What to look for in
CD Distributors, CD Distribution Contracts
Unlike other websites that CHARGE you for simple information, this page is FREE.
Having personally dealt with non-paying distributors I can give you the REAL scoop from an artist's perspective.
NOTE: This page was created back in 2002. The entire media distribution business has been changing dramatically due to the Internet revolution and file sharing. Mainstream digital downloading will eventually all but completely kill physical media (CD's, DVD's, Blue Ray) just as records killed 8-track tapes, and CD's killed records and cassettes. As of 2009, a whopping 40% of music sales were digital downloads. This number keeps growing and record stores are becoming a thing of the past. As of 2011, about 95% of MY album sales were digital (I have no physical brick and mortar store distribution).
Years ago the only viable way that a recording artist could sell their albums to consumers was to get their CD's stocked into physical stores via a record deal or traditional "brick and mortar" distribution deal. Now, thankfully artists are no longer at the mercy of the traditional distributor.
At this point in time there is NO reason for a comedian to sign with a record label. Other artists, such as electronic music artists (trance music, etc) who can record "album quality" tracks on their own may have no need to sign with a record label either. Producing comedy albums is not rocket science and it requires relatively little expense. Instead sign up with CDBaby or Tunecore to get your album digitally distributed via iTunes and Amazon's digital store. The bottom line is that if you don't expect to generate a lot of sales then sign up to sell your single or album with CDBaby, which charges a one time setup fee, then they pocket about 9% of future sales. If sales begin to take off then it might be cost effective to switch to Tunecore which charges a fee every year but they pocket no royalties at all. Another thing that I like about Tunecore is that they allow you to pick and choose which stores your album will be distributed to. This way you can avoid the "streaming" sites (like eMusic and Rhapsody) that pay paltry pennies per play. There is software available that allows a user to rip (record) "streaming" media. Savvy computer users can also recover streamed songs from a hidden Windows Explorer temp files folder. This enables users to essentially download albums for a tiny fraction of the cost that iTunes and Amazon charge. And lastly don't even bother manufacturing CD's!!! PLEASE save yourself the money and the headaches. Nobody buys CD's online any more and you wouldn't get your CD's distributed into physical stores anyway. It just won't happen unless you've got a huge buzz such as through syndicated national airplay. If you insist, create home burnt CD's and test selling those via your home site and/or sell via Amazon's "Create Space" site.
Anyway, there's still a thing or two to learn from this page so I am leaving it up.
LINKS: Back to Main Page * Email Me Your Questions
DISCLAIMER: Everything on this page is a 1st Amendment protected commentary. The opinions expresses are those of JunkyardWillie.com, INC. I am not an attorney but a business person who has been through the ringer. Nothing on this page should be relied upon as legal advice or investment advice.
With the music industry in turmoil it is a HIGHLY risky time to sign with a distributor -- especially a small distributor. Small distributors can fold as easily as a bad hand of poker cards, then the owner simply reopens shop under a fresh new (debt free) name. Bigger companies have more assets at stake and are less likely to skip out on their tab by going bankrupt.
It has ALWAYS been risky to ink a contract with an Indi distributor. But recently file sharing, the recession, lack of quality CD releases, inability of distributors to place their CD's into many stores (due to shrinking shelf space for CD's), and the fact that the CD itself is overpriced have all contributed to declining CD sales, and subsequently increased distributor corruption. Many distributors are continuing to operate while in SERIOUS debt, essentially dragging CD suppliers along in their sinking ship!! They simply further delay payments to their labels and artists. They pick and choose who gets paid first (or who gets paid period)! The SMALLER the artist (or label) the LOWER the payroll priority. It's sad but true that many distributors basically make a habit of paying artist X with artist Y's sales. In distressed times distributors want to HOLD ON to their labels that sell LOTS of CD's (and have more releases on the horizon) by keeping them paid and happy. Additionally I've always said that artists who live a few hundred or more miles away are an even LOWER priority (and may never get paid). They worry about their LOCAL artists who may potentially throws bricks through their windows - not the guy who lives 2,000 miles away.
Don't think that in tough times the CEO isn't continuing to pay himself a hefty salary. Legally he can even when he's using money that is owed to you. It's really not much different than a Ponzi scheme and US law allows it.
