Distribution Platforms

The easiest and most comprehensive way to break down the distribution platform is to first fully understand the job of a distributor, which in short, is to transfer product from the record label to the retail outlet, serving as the conduit to point of sale (POS). There are several types of distribution companies capable of handling the job, some are wholly owned divisions of established record labels, and others are independent operations. Here are the recognized categories of distribution firms: major label distributors are the largest and dominate the distribution arena, mainly distributing major label products, and they are directly affiliated with the major labels serving in the capacity of exclusive fulfillment for their affiliated major label. There are three major label distributors: UMG, BMG/Sony and WEA. They all have tremendous warehouse facilities, capable of distributing their product within a 24-period into all major retail outlets, one-stops and rack jobbers throughout the US. They are for the most part, very well resourced and their catalogs are well represented to retail buyers at the corporate levels for nationwide buy-in and placement. These major distribution firms are additionally financially resourced to support any given project or title under distribution. The subsidiaries and partners they distribute for are the giants of the music industry; for example: BMG/Sony distributes Sony Music, Columbia, Epic, Arista, RCA and J-Records titles; UMG distributes Universal Music, Interscope, Geffen, A&M, Motown, Mercury and now Capitol, Virgin; while WEA distributes Warner Brothers Music, Elektra and Atlantic titles.

(Major) Independent Distributors

Distribution has changed within the last few years, substantially, which is the reason for the term (major) independent distribution companies, encompassing those companies that have the capability to place product in most or all major music retail chain outlets and one-stops within a 24-hour period. These distributors are also fully staffed with their own marketing, accounting, advertising, sales, shipping and receiving departments, housing products in their warehouse facilities, some equaling the size of the major distribution companies’ facilities. They are also capable of manufacturing product when needed using their own financial reserves or credit lines and not the labels, along with fronting retail advertising costs on projects that have decent sales activity. Examples of (major) independent distributors would be: Koch International—now known as eOne Distribution—ADA and Red. Obtaining distribution through a major independent firm is difficult. Many of their operational business models are based on volume, therefore they are selective about who they sign. Typically they look to sign labels that have multiple titles, a solid roster with perhaps four to six strong titles with good marketing push behind them, giving strong reason to believe that significant sales potential exists. Many times with these firms, you will need sales history verifiable through SoundScan to obtain the coveted distribution services. It is not likely that these firms will grant distribution to an independent label with only one or two projects or an individual artist unless the projects have clear and impressive sales history.

Independent Distributors

These distributors vary in size and cover US national distribution as well as regional distribution. Most of these distributors specialize in specific genres of music, choosing to operate within a niche market. Most independent labels are distributed by smaller independent distribution companies. That being said, these smaller distributors have affiliations or distribution contracts with other distributors and one-stops, creating a sort of daisy chain network or pipeline of distribution. What is interesting is that major labels go through these independent distributors as well, since they have great relationships with specialty retailers and have “niche” audiences. These operations also have specialized offices covering regional areas of the US, adding to the support of their targeted areas of distribution. It is true that with these firms you are more likely to benefit from aggressive retail promotion. With far fewer titles in their catalogs, it behooves these firms to aggressively seek product placement at retail POS; each title must sell through to some degree for the business model to work. An additional benefit of the smaller catalog is that your title is more likely to receive greater attention, as it will not simply be one of possibly hundreds under distribution. Independent distribution can be a tremendous stepping stone for indie releases, garnering the requisite sales history perhaps regionally to move up to a major independent firm. Depending on the daisy chain-like network of your independent distributor, you may find their reach to be sufficient, such that you never outgrow their capacity to place your product. You must note that dealing with an independent distributor may cut into your margin a bit more than direct distribution. These firms are essentially middle-men in the supply chain. They are granting you distribution via their proprietary affiliation, usually with a major independent distributor. The larger affiliate is returning to the independent a gross from retail minus its fee and then the independent distributor is deducting its fee or percentage in addition to that—all prior to you receiving your disbursement. An additional point is that related aspects and processes of distribution, such as returns, recalls and payment disbursement, may take longer because the process must administratively run through two companies. All in all, for the indie label, independent distribution is the answer; it represents a distribution solution that is within your grasp.

