Distribution is the way that recorded music gets in the hands of consumers. Traditionally, distribution companies sign deals with record labels which give them the right to sell that label’s products. The distributor takes a cut of income from each unit sold and then pays the label the remaining balance. Most distributors expect record labels to provide them with finished, ready-to-market, products, but sometimes distributors offer “M&D” deals.
M&D stands for manufacturing and distribution. With this set up, the distributor pays the manufacturing costs of an album up front and keeps all the income from album sales until that initial investment is paid off.

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Music Distribution Basics
In the 20th century, distribution companies were the links between record labels and retail outlets, which included music-only stores, big box retailers such as Wal-Mart and Best Buy, and bookstores. It is helpful to think of music distributors as wholesalers to better understand their role in the music industry.

Record labels signed — and still sign — contracts with music artists. They oversaw music recording, marketing and promotion. Consumers bought their favorite music on vinyl records, cassette tapes and CDs and, in most cases, it was the record labels that paid to have these products manufactured. To get album copies in the hands of fans, record labels signed deals with distribution companies that in turn signed deals with retail stores to sell the albums.

Some distributors bought albums from record labels outright, while others distributed albums on consignment. Retailers did the same thing — some bought albums outright and others agreed to put the products on their shelves on consignment.

Radical Industry Changes
Downloading brought radical changes to the music industry at the turn of 21st century.
Before crackdowns, fans downloaded millions of tracks from a wide range of artists at no charge through companies such as Napster. Although consumers now pay to download music legally from outlets such as iTunes and Amazon, sales of vinyl records, cassette tapes and CDs have plummeted, and the music industry has lost billions of dollars. Subscription services such as Pandora and Spotify have further decreased music industry revenue. With hundreds of music distributor businesses folding, only a few affiliated with the largest record labels remained. Sony, Capitol, Universal Music Group and Warner own the largest music distribution companies.

The Future of Music Distribution
There is still a role for music distributors in the digital age, even in the face of radical industry changes. After all, not every record label and musician wants to take on the task of distributing their work. For this reason, the music distributors that remain still work closely with record labels to bring music to fans; some retail stores continue to sell physical album copies.

They also distribute music to digital download outlets, even though such businesses also offer distribution deals directly to artists.

Opportunities for growth remain for music distributors that specialize in certain types of music such as classical, Latin and jazz. Some distributors have found success by focusing on certain regions and distributing music locally.

On April 28th, the iTunes Store basked in a milestone 10th birthday. Two years before its 2003 launch (as the iTunes Music Store), Apple introduced the iTunes client as a desktop music management program and implemented it as the device manager for the first iPod later in 2001. In those two years, Apple laid the groundwork for what can reasonably be called the iTunes era of music.

Apple did not invent digital music, even though for many iTunes embodies 21st century music buying. However, during the past 10 years, it has become the US’ top music retailer, with customers currently downloading 15,000 songs per minute from the app’s library of 26 million songs, according to an Apple spokesperson. Since its launch, it has evolved into the hub of a powerhouse media / tech ecosystem that turned Apple into the world’s most valuable company in 2012.

As a symbolic milestone, the iTunes anniversary encourages reflection on the past, a survey of the present and predictions of the future. Digital music continues to evolve, for businesses, consumers and musicians.

 

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SETTING THE STAGE FOR ITUNES

It was 1997 when I first heard a 128k MP3 song streaming through my then-new cable connection. Having lived in a low-bandwidth, silent, mainly text-based internet for five years, the moment was revelatory and was seared in my memory. My brain melted around the edges and I saw the promised land shimmering on the horizon. Music had arrived online, and it sounded pretty damn good.

The story of digital music started many years before the iTunes Store opened its doors. The overthrow of the industry’s status quo began surreptitiously with the compact disc, which allowed track shuffling and, eventually, ripping and burning. Music labels have looked back regretfully on the release of unsecured music discs as a hindsight-is-20/20 moment which opened the floodgates to new consumer behaviors and demands.