A distributor is certainly not going to volunteer to tell you that they are one punch away from declaring bankruptcy. In making such an announcement, their record companies and artists would go elsewhere, and business would collapse. If a major chain retailer goes bankrupt (without paying the distributor) OR if one of their other labels sues them, then that may be the final straw for the distributor. In most bankruptcy scenarios you NEVER get paid (or you get paid pennies on the dollar) and if you didn't take the appropriate steps described below, the distributor can legally keep your CD product that sits in their warehouse (as well as your CD product that has been shipped out to retailers) and NOT pay you for the sales proceeds of all those CD's. "Secured creditors" (meaning banks and lenders) are legally the first in line for liquidation assets; Labels and artists (also known as "unsecured creditors") are second in line when it comes to bankruptcy liquidations of their own CD's that were shipped to the distributor! Again usually there is nothing left for the labels and artists.
Your best advice is to find the biggest and most stable distributor that is financially on stable ground. Smaller distributors are more likely to fold.
Are indi distributors really that corrupt? Yes. And they always have been. Atlantic Records almost never got to become the giant record company that they became. Back in the day so many indi distributors were screwing them over that they almost failed as a company.
Billboard Magazine reported in 2002 that distributors are typically paying about 18 months after the date that you ship the CD's to them. Yikes! So much for "net 60" or "net 90". Distributors love to make excuses, say that they are waiting for returns, and they blame various retailer's bankruptcies, even though other distributors are still paying on time. When it's been 1 1/2 to 2 years since you SHIPPED the CD's, that's when you realize that your distributor is full of crap, and you must take action. What is REALLY happening is they are building up debt (just like WorldCom, Enron, and K-Mart). It has become very common if not the NORM to ultimately have to sue distributors that slack off. Distributors may try to CONTINUE to yank your chain by fighting your lawsuit and offering to settle out of court so they can pay you LESS. The larger distributors that are on the stock exchange (like Navarre) are the ones that are held to higher standards and are less likely to rip you off. But then again even Valley Media (once the LARGEST one-stop distributor) went bankrupt without warning, after having just opened a 2nd large warehouse in the Midwest. That was a huge surprise. I read that at it's peak Valley was selling 10% of all CD's in America! So even publicly traded companies may be "cooking their books" (as Enron did).
CD DISTRIBUTION CONTRACTS
WHEN LOOKING FOR DISTRIBUTION...
NOTE: This stuff below applies to real brick and mortar distributors (not really Internet distributors like cdbaby, digital distributors, 3rd party credit card processors like ccnow.com, which generally offer the same standard contract for all).
1. Unfortunately you don't have much leverage when shopping for distributors. Billboard Magazine reported in 2002 that distributors are looking for labels that have a minimum of 6 to 8 releases on the horizon. Therefore if you only have 1 or 2 CD's to offer you'd better have a BIG national buzz going for your product! It may take LOTS of national airplay to catch the attention of distributors. Another attention getter is sales stats, which is a catch 22 if you're just starting out.
2. Hopefully the prospective distributor has "accounts" with most or all of the national retail chains (like Best Buy). This is important because you get your CD's into all of the retailer's systems. A customer can special order your CD from ANY store in the US. Big chain stores can move big blocks of CD orders. Again watch out for distributors that SAY that they have accounts with Best Buy, Circuit City, Virgin, Sam Goody, and other major retailers. Often times they REALLY only have an account with a 1-stop distributor like A.E.C. Major retailers won't order CD's from 1-stops unless it's a title with a HUGE buzz like "Brother Where Art Thou"! So instead you need a distributor with DIRECT accounts with major retailers. So do NOT sign an exclusive contract with a distributor that does not have direct accounts with all or most of the major retailers. Chances are they aren't much of a distributor at all. Their 1-Stop sub-distributor will fall short, and even the stores that they are able to get you into will charge about a buck more. Why the higher price? The more distributors that handle your CD, the higher the price.
DISTRIBUTION CONTRACT MUSTS...
1. **ONLY sign with a distributor that is based in your LOCAL area. I repeat: ONLY sign with a distributor that is based in your local area!!! This way they will be so much more likely to play straight with you. If your distributor is 2,000 miles away they WILL slack off on payments, not return your calls on time (or at all), etc, etc, etc. From half way across the country they don't have to worry about a brick coming through their window. Trust me small and even medium sized indi distributors are absolutely NOTORIOUS for not paying according to term of contract! Indie distributors are soooo corrupt! ASSUME that you will have to sue them (because they aren't paying). ASSUME that you will want to show up in their bankruptcy court to collect what's left for you. ASSUME that you will want to show up on their doorstep to pick up your CD's that they WON'T return after you end your contract with them. So only sign with a distributor who is within reasonable driving distance of your home. If you live in LA or NY then you have absolutely NO excuse for not waiting to hook up with a local distributor.
**The only exception is if you enter into a COD agreement whereby you are paid 100% as soon as your CD's are delivered to them. However distribution agreements are basically always done on consignment (in which you get paid at a later time).
