Indie Labels

Music Distributors Refuse To Join Labels In The Present


Dbmtruck-591x303By Eliot Van Buskirk of Evolver.fm.

If you know people who work at record labels, you know they are not without complaint. From Napster to YouTube, half of the new technologies in the world at any time seem specifically designed to subtract money from their bank accounts — oh, and everyone thinks they’re too rich, serve no purpose, and are quite probably evil to their very cores, all because they thought it was a good idea to get a job finding great music and selling it to people.

However, we heard a new one the other day that we haven’t read about anywhere else, so we figure it warrants a little attention. A record label friend whom we will call Cornelius relays the following.

After Napster, CD burners, MP3s, sneakernet, and other forces conspired to send physical (mainly CD) sales into a tailspin, his label became accustomed to receiving a monthly check from iTunes that never seemed to change much, regardless of whether the label had a hot release or not. People were discovering this label’s music at a fairly steady rate, probably in all the usual ways, and then some of them were buying some of it from iTunes.

For Cornelius, this digital sales revenue represented a bright spot in the otherwise bleak financial news that arrived each month. But it didn’t last forever. His distributor, ADA (Alternative Distribution Alliance), crossed the revenue streams coming from physical and digital sales [updated], so when his label’s music began losing more money on the physical side as digital revenue grew, due to inevitable returns, because the thing about physical products is that you have to make them before you sell them and people are buying less physical music these days, ADA began subtracting that from his digital sales. That monthly check grew far less reliable.

In one sense, this seems fair. His label owes the distributor for those returns of un-bought CDs, and they’re the same company that puts his music on iTunes, so they should be able to mix that up and simplify accounting, rather than sending money back and forth.

But in another sense, it’s the past holding the future for ransom. Distributors’ main job, back in the purely-physical-music days, was to store big stacks of CDs, cassettes, and records, and then drive them in actual trucks to record stores, where people would buy them. The market determined that all of this storing and driving was worth around 15 percent or more of revenue. (ADA’s take ranges from 14.2-24 percent.)

Distributing physical music takes drivers, insurance, gas, warehouses, warehouse workers, tires, oil, windshield wiper fluid, and possibly heat, cooling, and other expenses.

Delivering digital music to iTunes, while not free, is pretty close to it. Cornelius says he does get data, market intelligence, and other help from ADA’s digital distribution arm, but there’s no way all of that totals the cost of physical distribution.

Either way, distributors are claiming the same percentage of revenue. That would be fine, except that the market cannot respond appropriately, because distributors won’t handle a label’s physical objects unless they are also the exclusive distributor of the corresponding digital files. In other words, Cornelius can’t hire ADA to drive CDs to record stores unless he also gives it 15 percent of his iTunes revenue, too, for doing significantly less work.

In the late ’90s, the digital media optimists among us foresaw a media landscape that would increase choice while driving down costs — in part because music wouldn’t have to be driven around in trucks. As it turns out, it doesn’t matter — labels are paying the same percentage, with or without the trucks, unless they want to go digital-only.

Cornelius assures us that this practice is fairly standard across the industry, although he has heard of exactly one label that managed to divorce physical and digital distribution, and is trying to figure out how they did it.

Can distributors hire enough social media experts, digital strategists, and FTP uploaders to justify claiming the same cut they got for driving trucks? Maybe they can — or maybe it doesn’t matter, because the only way labels can ignore them is to stop distributing physical stuff, and it’s too early for that. It might always be too early for that, considering vinyl’s ongoing survival.

In other words: Oh well.

(Image courtesy of OverDrive)


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13 Comments

  1. Eliot, I know I should never let facts get in the way of a good story but distributors typically take a 30% cut for physical distribution. That accounts for warehousing, accounting, legal, shipping, but more importantly a sales and marketing staff to work the labels physical product to the over 1,000 independent stores, several one stops, and chain and big box retailers. A typical digital distribution fee is 15%. All of this is negotiable, but those are your starting points. Also, while most distributors want to represents a labels’ digital catalog, most non-major distributors are happy to earn that part of a labels business after doing a quality (and transparent) job with the labels’ physical product. Slow news day?

  2. Sounds like Cornelius’ label needs to do a better job of projecting demand and managing physical inventory if they don’t want returns to cut into their digital income. ADA doesn’t dictate how much product is ultimately shipped into the marketplace, the label does.

  3. I totally agree with this comment. You can negotiate the distribution rates if you have enough leverage and expertise going in, and you can walk away from the deal if you lack the ability to lower the rates (or the distributor just won’t budge). No one forces you do to anything, especially since there are now other options for both digital and physical distribution available to small labels. The advantage of a distributor like ADA is the sales staff, who can help your label deal with digital stores and get great placement for their releases, if you bother to form a relationship with the people at the distributor. If you don’t need this kind of assistance, don’t sign with a distributor. Services like CD Baby and TuneCore will certainly get your stuff into the digital stores, but they largely lack the relationships that a distributor’s digital staff will have to get you placement, etc. You have to develop a rapport with these people and know how to work with them to get their attention and support. Stop pointing the finger and take some responsibility.

  4. How important are placements these days? Does anybody buy anything because it’s just displayed somewhere? I mean, you stumble about new music either via your friends, some recommendation systems, (i)radio etc. However, that’s just my own experience.
    Does somebody have any insights how important visual placements are with regards to music sales?
    Thanks for any reply!

  5. Not true – Tunecore DO have relationships with labels and feature-placers at places like iTunes. In fact they keep a monthly blog where they show transparently all of the features they get for Tunecore artists. 15% is a ridiculous fee for something that costs me ten pounds on TC.

  6. Look saying all distributors act like ADA is plain silly. This almost reminds me of back in the day when newbie when around saying the internet was going to get rid of distribution. Well guess what it didn’t and it’s simple enough to grasp that the internet is but another channel. We know that today using a FanHeatMap.com we can pinpoint where an act has traction and a forward think distributor works with retailers and the label to plan where and how to get fans to come in to stores.
    This I might add is hard work and it takes an everyone’s ability to be honest as to what to expect from the experience. However make no mistake not having music in stores is the best why to limit your potential in music business by 50-70 percent and the only way to get goods into stores is via Distribution. Any1 want to talk to an http://IndependentDistribution.co let me know we’re always looking to grow the AltavozFamily.

  7. I should clarify, as my previous comment was unclear. Yes, TuneCore and CD Baby have reps that deal with iTunes, et al. However, those two particular services handle thousands of artists and releases. In my experience, it’s harder to get proper attention from them, and their influence on reps working at iTunes isn’t as strong as a dedicated sales staff like the one at ADA. A close relationship with a good distributor is pretty valuable, if you know what you’re doing. And to reiterate – the fact that physical returns are cutting into digital revenue in this case is the fault of the label mismanaging their efforts, not the distributor.

  8. This is completely incorrect. ADA doesn’t exactly have the best reputation in the indie label world, but there are plenty of distributors that seperate physical/digital, and have no problem offering just one or the other. I’ve personally dealt with numerous distributors over the past few months, and have had nothing but positive, proactive and forward thinking support from their end.

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