Thursday, June 5, 2008

Distribution

By, Wendy Day from Rap Coalition (www.WendyDay.com)

A very important aspect of selling your own record is getting it into the stores and onto the websites that do the bulk of the download sales. 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.

There are three things a distribution company looks at when deciding whether or not to distribute an independent 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). They also want to know that there is someone on the team that knows what they are doing (experience is crucial).

"Push" is getting the retail stores and websites excited about carrying the record so they'll order it for their stores, and "pull" is getting the consumers into the store or onto the website 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 are happy. Websites are in business to attract consumers and sell advertising because that traffic is significant.

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, the internet, etc), and support them financially through price and positioning and through co-op advertising. This is not always financially easy to do as a small label--it's tough to get a better position in the store than Sony or UNI, unless there is some incentive for a local store to hook you up--liking you is good motivation, 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 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). Sorry labels, gotta look out for the artists!

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, if they even offer that), 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. The internet is a bit easier to convince because there’s no storage issues as there are with traditional retail stores. For the clients I consult, we use TuneCore (www.TuneCore.com). It’s one place where you can upload your CD (music and artwork) and then they send it out to the major internet retail sites like CD Baby, iTunes, etc. Of course, it’s up to you to market and promote your music once it’s uploaded to the various sites.

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. These are all of the things a legitimate distributor is considering before doing business with you.

It takes anywhere from $200,000 to $1 Million per artist to properly promote a rap record (even regionally) and takes conceivably 90 to 120 days to get paid after the consumer buys the record, less reserves (the amount of money 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 records? 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 ask 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 legitimate ones 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.
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 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, it will be difficult to get paid. “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.

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 real distribution deal from a legitimate distributor, 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, and doesn’t sell well.

For someone who really wants to release a record, and I am STILL a huge proponent of going the independent route-- 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. 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?

1 comment:

Parker said...

CRM .The Easy CRM Software for Outlook. Prophet simplifies contact management software, contact manager, small business Sales CRM Software. Prophet is the easiest CRM software because it is built INTO Outlook vs simply synching with Outlook.