Peter Wells is the SVP of Operations and Customer Advocate at TuneCore . Peter began as a classical pianist, English literature teacher, senior technical writer at Cisco and director of label relations at eMusic, where he built a deep knowledge of the music business.

Part II of What Every Musician Should Know about Digital Distribution.

If you want your music up for sale in iTunes, Rhapsody, Napster, AmazonMP3, eMusic, Amie Street, Zune, BestBuy.com or any of the stores that have emerged as “big guns,” you either have to build a direct relationship with each one of them, or go with a digital distributor. Most people can’t do it on their own: as I wrote in Part I, stores simply won’t set up a deal with you, as a matter of policy, unless you’re big enough (around 200 releases or with some top-tier material already proven to generate considerable revenue, so as to attract the stores’ attentions). If you’re that big, you have your own legal staff, have been in this business a while and probably don’t need any advice from me. 

So if you are a small label or individual artist, you’re going to have to go with a digital distributor. How do you pick one? 

Aggregators

The phrase “digital distribution” can confuse: after all, aren’t CDs digital media, and haven’t they been distributed for decades? The companies that sprang up over the last few years to deliver digital music over the Internet to stores that sold downloads or streams call themselves “aggregators.” They aggregate music and materials from lots of individuals and small labels and deliver them in regular packages (weekly, daily, nightly, however they batched them together). As an individual musician or small label, you’d negotiate a deal with the aggregator to deliver the music and data and collect sales figures and earnings on your behalf. The aggregator already had the infrastructure to deliver your content to the stores, so you had to work out some way of getting your music to the aggregator (mail a disk, send the masters FedEx, etc.). Then, when the stores report sales of your music and send money, the aggregator passes it on to you. For all this service, you would pay them something. 

Aggregators are in a pretty good position: since the “big gun” stores won’t do deals with individuals or small labels but will work with giant aggregators, they’re in the driver’s seat. They were “gatekeepers,” since you can’t get your music for sale in the big stores without them. Furthermore, aggregators were born into a very well established music business that has more than a hundred years of experience with distribution. There was ample opportunity to set up deals and terms that resembled traditional physical distribution. 

So if you go with an aggregator, you’ll probably enter into a deal with them that looks a lot like the deals traditional physical distributors used: you pay an ingestion fee of some kind, are responsible for delivering your product to the aggregator somehow at your own expense, and then the aggregator takes a percentage of your sales, for however long you’re in the stores “through them.” This model is standard in the industry now, and just about everywhere you go, you’ll find some variation on it. I’ve seen percentages as high as 30% and even 50% and ingestion fees that added up to well over $100 per release. That’s a hefty cut, but hey, how else are you going to get your music into the stores to sell so you can make anything at all? 

TIP #1: Check the Percentage

When you choose a digital distributor, ask: 

• What percentage are they going to keep?
• Is there a cap, or do they take that percentage forever?
• Will that percentage ever go up?
• What are they doing to justify the percentage?
  

The last point is key: What are they doing to earn that percentage? Remember, this isn’t traditional physical distribution, this is digital. They only need to send the stores your music and data ONCE. They don’t have to have a warehouse to store it, only a hard drive (and trust me, storage is pretty cheap!). They don’t need trucks to ship it, though they do need bandwidth, ONCE, to send it along. They don’t need to package it in cling wrap or load it on pallets, but they do have to format the data to the stores’ specifications (again, ONCE). They don’t have to keep a staff of salespersons wandering from store to store to make sure your music is on the shelves as promised, it can be checked automatically, instantly. They don’t have to deal with insurance for your product (a leaky roof in their warehouse could destroy your stock of CDs, but in the digital world there’s no stock). About the only thing that isn’t changed is delivering money and sales data back to you: that’s the same for all distribution (more on this later). 

So why are they taking a percentage? Because they can: because they are gatekeepers and you’ve no choice but to use them. There is one other reason, and it’s the most important: do they MARKET or PROMOTE your music? That’s where most aggregators say they work for you, and the reason they deserve a percentage. 

