The Indie Musician’s Guide To Digital Distribution

(UPDATED) By Budi Voogt, founder of Heroic Recordings, artist manager and author of The SoundCloud Bible.

This article will help you overcome the difficult subject that is digital music distribution. Want to know how to choose from the great amount of different distributors, figure out which one is best for you and make sure that you've paid attention to all important details? Keep on reading.

The importance of digital

In today's music industry, the importance of having your music available on digital channels is undeniably huge. Everyone's using iTunes, Spotify and Beatport to get the music they love, and if your stuff isn't there for there choosing, you're not playing ball.

To back this up, let's look at the numbers. In 2013, IFPI reported that now a whopping 35% of the global music industry's revenue is coming from digital channels. 20% of that is coming from subscription based streaming services. In Europe, streaming services even account for 31% of total industry revenue.

Now this is something all you independent artists and labels already know. But, getting your music placed on these digital stores can prove difficult, as the stores themselves rarely accept submissions from labels and artists. They are focused on selling the music, and rely on a network of trusted companies to curate and deliver the majority of their content.

This is where distributors come in.

Music Distribution

These are the companies focused on getting the music to the stores. Back in the day, this would entail making sure the CD's or vinyls would be for sale at the right record stores, at the right time. Nowadays, with the decrease of physical sales and increase of digital revenues, almost all distributors that focused on physical products now also offer digital distribution. And, many new distributors have sprouted that focus solely on 'digital music distribution'.

In this article, we're going to focus on the latter.

Digital music distributors have to supply music to a broad variety of online stores and services. From iTunes to Spotify to Beatport. This is why they're often called 'aggregators'. All of these different stores prefer dealing with distributors for their content delivery, but also have differing submission requirements. The tracks, formatting, editing and sales pitch that goes with a submission to iTunes is not the same as it is for Spotify. Having to go through this process by hand is hugely time consuming, which is why many of these distributors have developed software systems to automate this process.

Their business model

It's important to note that digital distributors have far less operating costs than normal distributors used to. There is no physical inventory to store, no actual shipments to be made and no copies to be pressed. Instead, their process boils down to receiving tons of music, delivering to online stores, receiving the revenue generated through sales or streams, issuing financial statements to the submitter and paying them out. This means that aggregators can service a big amount of customers, whilst having few employees and little recurring costs.

The biggest costs they do make are fees they pay on submissions to the stores, and on employee hours. This also implies that time spent by employees talking to customers is timely, and possibly the biggest cost they have. Typically, distributors will try to limit these 'customer support' hours and use little support personnel to handle many inquiries or relations.

The distributor makes money through either taking a flat fee from the artist for submitted content, or by taking a percentage of royalties on sales. Typically, flat fees for single submissions (1-2 tracks) are around 10$, 20$ for an EP (up to 6 songs) and 40$ for an album (6 songs or more). The average royalty cut is 15%. Some distributors will also ask for an annual upkeep cost to keep the content available on the stores. These costs range from 10-50$, depending on the amount of tracks submitted.

When a distributor works with an artist or label for a percentage cut, they aren't guaranteed to make money. If the music doesn't sell, nobody makes money. But, the distributor does make costs. This is why many of them charge an upfront fee, to cover the damages inflicted by handling the submitted content.

Things you should know

There's a number of things you should know and pay attention to when it comes to selecting a distributor. This'll prevent you from feeling dissapointed, making a wrong choice and getting the most cash out of your content.

Which stores matter:

Out of all the online stores and services, iTunes, Amazon MP3, Spotify, Pandora and Rhapsody contribute the most to the digital music sales market share. The two most important industry reports actually attribute 60 to 75% of total digital music sales to iTunes. Dance music is a slightly different case, as Beatport and JunoDownload are the unequivocal kings there, with Beatport leading by miles. Also, the streaming services Deezer and Rdio seem to be making big waves in the scene, and more and more people are using Shazam and SoundHound on their smartphones to identify tracks.

Essentially, everyone should have their content out on iTunes, Amazon MP3 and Spotify. For creators of dance music, I'd add Beatport and JunoDownload to that mix. Those are the places that you NEED to be. Having your content out on the other aforementioned digital channels is a good bonus, just not a necessity.