2. If you're still foolish enough to sign with an out of state distributor then absolutely INSIST (in the wording of the contract) that legal disputes must be settled in YOUR local jurisdiction*. Chances are that a distributor will never agree to arbitration in YOUR jurisdiction anyway. Having said that, I would argue that any distributor who actually does agree to arbitration in YOUR jurisdiction is probably already resigned to defaulting on a judgment OR going bankrupt anyway (after they sap as much cash out of you as they can). The only exception is if you can sign with a MAJOR indie (like Navarre / Miami, Minneapolis). Navarre is a publicly traded company on the NASDAQ and accordingly must adhere to strict standards of business conduct. They aren't going to play the bullshit games that small indies always play. NEVER NEVER EVER EVER under any circumstances sign with a foreign distributor (Canada, Europe, etc). You will get robbed! It's difficult enough to sue in the USA; You don't EVEN want to sue someone in another country! Again the only exception is if you are getting paid up front 100%.
*Even without this clause it is possible in some states (including in California) to sue an out of state defendant if you can prove that the distributor had what are called "minimum contacts" with your jurisdiction (county). This could include if they did business in your local area (example Los Angeles county). Example #1: Supplied CD's to a store(s) in LA County. Example #2: They hired a sales rep to sell CD's to various store(s) in your County. Example #3: The distributor approached YOU about distributing your CD's.
3. Instead insist in your contract that all disputes (arising from the contract) be settled by arbitration (and not in regular court). The American court system is a miserable failure that is lost in the 16th century. The civil court system of America has so many childish, procedural obstacle courses and anal retentive formalities that it is damn near impossible to sue someone without paying a lawyer huge amounts of money. Distributors KNOW this and will use this obstacle to their advantage... by feeling safe about not paying you!!! They know that 9 out of 10 people will give up and "settle" for some ridiculous rate like 10 cents on the dollar.
4. While bigger distributors charge "set-up" fees, small indi-distributors have absolutely NO BUSINESS charging "set-up" fees like the big boys do. Watch out for small distributors that charge even $75. If you've got a big national buzz going then a distributor needs to prove themselves to YOU; not vice versa! If you're actually contemplating paying these obscene fees then you should remember that you can't substitute money for hard work! It all comes down to whether or not consumers will BUY your CD's and whether or not retailers will stock your CD's. BUYING yourself a distribution deal doesn't sell CD's. Once you attain a "buzz" you don't NEED to be paying to get "set up" with distribution. Besides, with distributors going bankrupt left and right these days, it just isn't worth paying up front fees.
5. Ask for NON-EXCLUSIVITY in your contract. This basically means that you have the right to open accounts with OTHER distributors. Bigger distributors might not budge at all on this issue, but an exclusivity clause with a small distributor can be problematic for you. Small "local" distributors that don't have the CLOUT and the sales associates in various cities, which is necessary to get the maximum number of retailers to stock your CD's. You don't want to handcuff yourself to a distributor who is local, regional OR just isn't getting the job done! Imagine if your regional distributor is in Seattle and you've got a large new demand growing in Florida that can't be met by your Seattle distributor because they have NO sales rep(s) working the streets there and no relationships with the key stores in Florida. Of course if a small distributor IS doing their job and they're getting your CD's into tons of stores then you would have no reason to seek out other distributors. This should be mutually understood and therefore they should not make a big deal over your insistence on non-exclusivity! For this reason I believe that you have every right to insist on non-exclusivity with small distributors.
NOTE: It may be reasonable for a distributor to be granted some exclusivity to their regional area or to certain accounts for a specific time frame - Perhaps 60 or 90 days. Why? Because they will be investing time and effort into opening accounts with retailers. They don't want it to be suddenly cut short if you were to find a new better distributor. If they're only a local distributor and they want the right to distribute OUTSIDE of their home region (or with certain major accounts) then strive towards leaving yourself the option to sign with another distributor at any time (for that outside area). What if they can't get you into Best Buy stores because they don't have enough of a catalog, enough clout, or whatever? Why should you have to wait around?? You need to have other options.
TRAP! Keep in mind that a regional or local distributor may boast about being a "national distributor", but what they aren't telling you is that they merely have an account with a one-stop (like A.E.C.) and therefore they claim to be a "national distributor". In fact they are bending the truth. Fact of the matter is that A.E.C. will only get you into all of the ONLINE stores (BestBuy.com, TowerRecords.com, etc.) and probably as many stores as you can count on one hand. This is hardly what I would call "national distribution"! One- stop sub-distributors suck.
