Distribution

By, Wendy Day

A very important aspect of selling your own music is getting it to the consumers via digital download sales sites and getting CDs into retail stores. Getting onto digital sites is as easy as uploading the music—it takes up no retail space, so it’s relatively easy to get accepted onto any music sales website through an aggregator.  

For traditional stores, there’s no shortcut here; hard work is the only way to do this unless you have an incredible buzz, a recent sales track record, or a fool proof guarantee of record sales to the retailer. The important aspect in this equation is leverage. For example, an established indie artist who has a track record of sales may have an easier time getting his or her record into stores than a new or unknown artist because the name is more recognizable to retailers and fans.  A new artist with no budget to market and promote has little to no chance of securing legitimate distribution.

With rap music, sales are still around 50% CD and 50% digital download (although singles are almost all digital today).  It’s leaning more and more digital, and soon we will stop pressing CDs altogether, but for now, CDs still matter.  The younger and more mainstream (pop) your audience is, the more downloads you will sell versus CDs.  The more street an artist is, the more CDs are necessary for sales.  By excluding either CDs or downloads in your sales mix though, you are leaving money on the table and allowing bootleggers to collect your money.

There are three things a distribution company looks at when deciding whether or not to distribute a record label: The quality of the product (music), the flow of the product into the pipeline (does the label have enough product to release something every few months), and the economics (does the label have enough financing to be a real record label and cause “push” and “pull” through the retail stores).

“Push” is getting the retail stores excited about carrying the record so they’ll order it for their stores, and “pull” is getting the consumers into the store to buy the record. Retailers are in business to sell records, be informed about artists and their releases, create store loyalty, provide a local service (sort of a music industry center in their local area), and make a nice profit. I find that if you treat them as such, and with respect, they will be happy.

The stores don’t owe you anything as a new label— bear in mind they’ve seen many, many labels come and go. It’s your job to convince them you are serious as a label: understand their strengths and difficulties (competition in local markets, credit concerns, etc), and support them financially through price and positioning and through co-op advertising (not always financially easy to do as a small label—it’s tough to get a better position in the store than Sony, WEA, or UNI, unless there is some incentive for a local store to hook you up—liking you is good motivation, and bringing the artist through on promotional tour to sign autographs is another good motivator).

In a perfect world, retailers want to carry product that will fly off the shelves at breakneck speed regardless of the price they are charging. Read that again, it’s important— retailers want to carry product that will fly off the shelves at breakneck speed regardless of the price they are charging! Just having a good album does not insure this. Proper set up, a strong buzz on the streets, strong awareness of the project, radio play, a healthy budget spent properly and efficiently, added to good music does insure this.

Bear in mind that when a record sells at a discounted price, the retailer is not absorbing this financial loss, the label is. The label reduces the wholesale price by a percentage often by offering more units for a fixed price to make up the percentage difference— for example a 10% discount might be offset by offering one record free for every ten ordered instead of lowering the invoice by 10%. By the way, this free “11th” album is considered promotional (“free goods”) and the label is NOT responsible for paying artist royalties on that unit (which is a very good rationale for artists to limit their “free goods” in their recording contracts).

Because most new labels don’t have a track record or the proper financing to have flow of product yet, getting distribution even locally through a legitimate distributor is difficult. The goal is to have enough leverage to negotiate from a position of strength instead of when you need something. And waiting until you no longer need distribution is hard as hell. That means you have to go to each retail store, convince them to carry your record (often on consignment), and then convince them to pay you for it. Once the record is selling sufficiently, it’s no longer a struggle, but it’s still time consuming to go to each store to pick up your money and deliver more records.

Once the record starts selling, or has an incredible regional buzz, the distributors will become interested and you just need to ask what they can do for you that you can’t do yourself. Is what you’ll gain worth giving up 20 or 25% of the money? Sometimes yes, sometimes no. A regional distributor (like Select O Hits) can expand your coverage area (provided you can afford to expand your area with promotions). But you must weigh the cost of that service.

When a distributor looks at your company, preferably through a business plan so they can see where you’ve been and where you’re going, they are looking to see how feasible and realistic it is for you to last over the long haul. Do you have proper staff in key positions: retail sales, radio promotion, video promotion, marketing, publicity, street promotions, finance (very key position), etc. These positions can be outsourced as necessary, but the distributor needs to know the company has the potential to last in an industry where most have zero staying power.

Do the artists or owners of the label have experience and connections in the industry? Have they ever sold a record before in their lives? How have they done it? What is the likelihood they’ll be able to do it again? Do they understand how the industry works? Will they still be in business down the road or will they fold if things don’t go as planned? Are they properly financed or are they in over their heads? Properly financed means enough money to press, create and fill demand, and repeat this process for a few records in a row without depending on immediate income to sustain the company.  What are they doing with digital sales? Are those releases priced competitively with the CDs?