Submission criteria:

Some of the more specialized stores do not accept all the music that is submitted to them. Beatport, Pandora and JunoDownload are renowned for screening all the music that's submitted to their store, and they will often let distributors have labels or artists wanting to submit to their platform, showcase their catalog for their review. This means that you are not 100% guaranteed to be distributed to these channels, even if your distributor has a partnership with them.

Delivery times:

Many different stores handle different submission periods. Beatport might work with two weeks, and iTunes with three. But when submitting content to such a large amount of stores, the aggregators have to streamline this. This is why many of them handle a submission period of longer than four weeks from the desired date of release.

Take note that the closer a distributor is to the source (a digital stores or streaming service), the shorter their submission times will be. I'm telling you this as there are many indie distributors which themselves use bigger distributors that are closer to the stores, to submit their music.

Legal stuff:

When partnering with a distributor, you have to sign a legal agreement. After all, they need to be granted the right to sell and distribute your music to the stores, and to collect the generated revenues.

Firstly, take note that many distributors service so many customers that they enforce a 'one size fits all' contract. They do not allow for negotiation of specific clauses, and you either sign the agreement if you wish to work with them, or you have to move on. Only when working with smaller and more specialized distributors will you have the freedom to negotiate a contract, but you are unlikely to qualify for a partnership with these parties unless you are offering a huge catalog or are a label.

Secondly, take note of the termination clauses and terms of the agreement. As an independent musician, you're dreaming of scoring that big deal with that record label right? Often times, the label will then require you to hand over your right to distribution and sales of your total catalog, which might at that time be with the distributor you've partnered with. Now, you wouldn't want to lose that deal because of your deal with the indie aggregator. That's why you would be smart to only sign a contract that has allows termination at any time, with a 30-60 day notice. Preferably, it'd be a contract for an indefinite period.

Typically, the bigger and more commercial aggregators will offer you such a deal. In contrast, the smaller and more personalized distributors will try to tie you down for a fixed period (cycles of 1-3 years).

Foul play:

There is a persistent issue of foul play related to music distributors, that's been going on for a long time. Recently, this has again come up in relation to one of the biggest aggregators. Here's what's happening:

When a record is played on digital radio, or even streamed on a service such as Spotify, revenue is generated through airtime and plays. These are digital performance royalties, and they are earned over 'non-interactive digital transmissions'. Now, these royalties are collected by agencies such as SoundExchange, which allow artists to sign up, label and submit content, and collect money, for free.

In practice, many labels and artists don't claim their content, leaving a lot of cash unaccounted for. Here's what happened… the distributors claimed this content, and collected cash from it, many times without permission of the artist.

Now, you can easily collect these digital performance royalties yourself, and do not need a distribution agency to do this for you. Just make sure that your legal agreement with your distributor does not give them the right to collect these royalties, nor anything related to synchronization rights.

UPC / EAN / ISRC Codes:

UPC stands for 'Universal Product Code' and EAN for 'European Article Number'. Nowadays, EAN codes are 'International Article Numbers' though, however the old acronym has been retained. UPC/EAN codes are used to label specific products, such as an album, or a single release. ISRC stands for 'International Standard Recording Code' and is attached to recordings, and not the product.

In other words, a 10 track album release has a single UPC/EAN code and 10 ISRC codes for each of the recordings on the record.

What these codes do, is that they allow for easy and internationally standardized means of administering and communicating about your product and music. It helps track store sales, distribution numbers, and even radio airplay. It's also used by royalty collection societies to identify revenue generated by tracks, to its owners. You can get your own UPC/EAN codes by acquiring a license to a batch of them, for about $750. Once you have that, you can issue loads of UPCs. Go to GS1 for more information (http://www.gs1.org/contact).

Same goes for ISRC codes, which can be attained by affiliates of the IFPI. Prices range from $75 to nothing for a license, which'll allow you to issue many different ISRCs. Go here for more information (http://www.ifpi.org/content/section_resources/isrc_agencies.html).

In practice, many distributors will provide you with these codes so that you don't have to acquire them yourselves. Sometimes, they'll charge you for it though. If you end up having to do this often, it might be more interesting to get your own.

