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.
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.