It takes anywhere from $200,000 to $1 Million per artist to properly promote rap music regionally and takes conceivably 90 to 120 days to get paid after the consumer buys the CD, less reserves (the amount of $ the distributor keeps to offset returns from the retail stores— usually 25% is kept and then liquidated in 6 to 9 months, depending on who negotiates the deal and your level of power in the negotiation). Can this label sustain that kind of commitment or will they run out of money half way through the first project? What is their reputation in their local home base? Have they sold records before? Do they understand how the music business operates? How hard do they work? Will they continue to work hard or will having a distributor make them lazy? How serious are they about putting out CDs? What’s their vision—where do they plan to be next year? In 5 years? In 10? These are the questions a distributor is asking themselves about you and your project.

If a distributor likes all the answers they get about the record label (both to themselves and others), they then choose to distribute the records for a period of time (most likely 3 years) and set the percentage they are willing to split (80-20 is great, with 20% going to the distributor and 80% to the label), the length of time in which they are willing to liquidate reserves, and the amount of advance they are willing to part with, if they advance monies at all—most do not.

The more risk they take and the more they give you upfront, the less you will receive on the back end split. The skill in securing a banging distribution deal is how badly they want you and how much power you have when approaching them.

Regarding digital distribution, a label can go through an aggregator like TuneCore, where you pay to upload your music and then 100% of sales are passed along to you.  The aggregator gets the release posted on all of the key download sales websites that matter.  It is still up to the label to market and promote the release for sale.  Most distributors of CDs also do digital distribution.  Unlike TuneCore however, they take a percentage of your digital sales, too.  So if your split is 80/20, they take 20% of your digital sales, as well, after the website takes their cut (iTunes, for example, takes 30% so your distributor would then take 20% before cutting you a check).  Almost all distributors will want to handle your traditional and digital distribution.  It’s difficult to carve out digital rights separately.

So what’s a label to do? First of all, let’s clear this up out the gate: not every person putting out a record is a record label. A real record label has a small staff, it has more than one release in the pipeline, and it is properly funded. Without the proper financing, someone releasing a record is just that—someone releasing a record. Without being a real record label, there is no “juice,” no clout, and no leverage to insure payment. Please understand the difference between being an independent record label and being an entrepreneur trying to control one’s own destiny (and marketing).

Someone who comes to a distributor with zero experience selling records, one album/release with no set plan to have others follow, and asks for an advance to market that record, is deluding himself (or herself) into thinking he (or she) will get paid. Without pipeline [“Pipeline” is the release of subsequent albums that a distributor would be able to recoup any monies from, if there were returns on a prior release therefore it is another form of leverage to insure payment from a distributor] it will be difficult to get paid. And even worse, that person is making it harder for everyone out there who has a plan, has a roster of projects to release (pipeline), and has their own financing.

Distributors have lost so much money on poorly planned record releases over the years that they tend to shy away from new projects now. It is harder than ever to get a distribution deal, and harder than ever to get paid. It used to piss me off when I saw the bullshit some distributors chose to release, but then I realized that the average distributor knows NOTHING about rap music or what’s hot on the streets, other than “is it selling or not,” so when someone arrives on their doorstep with the “hottest CD in the world,” they tend to take a chance on it. Guess what happens when they lose $50,000 on “the hottest CD” in the world, a few times in a row! It gets harder for everyone, and the distributor stops taking such a high risk on new records. Unfortunately, that’s where we are right now. The market is overcrowded with mediocre music that doesn’t stand out.

For someone who really wants to release a record, and I am STILL a huge proponent of this, it’s not hard to just do it right! This is not rocket science. It’s easier than selling most stuff on the street—and legal (although some of the records I’ve heard lately ought to be illegal). But just understand how it works, what a distributor is supposed to do and not supposed to do, and be able to look at things from the perspective of others: the distributor, the retail store, the promoter, and the radio station. Easy, right?

A Distributor is the person who gets a CD from the pressing plant to the retail stores. That’s it. They sell it to the retail store at a wholesale price, and in a perfect world they keep 20% and give you the rest. They distribute the record. Involved with that is warehousing the CDs that have not shipped yet, keeping track of the money by invoicing stores and recording the payments (and chasing money that’s due), having their sales staff talk to retail stores about it (hopefully), and collecting the returns which is the left over product the stores were unable to sell.

Returns are the scourge of distributors. Not only do returns cost them money in shipping, but also they take up valuable space and staffing in the warehouse, and mess up their books financially. So if a release has a lot of returns (or even the threat of a lot of returns), that label will lose their distribution deal and it will be next to impossible to get paid. Retail stores remember the labels whose product gets returned, and it makes it that much harder for the label to sell more records to the retail store next time, no matter who the distributor is.