6. NEVER NEVER EVER contractually allow the distributor to KEEP your CD's that sit in their inventory in the event that they go bankrupt! Then legally they can sell YOUR CD's to pay debt owed to banks!!! How screwed is that?!!! So it must be written in the contract that in the event that they go bankrupt, any residual CD inventory that they possess in their warehouse must be returned to you immediately. This might seem like an automatic but it absolutely is NOT and it certainly wasn't for record labels that supplied Valley Media. This is how tons of labels got royally screwed by Valley Media. After Valley filed for chapter 11, the company turned labels away when they showed up at Valley's warehouse up to pick up their own CD's that sat in Valley's inventory. Imagine that!! Valley wouldn't even allow these labels to come get their OWN CD's!!! (trivia note: The only label that was allowed access to Valley's warehouse to pick up their CD's was Death Row Records. It appears as if Valley was intimidated by pissed off brotha's!!! But apparently lawyers for the other record companies corrected this by basically kicking Death Row farther back in the food chain as far as liquidation goes. So Death Row may not have been any better off in the end anyway.) So insist that you retain ownership of your CD's in the event that the distributor goes bankrupt and that the remaining inventory will be IMMEDIATELY shipped back to you. This is non-negotiable. If you are already in a contract that doesn't allow you to own your inventory then call them up and amend this immediately. Contracts can be amended at any time.
TRICK: Keep in mind that your distributor's other sub-distributors may go bankrupt. If your distributor's contract with that sub-distributor doesn't protect inventory against retention of CD's after bankruptcy, then your distributor has NO control over getting THOSE CD's returned. The only thing that can override their contract and get your CD's back is if you previously registered your CD's with the Uniform Code Council (as described below).
7. NEVER NEVER EVER give up your personal website Internet sales to a distributor or record company! If you have an account with Amazon.com and/or ccnow.com don't give those up either! YOU should make all of your profits from your website. Don't let any record company or distributor try to convince you otherwise. When you consider that Internet sales only comprise about 3.3% of all USA CD sales, then it should be mutually understood that you are ONLY interested in doing business with this distributor because you want to tap into that other HUGE percentage of sales that occur in stores! If a distributor has a problem with this then you have to ask yourself... What's their problem anyway? Are they really able to get my CD's into LOTS of stores? Or once the ink dries are they going to just sell my CD's on Internet for the most part. Are they a really a brick and mortar distributor or are they all talk? Probably not if they're insistent about controlling your Internet sales.
Furthermore it would probably take your distributor 6 months or more to pay you for Amazon.com sales; Whereas if you setup your own account with Amazon you will be paid in about 45 days! Don't underestimate the possibility that your distributor may go bankrupt. You need to get paid for at least some CD's!!!!
Also consider that when a distributor puts your CD's for sale on Amazon they will sell for a higher price than if you sell them yourself via Amazon's Advantage program (even though Amazon currently pays individual artists a pathetic 45% of list and conveniently charges vendors a $30 per year fee).
You can also argue with your distributor that under a consignment agreement you are basically an "unsecured creditor" who will get screwed in the event of his bankruptcy, and therefore you NEED to have at least SOME secure income! That income will come from the small percentage of sales that comprise Internet commerce.
8. Be definitive about who is entering into the contract. An individual? An individual dba as a fictitious name? A Corporation? Or a Corporation dba as a fictitious name? Make sure that it says VERBATIM the exact name throughout the contract with no slight name changes or omissions. This is important in case of a lawsuit later in time. It will cost you money to correct a wrong name in the contract. Conversely if you are entering into the contract as a corporation then you don't want there to be any confusion in the contract that might allow them to sue you PERSONALLY. Conversely if you wind up having to sue THEM, then you need to know WHO you are suing. Finally do go to the secretary of state's website and run a search to see if the business exists in good standing. You can do dba searched on the net for free too.
You are STUPID to enter into a business relationship without researching the financial stability of the prospective distributor.
Who has gone bankrupt?
Valley Media, Pacific Coast 1-Stop, MS Distributing, Platinum Entertainment, KTD, Paulstarr Distribution, Southwest Wholesale, V & R Distribution, Midwest Artists Distribution, Blue Sky Distribution.
9. Just what is the financial stability of the distributor? Distributors are notorious for leaving labels unpaid. For starters you can ask this potential distributor if they have any open suits, liens, and/or judgments against them and have them warrant in the contract that they don't have any such difficulties (verbal is meaningless). Keep in mind that (if they are forth coming with you about open law suits and financial troubles) they will always brush off any and all suits as "no big deal" in a reassuring voice. I once was told by a distributor who was in deep financial trouble that "business is EXPANDING". I also heard of a call center that was about to go bankrupt and they told a friend of mine that the reason he wasn't getting paid on time was because "We're upgrading our computer systems." Therefore asking them DIRECTLY how things are going will never get you a reliable answer. Corruption is the norm. Count on them to secretly string you along.