My brain melted around the edges and I saw the promised land shimmering on the horizon. Music had arrived online, and it sounded pretty damn good.
But it was the MP3 file format that got the ball rolling directly toward the disruptions of the late 1990s. Like an evolutionary leap, MP3 crawled out of the water onto land (well, the web) in 1995, and served as the best marker for the start of the digital music era, which spawned iTunes. The MP3 specification compressed fat audio files to a fractional size. Crushing them down made file transfers feasible in the low-bandwidth early web, but also reduced audio fidelity. (That was an easy trade for most people.) Over time, severely compressed song files became less necessary as the internet’s pipes grew bigger, but MP3 has remained in wide use at higher bit rates that conserve more sound quality.

The MP3 spec was ready for prime time in 1992, but the technology was marketed to enterprise and remained mostly unnoticed and unused on the internet. It was the introduction of desktop MP3 players a few years later that closed the functional circle of music compression and sparked new uses. Software players like AMP and Winamp were powerful catalysts of early MP3 adoption and song-trading; when users had something they could do with an MP3 track (play it), the files started flying.

SHARING AND THE SHERIFF

When Apple entered the field in 2001 with the iTunes program and the first iPod, digital music was a frontier being settled by adventurous pioneers fleeing analog tyrannies of tape, one-hit albums and high prices. From the industry perspective, the new landscape was populated by disreputable rogues intent on stealing music in digitally enabled ways; peer-to-peer (P2P) file-sharing was rampant.

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Sharing is a natural human impulse, and sharing music happened for years before MP3 in the form of home-recorded tapes. However, small MP3 files, combined with DSL and cable bandwidth being pushed into homes, led to exuberant song-sharing via email and web sites. The hunt was on for other people’s tunes. In January 1999, “MP3” became the pre-Google internet’s top search term, overtaking “sex.” There was some primal music love going on.

P2P file-sharing made finding music a lot easier by forming a central music-specific search engine that connected directly to the songs. With the advent of Napster, the demand for MP3 music was met by a spectacularly efficient supply. The web app was created by Shawn Fanning, who dropped out of college to complete the project.

“It was something that came to me as a result of seeing sort of an unmet need and the passion people had for being able to find all this music, particularly a lot of the obscure stuff which wouldn’t be something you go to a record store and purchase,” Fanning said in a 2009 interview with the San Francisco Chronicle. “So if felt like a problem worth solving.”

In January, 1999, “MP3” became the pre-Google internet’s top search term, overtaking “sex.” There was some primal music love going on.
Fanning unleashed his site in mid-1999, and it became the fastest-growing product or service in the internet’s history to that point. “I try not to think about it,” Fanning said in an MTV interview. “It’s a bit overwhelming; 20 million people have adopted it and love it.”

File-sharing is reputed to be a young person’s passion — indeed, in 2012 about half of P2P downloaders were surveyed (pdf) to be 25 or younger. But in my observation during Napster’s dramatic climb, the app cut impressively across age groups. I knew parents who were more into it than their college-age kids.

The combination of MP3 and Napster liquefied music into a mercurial stream of bits, slippery and seemingly uncontainable, and a struggle was on to determine how freely it could flow. In 1997, five years before the iTunes store and two years before Napster, Michael Robertson founded MP3.com, an early flagship of the MP3 era. It was one of the first pay-per-download and pay-per-stream platforms for musicians, and was vigorously endorsed by Alanis Morissette and others. MP3.com developed a cloud-storage component called Beam-It that verified a user’s ownership of a CD, and uploaded its tracks to an online music locker. Cloud listening is standard business modeling for the world’s biggest media-tech companies today, but in 2000, it was an instant lawsuit. MP3.com lost the courtroom battle to Universal Music Group and was eventually acquired by Vivendi Universal, UMG’s parent company.

“We debuted Beam-It in 1999,” Robertson told me. “It is fascinating to me that it took more than a decade for the industry to embrace the concept behind Beam-It. If you have the physical disc you get the digital counterpart. I feel vindicated, but part of me is saddened. For more than a decade it was technically feasible, and would have given tremendous value to consumers, yet the industry didn’t embrace it.”

Robertson also gives a rueful nod to Apple for its reputation as the industry’s sheriff, saving music from unlawful file-sharing.

“At the same time [as MP3.com], Napster came along,” he said. “It had a profound impact on the industry. Many people lump them together — ‘Oh yeah, you were doing copyright infringement … and then Apple came along!'”