How Distributors Pay
by Ben McLane, Esq.
For an artist to increase his or her chances of selling records, a record distributor must be utilized. This article will attempt to simplify how the artist gets paid by the distributor.
The artist/distributor relationship at its most basic is as follows: (1) the artist records a record; (2) once the record is manufactured, a distributor will sell the record to a store; (3) the store will, in turn, sell the record to a record buyer. Hence, the distributor's main job is to sell. Ancillary to the function of selling, the distributor will also warehouse the record, ship the record, collect the money from the store, and pay the artist. Occasionally, a distributor will also promote and advertise an artist, but that is the exception.
Once the distributor receives an order from a store for a record, it will sell the record to the store at a wholesale price (far less than the retail price). From the wholesale price it is paid by the store, the distributor will then deduct its fee, which is generally about 25% of the wholesale price.
The artist will only be paid the remaining 75% of the monies for records actually sold and paid for in the store. Although it is a bit complicated, a distributor normally has an arrangement with a store whereby the store can "return" any record it orders for a refund or credit from the distributor if it cannot sell the record over a certain period of time. Since there is no way for a distributor to know how many records sold to a store will ultimately be sold to customers (and hence not returned), the distributor will hold back a "reserve" of the sales monies it was paid by the store for a period of time to see if there are returns (which are common). This is how a distributor protects itself so it does not overpay the artist. To combat this, the artist needs to provide in the distribution agreement that there is a return limit. (The average is 25% for an album and 50% for a single.) Also, the artist needs to provide that the reserve can only be held back for a limited time; the shorter, the better.
Finally, once a distributor is paid by the store for the record, the distributor has a duty (after its fee is deducted and reserves are accounted for) to pay the artist his or her share. Generally, the distributor will pay the artist anywhere from between 30 to 90 days after it is paid by the store. Obviously, the sooner the better.
A distributor is a necessary cog in the record selling wheel if the goal is to maximize record sales. Therefore, an artist should seek out a reputable distributor for its product.Copyright 1998, Ben McLane
11135 Weddington Street, Suite #424
North Hollywood, CA 91601
Telephone: 818.587.6801 Fax: 818.587.6802