If you know that you'll be selling a lot of product then you need to go further by purchasing what is called a "business information" report from Dunn & Bradstreet to find out before you think about signing any contract. www.DunnAndBradstreet.com This could be the best damn $117.00 you ever invested if you uncover a ton of open law suits (or even one) against a distributor! You are STUPID to enter into a business relationship without researching the financial stability of a prospective distributor. This is a lesson from friggin' Business 101 for Christ's sake! They could be teetering on bankruptcy, hoping to leech off of you to save their sinking ship! If there's just ONE open lawsuit you have to ask yourself WHY the hell isn't this distributor playing fair with the plaintiff label? Call up the plaintiff and speak to them. Speak to lots of other labels who do business with the distributor. Speak to others who are familiar with the distributor. Make as many phone calls as you can and send emails asking questions.
10. If choosing between 2 or more distributors pick the one that has the most DIRECT accounts with major accounts (like Virgin, TransWorld, Tower, Hastings, Gallery of Sound, Rasputin's, Music City, Circuit City, Wherehouse, Bull Moose, Homer's, etc). As previously mentioned, supplying these chains via A.E.C. One-Stop does not qualify as a direct account.
11. "Creative Accounting" and "Hollywood Accounting"- Clarify in the contract that they don't get to invent any additional fees to subtract against what they owe you. I've learned the hard way when doing business with people that they can invent very creative ways to pay themselves. The only way to stop this is to have it worded in stone in the contract otherwise the only remedy is costly litigation.
Having an entertainment lawyer review your contract will cost you about $300 an hour but is a necessary evil. But just as distributors are looking to rip you off, how lawyers rip you off. Do as much work on your own as you can before you have them advise you on a prospective distributor's contract. You don't need to pay your attorney to make phone calls to the distributor to discuss the contract, send and receive FAXes, etc. Don't allow an attorney to perform unnecessary work, as they ALL will TRY! You want them to just look over the contract and tell you what needs to be added in, taken out, and reworded. Preferably you can set up an appointment to show up at their office to have them review it in front of you. That way they can't be left to "run wild" and bill you up the @ss. Left unchecked an attorney will quickly rack up a $3,000 bill, whereas it could cost you as little as $300. Tell them how you want the contract review handled and then ask them up front "how much is this going to cost me?" Once you know a thing or two about contracts you will be able to look over a contract from a prospective distributor and tell if their contract is reasonable or a "farmer's price" scam. Some distributors are in the business of catching naive people off guard who don't hire attorneys or don't hire knowledgeable attorneys. I say avoid these companies that can't offer you a standard contract on the first try!
Do not use a general practice attorney. You will have to do some research to find an attorney who has negotiated CD distribution contracts and knows what to look out for, how labels get burned, etc. Ideally you should do as much of the "negotiations" yourself. E-mail me before you sign any contract. I am not a lawyer but I'll give you my honest opinion as a business person.
AFTER THE INK DRIES...
1. Always ask for your distributor to FAX you a purchase order slip before shipping anything. I'm not sure but I believe an emailed purchase order is good too. A verbal request for CD's does NOT cut it!!! The written documentation is important in case quantities of CD's shipped is ever disputed in court. Make sure it has their company name letterhead at the top of the page, the quantity of each CD ordered, the cost per CD, the date, and purchase order number. The FAXed page should also show their correct FAX number and company name at the very top of the page. Otherwise call them up and tell them to program this information into their FAX machine, and then resend the FAX to you. Cut NO corners on all of this!!! Otherwise it could cost you dearly when you have to sue them.
2. This is very important: Absolutely positively do NOT allow your distributor to order too much CD product! You may think that the more product a distributor orders the better. Business is booming right? WRONG! Insist on shipping them as little as possible. What distributors will do is slack off on payments. Instead of paying you in 60 days they might fall behind by up to 1 1/2 years! When CD's sell through they just keep on dipping into their inventory INSTEAD of re-ordering from YOU. They no longer have any incentive to pay you on time! They have you by the balls. If they go bankrupt then you get royally screwed! So ship perhaps about as many CD's as will sell in 3 - 6 months time. If you are unsure how much will sell then ask to ship LESS. If they aren't paying you on time then absolutely STOP shipping them product! Make them pay up FIRST! The number one complaint labels and artists have with distributors is that they don't stick to payment schedules, they fall behind and then they go bankrupt. While some people may accept late payment as the norm I consider this unacceptable bullshit ...not to mention a breach of contract, which in most contracts calls for net payment in about 60 days from the time the distributor is paid by the retailer. Again STOP shipping product when they don't want to pay for sales that you know are happening because it shows up in SoundScan reports. Terminate your contract with them if they don't straighten up. Before you sign a contract make sure to get from them a detailed "layman's terms" explanation as to how long it will take to be paid for various accounts (Best Buy, one-stops, MusicLand, etc). "From the time a customer buys a CD at store X, how long will it be before I am actually paid? How often can I expect to be mailed checks?" Getting paid on time is Business 101.