I’m going to repeat myself here: a Distributor is the person who gets a CD from the pressing plant to the retail stores. It is YOUR responsibility to get customers into the store to buy your CD. How you do that is your problem, NOT the distributor’s problem. You are responsible for making the music, marketing the release, promoting the music, building awareness of your artist and the release, and increasing sales. YOU are responsible for the cost of that, NOT the distributor. The distributor doesn’t bill you for the cost of their relationship with the retail store, nor should you depend upon the distributor to pay for your costs to market the record. If you need an advance from the distributor be prepared to give up most of your control, all of your leverage, and a bigger part of the profits (provided you get paid at all—if the distributor is funding your release, it’s not rocket science for them to figure out you can’t afford an attorney to sue).  By the way, funding is the #1 difference between a record deal and a distribution deal, so if you need an advance, then you probably need to find an investor or sign to an established record label.

I do not hear many good stories about distributors in urban music, maybe a handful in the past ten years. Most distributors lack the necessary relationships to be effective with the few urban retail stores and chain stores that are left, and very few pay when they are supposed to. I have seen distributors ship product early (way before the release date), bootleg records, renege on advances, stop working records due to convoluted threat of lawsuit (and then do a side deal with the person threatening to sue), lie, ship records overseas where they can not be tracked by SoundScan, freeze payments for no reason, declare bankruptcy, not liquidate reserves, etc.

The only way to guarantee that a distributor will not operate solely on their own self-interest, IN MY EXPERIENCE, is to sell enough CDs to control the situation. This is how labels are able to get paid enough from one release to put out another. This is how labels control their situation instead of being ruled by their distributors. This is how Cash Money was able to grow into the powerhouse that allowed me to get them an outstanding major distribution deal at Universal. This is how you can, too.

Although there are such things as pressing and distribution deals (P&D deal), a distributor should NEVER be allowed to control the pressing of the CDs until you have a life long relationship with the distributor. By arranging for pressing yourself, you can control the payment of previously sold CDs and downloads (“I’m not shipping you another 15,000 units until you, Distributor, pay me for the 30,000 sold last month according to SoundScan”). This is the leverage the distributor uses at retail stores to get paid, so use the same leverage to get your money, if necessary. By pressing the CDs yourself, the bootlegging possibility of your music is reduced. Control your own pressing. The distributor will want to control the pressing obviously, because it guarantees they’ll get the product when they need it (they may be afraid you’ll run out of money before subsequent pressings), and because it’s another way to make a few extra dollars profit. If they pay 40 cents a CD, they can charge you 90 cents a CD and make an extra 50 cents per each CD pressed.

About 4 to 8 weeks before the release date, the distributor sends a copy of the CD to all the retail stores they have accounts with (this doesn’t mean all the retail stores in your market, so find out who they do not sell to, and sell them directly or through a “one stop”. When selling directly, get as much money upfront as possible; it may be the last money seen from that store unless the release is super hot and they need to pay to get more in stock). The distributor solicits “pre-orders” which tells them how much demand exists in the marketplace for the release. This tells everyone immediately whether or not you’ve done a good job setting up the release. This is the moment where the distributor gets excited about the record or banishes it to the bottom of their sales list.

If they are excited about the release, they will set up sales programs (discounts that actually force the sale of more CDs, and/or price and positioning where you pay for a premium location in each key store for the release to be displayed). A good amount of pre-orders will make the release a priority for the distributor, which means the sales person will mention the record on their weekly sales calls within the top ten releases or so. With unimpressive pre-orders, the release gets relegated to the bottom of the list, which the sales person may never get to mention depending on the length of each weekly call. This position can get turned around if sales miraculously pick up, but obviously avoid this position at all cost, even if it means pushing the release date back until a stronger buzz is built. This reinforces the importance of your own staff calling retail stores to sell the release in tandem with the distributor’s sales efforts.

Once the distributor gets your CD into retail, the goal is to have it sell as quickly as possible off the shelves. One way to ignite retail is to ram the song down the throats of radio listeners so that they fall in love with the song. The way to ignite radio (and subsequently retail) is to have hit records. A hit song is catchy with a memorable hook that people keep in their heads all day, whether they want to or not.

Almost every album Def Jam puts out, sells. Some labels have the opposite track record where almost every release guarantees a return. Why would a retail store stock it!?! Let’s look at this logically: if you owned a record store and every unit I sent you had to be shipped back eventually, would you continue to take a risk? Consider how small the average retail store (or the urban section of a chain store) is, and that every record that sits on a rack is taking space away from 2Chainz, or Jay-Z, or T.I., or Drake, or Kendrick Lamar that will most likely sell. If you made a living from selling records, what would you choose to have in your store: Jay Z or an unknown rapper from a label or distributor that has every record returned? This stigma also exists with distributors. There are some distributors, just like there are some record labels, that retail stores will not do business with because they’ve been burned too many times. You do not want to be that label, nor do you want to be coming to a retailer through that distributor, so do the research before choosing a distributor.

Call retail stores in the local and regional area where you want to do business and ask who the best distributors are for the type of music you want to sell. And set up the release properly. A good set up takes three to four months to build a strong buzz. Putting out your own music can be very rewarding…provided you know what you are doing, and do it properly.

Comments

[Wendy Day]

I apologize for the formatting and spacing of this article, my computer froze in mid-edit and then posted the article before I could finish making it pretty. Ugh!!