What Indie Musicians Should Know About Physical Distribution

OK, the overall demand for physical recorded music is in a constant and steady state of decline and yes, the number of music retailers that will even stock indie music is shrinking every year. But, as strange as it may seem, sales of physical recorded music is still a multi-Billion dollar world-wide industry. So, does it make sense for an indie musician to ignore this market all together or pursue a physical distribution deal? Well,  that depends on several factors covered in this post.

Some Key Points to Know Before Considering a Physical Distribution Deal

Demand Drives Sales, Supply Doesn’t – For a retailer to even want to stock your CD or album (and order it from a distributor) there has to be local demand for it first.  Don’t make the mistake of assuming that if retailers stock your music, (because it’s really good) they will be able to sell it. It just doesn’t work that way. Retailers won’t have interest in stocking an artist’s music until their customers are regularly asking for it. Demand comes first. Regularly playing live / touring in a particular market is a good way to (hopefully) create local demand.

Sales History – If your band doesn’t have a documented track record of selling at least a thousand or more units through retail it could be very difficult for a distributor to even consider signing a distro deal with you. It may seem like the classic “catch 22” dilemma to require an artist to have a retail sales  history before retail sales of their music is an option but that’s pretty much how it works. There are several well known examples of indie artists building up demand from their fan base to the point where physical distribution makes sense,  The Avett Brothers and The Civil Wars are great examples.

Start Local – Many local indie record stores will buy local musicians CD’s or albums on consignment (meaning they pay you when they sell the CD’s not when they stock it). Establishing consistent retail sales in your local market is a critical step before considering full national or international distribution.

CD Baby – CD Baby is the absolute best place for indie musicians to start distributing physical product. Any retailer on the planet that wants to stock or sell your music can order it from CD Baby (If you have a CD Baby account and have provided them with your physical product to keep on stock). If you are interested in distributing physical product at retail start with CD Baby.

An Overview of Physical Distribution

Distributors are responsible for selling, positioning and marketing a record label’s or artist’s music with retail outlets where music fans buy music. Most music retailers won’t buy directly from record labels or artists and order exclusively through distributors. For their service distributors typically charge a percentage of price the retailers pay, 20% for example, when music is sold.

Since the distributor must accept any and all returns from retailers they typically require exclusive distribution agreements with the record labels or artists they distribute. Retailers also typically want to deal with only one distributor on a cd release so they know who to order from and where send returns to as needed. Distributors must manage their inventory levels to make sure they can fulfill orders from retailers but not have too much inventory in stock that’s not selling. They must coordinate shipments to and from both record labels or artists and the retailers.

Distributors have sales people who call buyers at the retailers and get them to order physical inventory of the labels and artsits they represent.  Retailers will often tie the amount of inventory they order to the amount of money the distributor is willing to pay in co-op marketing programs and advertising with them. These marketing programs include special product placement within the retailer’s stores, listening posts, giveaways and promotions, and often include print and online advertising. Distributors often have a staff to coordinate the retail marketing programs with their labels, agree to marketing budgets, get ad artwork and send retailers the artist one sheet summaries of the release and promotional CD’s to the buyers at the retailers. The costs of these marketing programs are often times charged back against sales

A Few Distribution Deal Details

Co-Marketing $ – As mentioned above retailers will often tie the amount of inventory they order for a particular artist directly to the amount of money being spent (with them) to market the CD or Album. Since the retailer requires a commitment of marketing dollars to promote a new release from the distributor, distributors will require a commitment of marketing dollars from the artist before signing them to a distribution agreement.

Return Reserve – A CD or record is not considered sold once it’s shipped from the distributor to the retailer. Retailers have the right to return any and all unsold copies back to the distributor without paying for them. Since it takes some time to determine what has actually sold at the retail level distributors will hold back a percentage of the sales (35% for example) from royalty payments for a pre-determined amount of time.

Free goods – Distributors will often times include free copies of the CD as an incentive to place an order instead of discounting the price retailers have to pay on a per CD basis. Retailers will be able to sell these free copies without having to pay for them. Since the retailers don’t pay for these free copies the distribution agreement will often stipulate that the artist must  provide a certain number “free goods” units at their expense.

Breakage – Most distribution agreements will include a provision for breakage of physical product. Instead of trying to account for each individual CD or album that is broken in the warehouse or during shipping a flat percentage is deducted (5% for example) from the overall sales of a particular release.

Manufacturing Costs – The artist is ultimately responsible for covering the costs of manufacturing their CD’s and albums. Some distributors will provide manufacturing services as part of their overall distribution agreement with the artist.

Shipping – Artists typically incur all the shipping charges for sending their physical product to the distributor and all the shipping costs the distributor incurrs sending the physical product to individual retailers are often times charged back against sales.

So, how does an indie musician know when it makes sense to pursue physical distribution? When they can actually make money at it is always my answer!

In my next blog post I’ll share a breakeven analysis Excel model that helps artists understand exactly how many units of physical product they would have to sell in order to turn a profit given the specific terms of their distribution agreement.