3. Always pay the extra $ to ship with UPS or FedEx because they have tracking and documentation that will prove that the CD's got there (in case you run into legal trouble later). Do not save money by shipping 1st Class US Postal mail or even "Media Mail". You need documentation that the CD's got there. Keep in mind that UPS only retains tracking information for about a year. FedEx is probably similar. If you foresee problems with your distributor then you may wish to get online and print out the details of the delivery from the delivery company's website. For large shipments of many CD's this makes good sense.
4. Get paid! With distributors you must constantly monitor how many CD's are selling. Then evaluate if you're being paid according to terms. You must always be ready to pull the plug on your distributor. If you want to be nice and work with the distributor you can renegotiate to ship your CD's COD rather than on consignment. However if months continue to go by and your distributor doesn't pay for those old sold CD's then you need to think about just terminating the contract and filing a law suit ASAP.
5. If possible try to keep your case a small claims case (usually $5,000 or less). The small claims ceiling varies from state to state. Otherwise you're looking at a "civil" case which can be mind numbingly complicated, slow, expensive, etc. The civil court system of America is utterly and completely lost beyond repair in 16th century anal rententiveness! Our court system is why people take the law into their own hands.
Beware what the statute of limitations is for small claims in your state. (For example in Missouri the statute of limitations for a written contract is 5 years and with a maximum suit of $3,000, or in California it is I believe 4 years and $5,000 for a written contract) When things go sour your distributor may use these limitations to their advantage. Conversely you can use it to you advantage. For example if you're in California and your distributor owes you $8,000 then you would politely try to get another $3,000 out of them and once they pay you THEN sue them in small claims court for the full amount, instead of short changing yourself by only suing for $5,000. Keep in mind that SMALL CLAIMS cases can only be brought against LOCAL individuals or businesses. Civil cases of over $5,000 can be brought against individuals or companies in any state (as long as you can prove "minimum contacts"). If you are suing as an individual (from California) you may represent yourself in court. If you are incorporated in California, legally you MUST be represented by a lawyer.
6. Let's say you want to lower the price of one of your CD's. Be VERY suspicious of your distributor. Many distributors will actually never lower the price to their buyers. Essentially your distributor will POCKET the difference! With 2 of my old distributor partners I told them I wanted to lower the price on a CD and they said "OK. We can do that." When I saw that a year later retailers were still charging the old price, I knew I had been had by my distributors. They pocketed the discount for themselves!!! Apparently it is also a bit of a pain in the ass to change CD prices once it's in the retailer's system. Plus it seems to throw off the distributor's accounting. So you must have an in depth conversation about any price lowering and get it in writing. Find out exactly how much they will charge retail buyers. Usually distributors earn between $1.75 and $3.00. $2.00 is average. Get something in WRITING that they are supposed to lower their price to buyers... not just pocket the difference.
7. Contracts may be amended by mutual agreement at any time.
8. In today's market, charge your distributor $6 for comedy CD's. For older comedy titles charge $5. Some labels charge distributors $7.75 but then those CD's sell for $18.99 in stores!
9. Routinely send your distributor a detail of all outstanding invoices. This should show how many of which CD's have been shipped, at what cost, how much of each invoice has been paid or is still outstanding, and show total money owed. This gives your distributor a chance to make sure that you are both on the same page. If a lot of money is owed then they will hopefully call you up to tell you that a check is on the way. Sometimes distributors have so many accounts that they can't keep track of how much they currently owe everyone. It is not uncommon that they actually depend on you to let them know from time to time how much they owe you!
- Always stick to these guidelines no matter what. MOST distributors never stick to the payment schedule time line laid out in the contract. Beware! Even if they sound honest, assume that they aren't. You can't trust anyone when left in charge of money. The only way to help prevent it is with a bullet proof contract "with teeth" as lawyers say.
Artists Should Respond to the Amazon.com Monopoly
Amazon.com has become so popular that they now feel comfortable paying artists only 45% of list price (while keeping 55%) AND conveniently charging you a $30.00 per year fee AND asking you to agree not to sell your CD's (anywhere else) for less than what they are sold on Amazon for.