One-Stop Distributors

One-stops are regional operations that obtain product from major labels and independent distributors. They are able to sell in smaller quantities to the mom and pop stores and specialty stores, while they are still capable of buying in large quantities from major and independent distributors. The one-stop distributor can also fill back orders for the major record chains. Examples of one-stops are Super D, Alliance Entertainment Corporation and URP Music Distributors (vinyl). From the retail perspective, one-stops provide inventory with minimal restrictions on buying for smaller independent, regional chain or specialty outlets/stores. These retailers cannot and do not need to purchase large numbers of units per title. One-stops afford these retailers the ability to purchase even one or two units of a particular title for their small operations. More and more independent labels and individual artists are seeking and obtaining direct distribution with one-stops local to their home market. This is a growing and very wise trend. Typically the mom and pop retailers in their backyard are buying direct from these one-stop stores that are receiving direct promotional attention from the independent label or artist. If the product is readily available through the retailer’s usual supplier, and they can physically see promotional activities being conducted in their very town or market, they are more apt to purchase the units and you are more likely to see sell-through at these outlets. Now you are building a sales history for your release. Since the one-stops are dealing directly to retail, you are likely to be maximizing your per-unit profits. Some larger one-stops offer far greater than basic regional distribution and can place the product in larger retail chains as well.

A great example of a full-service one-stop is Super D, which services over 2,500 retailers worldwide. For more info on Super D, visit www.sdcd.com.

Rack Jobbers

Rack jobbers sell audio recordings in the nontraditional music retail stores. Stores such as K-Mart and Walmart lease shelf space to and are serviced by the rack jobber. A customer walking into a large retail store cannot know just by looking around whether that music product selling area is a department of the store, whether it is space leased to an outside firm, or whether it is serviced by a jobber who supplies the racks and bins. Chances are a rack jobber is servicing that record selling operation. Jobbers work out various kinds of contracts with the store that supplies the retail space. Among the most common:

1. The jobber rents space for racks and bins from the retailer for a flat monthly fee. The jobber offers complete servicing of the area and retains all the money collected from sales.
2. The jobber pays the host store a percentage of sales.
3. The jobber and store management work out a minimum lease fee, and then if sales exceed an agreed-upon figure in any given month, the jobber pays the store a percentage of the overage.

Retailers like record racks on their premises because they can often make more profit per square foot of floor space from this kind of merchandise than they can from other lines. Merchants also benefit from increased shopper traffic generated by the high volume of music product buyers. Rack jobbers acquire such leases or arrangements by detailing to the retailer that they can “turn” or derive profit from even the smallest area of floor space. Retailers don’t operate out of large commercial spaces to provide more room for their customers; they do so because greater floor space provides the opportunity to house larger inventories, which if carefully selected, can lead to greater gross revenues.

When rack jobbing of records was in its early stages (late 1950s, early 1960s), jobbers were content to lease small areas near checkout stands. These tiny displays had space to accommodate a very limited variety of records. Jobbers tended to display just the current super-hits and only some of them. The balance of the limited space was given to cutouts (overstock sale products). This limitation of space helped foster the “hit records syndrome”: only the hits were made available on the racks. Newer artists or lesser-known records never got a chance to be seen or heard.

Rack jobbers continue these small operations in a variety of locations. But today some installations rival the conventional record stores in size. When a rack jobber sets up a large number of racks and bins, the jobber needs clerks to assist customers and restock supplies daily. Where a rack setup of this size is in operation, it is practically indistinguishable from a “leased department.” When a jobber leases enough space for this kind of operation, the jobber has a major commitment of capital and will probably have a dedicated checkout counter and handle money separately. Large retailers can demand hefty lease payments from the record merchant/jobber and, at the same time, are spared all responsibility of running the record sales department.