In Part III: More about how digital distributors and aggregators market and promote you…or not!

Peter Wells is the SVP of Operations and Customer Advocate at TuneCore. Peter began as a classical pianist, English literature teacher, senior technical writer at Cisco and director of label relations at eMusic, where he built a deep knowledge of the music business.

Part I: Distribution and Doing It Yourself 

You can sell your music yourself right to your fans, on CDs you mail out of your home, from the trunk of your car, from a knapsack or on a collapsible table at your concerts or on a street corner. Direct selling has some real advantages—piracy is practically impossible, and as long as you track your inventory well, theft and even damage can be kept to a minimum. You keep all the money, other than your expenses. You can even decide who gets to be your customer. 

But if you want help selling, if you want other people to sell or even give away your music for you, you have to get the music into their hands. That’s distribution: getting your product into the hands of other people who sell it for you. It costs, because there’s no way people are going to do the work of selling your music unless you pay them somehow, and it costs to get the music into their hands. How are you going to decide who should sell your music for you and under what deal terms? How do you get them the music, how will it be stored, how quickly and effectively can stock be replenished? How will you track the process, audit them to make sure they aren’t making mistakes or skimming? You’ll need to communicate with them about errors and suggest how you want your music sold. There’s a lot to keep track of when distributing, which is why musicians and labels traditionally hired experts, distributors, and paid them (often with a percentage) for their full-time efforts. 

The digital music revolution changed many things: you don’t have to make CDs or vinyl or cassettes any more; you only have to make one unit and then you can duplicate it instantly, infinitely; you don’t have to store copies or even make them before you sell them; you don’t have to ship anything physical, and the cost of  “shipping” the music is negligible per copy; there’s no such thing as damage, and if something goes wrong, replacement costs almost nothing extra. Even “returns” can be dispensed with, in some cases. But it’s still distribution, and the core problems remain: who do you get to sell your music and under what deal terms? How do you get them the music, how do you track the process? Once again, it’s time to call in the experts, the distributors who specialize in this new digital world, the digital distributor. 

A word about doing it yourself

Right now, millions of people are their own digital vendors, selling their music off their Websites, using PayPal or accepting checks in the mail and using file transfers to get the music to their fans case-by-case. That works if you have a few fans, but if you have hundreds, thousands or more, it gets expensive: your Website might not be able to handle the traffic, downloading and bandwidth costs could wipe out profits, as might the costs of credit card processing, etc. Taxes and Internet vending laws can keep you up nights, too. 

But by 2008, a few key stores have emerged as the “big guns” of online music retail, and they’re the only ones attracting customers in huge numbers and generating the sales revenue. So if you want to be your own digital distributor, you need to find some way to get your music into iTunes, eMusic, Rhapsody, Napster, Beatport, AmazonMP3 and, in the case of more specialized music, a few key genre-specific online stores that attract fans of certain types of music. 

Many of these stores will not work with individual artists or even small labels. They just won’t do it, as a matter of policy. Remember, every time a store sets up with a distributor, there has to be a contract, there has to be auditing tools, a relationship must be in place, the deal terms. The stores have enormous businesses to run, they have to be able to count on the music coming on time, in the proper format, with all the legal bases covered. When it comes time to pay royalties, the stores have to issue accounting statements and checks. iTunes, for instance, would have to employ a staff of hundreds or even thousands to set up and manage deals with individual bands and artists. Even labels with less than 100 releases might be too small to warrant that kind of commitment. The legal exposure alone could cripple iTunes. So they are very, very picky about doing deals with labels directly: they prefer distributors. It’s pretty much impossible to get into iTunes on your own. 

So even though in this day of incredibly cheap and available options for creating your music, for recording it, for mixing it, mastering it, producing it and even marketing and promoting it, the one thing you can’t do on your own is distribute it, not to the top digital music retailers in the world. You’re going to need a digital distributor for help. 

Coming up in Part II: What to Look For in a Digital Distributor