So what can you do about it?
Firstly I completely ignore their unethical (if not illegal) request for me to sell my CD's at or above what they are sold on Amazon for. This sounds like price fixing to me! What are they going to do to stop me? File a lawsuit??? LOL! Never. They don't deserve any unfair advantage.
Secondly I make up for their $30.00 per year fees and their 55% profit margin by raising the prices of my CD's a few extra dollars. If consumers are stupid and lazy enough to only visit Amazon.com (instead of my home page) then they deserve to pay much more. Once artists unite against Amazon and charge MORE then Amazon will be forced to rethink their hefty profit taking ways.
the Recession and File Sharing Claim more Casualties
April 26, 2003 - Billboard Magazine has reported that Universal One-Stop has filed for chapter 11. The New Jersey chain CD World has also filed for chapter 11. Who is next?
In his subscriber newsletter, Martin Weiss has rated TransWorld as a "risky" stock because the company is suspect of manipulating their earnings. Tower has restructured. Wherehouse is losing money.
What happens if my distributor has fallen behind on payments?
Typically distribution contracts call for payment within 60 days for all product sold. If they've fallen behind then that's a breach of contract. Now that they've breached the contract you can amend the contract by insisting that the distributor must pay COD for any new purchase orders of CD's. If they don't want to pay COD then stop shipping them product until they correct the breach of contract (and pay up!).
If your distributor is severely behind on payments then DO NOT DELAY any longer! Don't buy any of their lies about "Oh I got stuck with a bunch of returns" and "Such and such retailer went bankrupt" and "I still haven't been paid for those CD's" when SoundScan tells a different story!
Some distributors tell you that SoundScan reports are not accurate and therefore they're not reliable. It is true that not every store reports to soundscan and to compensate SoundScan will count 1 sale by retailer X's as perhaps 1 1/2 CD's or whatever is necessary to compensate for other retailers in the particular area that do not report, BUT the law of averages evens it all out and in fact SoundScan is VERY accurate. Don't believe the lies you are hearing from your distributor.
Distributors love dumping other people's debt on YOU even though they've already been paid for your CD's, or they're using your sales proceeds to pay their more favored distributors and keep THEM happy. You must get paid while your distributor is still trying to save his business otherwise you won't get paid at all. So here's what I would do: I would FAX them a copy of just your "Complaint Contract" that you plan on filing in court. The purpose of this "11th hour" FAX will be to let them know you mean business and hopefully get one last payment out of them. If you're lucky then maybe you can bring down the amount that they owe to "small claims" levels. In California that would be $5,000 or lower. Otherwise if you are suing in California for between $5,000 and $25,000, which is a "civil" case. You don't even want to go there. In layman's terms, "civil" basically means "unholy expensive", anal retentive complexities and cases take years to run their course. The civil courts of America are precisely the reason why people take the law into their own hands.
TIP: When you need to get paid from your distributor it helps if you have more product releases on the horizon. Your distributor knows that if they're going to win the opportunity to distribute this future product of yours, then they will need to keep you happy (paid). So LIE if you have to! Tell 'em you've got big plans just around the corner!
What happens if your distributor goes bankrupt?
The bankruptcy court will order the distributor to sell off their remaining (unprotected assets) CD inventory, and property (like furniture, computers, etc), then this raised money is deposited in a trust account that will be used to pay the creditors (people who are owed money). But wait! "Unsecured creditors" are first in line to get paid, and you are LAST. Will you get paid for dollar per dollar for YOUR unprotected CD's that sell or have sold? No! It all gets evenly distributed to the various creditors who are owed money. The "secured creditors" (Banks and lenders) will be first in line to be paid off. Once they are paid off 100%, then the "unsecured creditors" (artists and labels) are next in line IF there's even anything left for them! Usually there is nothing left. That's why it's so important to be on top of things during your business relationship with the distributor and FORESEE this shit way in advance and ACT on it soon!
On November 21, 2001 Valley Media One-Stop when under. This happened out of nowhere. Valley had just opened up a new facility in Kentucky. At it's peak Valley distributed a huge 10% of all US recorded music, so tons of labels and artists got screwed and are STILL getting screwed because of the bankruptcy. The bank creditors that had made loans to Valley were 1st in line to get paid back from what was left of Valley's assets (because they could afford lawyers). A judge decided that "Valley's assets" INCLUDED idle inventory of CD's that sat in their warehouse (this was because of the writing of Valley's contracts)! In the end it was a screwed up situation whereby many labels and artists actually decided to BUY BACK their own CD's that they had fronted to Valley on consignment! Valley wound up selling back their remaining CD inventory to their labels and artists at about 40% of cost.