Large retailers and chains, observing the success on their premises of these record sales operations, will, from time to time, decide to take over the same space, install their own record department management, then pocket the percentage formerly kept by the rack jobber. Rack jobbers try to anticipate this kind of temptation by offering the store trouble-free, profitable operations, sparing retailers the problem of trying to run a kind of retailing they do not really understand.

Individuals who started out as rack jobbers or distributors are now also heavily involved in operating “stand-alone” retail outlets. The lines between record distribution, jobbing and retailing are now blurred; some of the most successful merchants operate in all three areas. This blending of record selling operations was originally accelerated by the need of merchants to buy products at ever-higher discounts through volume purchasing. The largest rack jobber of the largest pre-recorded music, video, books and children’s books distributors in the United States music product in the US right now is Anderson Merchandisers, which services all 50 states.

Exporters

Exporting is, of course, the sale and shipping of products manufactured in one country to a customer located in another country. However, I only want to focus on indirect exporting. In international business, this involves a foreign purchaser in the local market or using an export management firm.

(Music) indirect exporters in the US appear to be a dying breed. However, one music exporter I have had success with is Disk Union.

Disk Union USA is based in San Francisco and is a subsidiary of Disk Union Japan. They are a major exporters of music and specialize in the distribution of vinyl, CD and music DVDs to Japanese consumers. Their A&R department prides itself in providing Japanese music lovers with the freshest indie sound from the US. If you are interested in having your music distributed through their parent company Disk Union Japan and its 40 retail outlets, send in your promo with information about your music to Disk Union USA (DiskUnionUSA, 2016).

Disk Union USA

1633 Bayshore Highway, Suite 120

Burlingame, CA 94010

Tel: 650–692–5510

www.diskunionusa.com

email: [email protected]

Digital Distribution

Digital distribution is now the new future and of course is growing as we speak! As you may already know, you cannot go directly to iTunes to have your music available for sale but have to go through a music aggregator. These aggregators are digital music distributors that position your music throughout all the digital retail stores worldwide. The Orchard, InGrooves, TuneCore, CD Baby, Ditto Music, MondoTunes and Believe Digital are companies that set and promote your album and/or single online, just to name a few (Herstand, 2014).

Independent Distribution Associations

A2IM (American Association of Independent Music), formerly called NAIRD (National Association of Independent Record Distributors), is an organization of independent music labels that promotes business opportunities, provides advocacy, representation and networking (Revolvy, 2016).

A half dozen or so major multinationals handle the preponderant share of record distribution in the United States. But they don’t do it all. A share of the business is in the hands of independent distributors, who provide services for hundreds of independent labels. Independent distributors usually provide promotion services as well. Some independents are just order-takers. Others have a staff of enterprising salespeople and merchandisers who call on record stores, deliver merchandise and set up displays—for instance, much like the major label branch offices do (Revolvy, 2016).

There are regional independent distributors as well as national independent distributors, some of whom have evolved through a merger or confederation of regional distributors. Large independent distributors are confronted with pleas from new firms to take on yet another line. If they consider adding new labels, management must determine whether it has the capacity to handle the increased inventory and the will to tie up additional working capital on unproven suppliers. If they stocked every recording that appears promising, they would soon go broke. But if they fail to stock new product that suddenly bursts wide open at the retail level, their local accounts will sometimes bypass the local distributor and buy directly from the record manufacturer. These kinds of management decisions have been poorly handled by many distributors. They are now out of business. Since 1972, the interests of these independent companies have been represented by A2IM. The association was originally organized to set up a distribution network in forming a unified voice in the industry for small labels and independent distributors. A2IM has now evolved into an advocate that represents thousands of independent labels and promotes business opportunities. Its national conventions provide small firms a convenient place for the exchange of information and for the forming of distribution arrangements for companies not affiliated with the major labels and their distribution networks.