. Of course, this may give the distributor more clout when it comes to future releases.