CLICK HERE for a very good detailed explanation of the whole ordeal
The lessons learned from the Valley bankruptcy. How to protect yourself...
1. Make sure that your distribution contract specifies that you OWN your CD's that are in your distributor's possession. This way you don't get screwed if the distributor goes bankrupt.
2. The California Secretary of State's Office has a form called the Uniform Commercial Code-1 form which, when filed, is supposed to preserve a label's rights to ownership of CD's in the event of financial collapse. However my distributor tells me that this doesn't override top level creditor such as banks that made loans to the bankrupt company.
3. Don't sign with a distributor who is in financial trouble, has loans to pay off, is heavily dependent on sub-distributors that are in financial trouble. Consider paying for a www.DunnAndBradstreet.com report.
4. As previously mentioned, do not over-ship CD product. Only ship them as little as possible.
INTERNET DISTRIBUTION and FULFILLMENT CENTERS
For internet retailers, call centers, and fulfillment centers you should get paid no less than by the month, and within 30 to 45 days after the end of the month of sale. Amazon takes about 45 days. ccnow pays every 15 days (but with a delay to wait for funds to clear. Interest s paid on funds that sit waiting). Be prepared to cut off supplying an internet retailer with CD's if they start taking too long. Late payment is a red flag that they might be on the verge of going bankrupt. Call centers and fulfillment centers are ESPECIALLY notorious for going bankrupt by surprise, and should be avoided! I personally know of someone whose call center told him shortly before going bankrupt, "Oh we're just late on our payments because we've been upgrading our computer systems." Soon afterwards he was screwed out of $60,000 of back payments. The proof of a healthy business is timely payment! The red flag is when they tell you some story about how they are basically in some sort of transition, and therefore they haven't been paying on time lately. I noticed this red flag with cdstreet.com back in early 2003. They hadn't paid me for 3 months. I think because I was generating a lot of sales, they finally paid me when I called. But once I got paid I then smartly took my money and inventory and ran! Sure enough... months later I got word from two smaller artists that they are owed for 1 year's worth of CD sales and they are trying to work out a "settlement" of pennies on the dollar. Go figure.
Consignment to Individual Stores
(Consignment is when a store agrees to stock a few of your CD's to sell, then pay you later) Consignment is a total waste of your time. If for some stupid reason you INSIST on doing it, then understand that stores almost NEVER take consignment CD's. Consignment is a HUGE big pain in the ass anyway. Stores hate it too because it takes them just as much time to consign 2 CD's as it does to consign 2,000 (from a distributor). Most stores will only take like 2 CD's. It's too much work to just sell a few CD's. If they don't sell within a time span that was agreed upon you must pick them up or they get to keep your CD's (if you agreed to such a contract). They never call you when they run out. Employees don't want to be bothered with it. You hate it. Why bother? If you really want to try doing consignment then only try a major impact store in a city where you have a buzz (example: Tower Records on Sunset in Hollywood - which by the way doesn't really take consignment anymore). The better thing to do is to just sell your CD's on ccnow.com. Also get into Amazon.com, which has a sales ranking system that ANYBODY can view online. Thank God for the Internet revolution! Unfortunately Internet sales only accounted for about 3.3% of US CD sales in 2002 (indi artists actually sell more than 3.3%). But Internet sales have been slowly growing.
Never do business with a Mom and Pop record store that is out of your local area. Mom & Pop stores are becoming obsolete. Typically they will not pay you the complete balance due when your consignment runs it's course. Why? Because they know you'll never travel a long distance to take them to small claims court.
My CD titles were once distributed by two partners Midwest Artists Distribution (Chicago) and Blue Sky Distribution (St. Louis). MAD declared bankruptcy, but Blue Sky remained in business. Together they owed me about $15,000 so I filed suit against Blue Sky. The owner offered to settle for around $500, which I was having NOTHING of. As all of this was going on the owner (Dan Thompson) still retained some of my CD inventory, which I demanded. He never gave it back. Ultimately I won a default judgment for about $19,000 and garnished from Blue Sky's bank account a bit less than $2,000. At that time the owner appeared to just abandon the Blue Sky Distribution business and simply open shop under a fresh new debt free company called "Big River Distribution", even conducting business at the same address. I still have never received my CD inventory back. This case illustrates the importance of 1) not over shipping product and 2) getting paid on time or else!
UPDATE 2011: I am told that Dan Thompson's Big River Distribution owes at least one vendor a lot of money. Indications are that Mr Thompson has simply closed "Big River Distribution" out of business and opened up some other new (debt free) business.
Knowledge is power
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