Choosing the right payment deal:

Earlier, we discussed the business models of these distributors. In practice, these come down to flat fees, royalty cuts or a combination of the two. I'm going to outline my thoughts on this subject, and to do that, we'll need to make some calculations and showcase some common sense.

Let's say you want to distribute an album. You're looking at different distributors, but manage to refine your search to two of them. Distributor A charges a 50$ flat-fee and a 50$ yearly set up cost, whereas Distributor B takes a 15% cut of royalties. It's selling on iTunes and Amazon MP3 for a retail price of $0.99, making the wholesale price (without the store's mockup) $0.70.

Let's do some calculating.

—-

Here's two formulas that we'll use:

[Annual Flat Fee] / [Royalty Percentage] = [Gross Income]
[Gross Income] / [Wholesale Price] = [Numbers of units to break even]

Filling in the our scenario gives:

1)
[Annual Flat Fee] / [Royalty Percentage] = [Gross Income]
$100 / 0.15 = $666.67

Here the $666.67 equals the amount of cash that needs to be generated, for the percentage cut to equal $100.

2)
[Gross Income] / [Wholesale Price] = [Numbers of units to break even]
$666.67 / $0.70 = 952.38 units, round off to 953.

Here the 953 units equal the amount of singles that need to be sold, so that the 15% percentage cut equates to the $100 flat fee.

To conclude:

In this scenario, the '15% royalty deal' is most profitable for the artist if he sells less than 952 units. Once he sells more, the '100$ annual flat fee' is most interesting.

—

Now that you've seen this example, you should understand that when looking solely at the numbers, a percentage deal is most interesting for artists making few sales, and flat fee deal when you're making many.

However, there's more that matters than just these numbers.

In practice, much of the success of a record can be contributed to the marketing efforts that were put in for it. These marketing efforts extend to the digital stores. When you look at iTunes or Beatport, you'll often see feature placement banners, 'new releases' and specific releases being put into the spotlights. This is all done by the store's employees, whom decide which releases to give attention based on the marketing efforts put in by the distributors. When a release has a huge marketing campaign and a good press story, a good distributor will go to the digital store with a sales pitch, asking for a feature placement in the store. If such a position is acquired, you can understand how it'll attract way more visitors than if it were hidden somewhere in the store's database.

The only distributors that would put in such an effort though, are the ones that have incentives to create success for their clients. These are the guys that take a percentage cut of your royalties. After all, when you earn more, they earn more. In contrast, the distributors that take a flat fee and a possible annual subscription fee, do not have this incentive. They generally make the most money from you on the exact moment you sign up, submit and pay. Sure, they'd want you to submit another record, or stay for another round of subscription fees, but they will never have the incentive to work for you like the guys with a percentage deal would.

Types of distributors:

There is a huge number of aggregators out there. But, there is a crucial difference between the most of them.

This difference is in the type of clients they accept. Some are focused on serving the majority, and others on serving a selected few.

Majority focused aggregators serve primarily individual artists, and sometimes labels. They do little pre-selection for the people they work with and aren't huge on the one-to-one customer assistance. Case specific marketing is not to be expected from them. In exchange, they are able to offer the best prices on the market, mostly charging flat and annual fees. Examples include Tunecore, CD Baby, ReverbNation and the such.

Selective aggregators serve primarily independent labels, and powerful independent artists. They do a lot of pre-selection on their clients and attempt to work solely with people they think have potential, or a good marketing story. One-to-one customer assistance is essential in their added value and the good ones are actively involved in marketing releases to the stores. In exchange, they often charge percentage fees. Examples include The Orchard, InGrooves, FUGA and Label-Worx.

Selecting the right one

Whether you go with a big distributor, or a small one, they are unlikely to put in extra hours for you. This holds more true for the prior than the latter. For the big guys, it doesn't matter if you're with them over a percentage deal or a flat fee. Their biggest revenue comes from serving as many people as possible. Doing case specific marketing isn't an effective expenditure of time for them. Attracting more customers is.

The small guys however, are your best bet. However, they can be hard to partner up with if you're a new independent artist, or even label. They be picky about whom they work with, and you great content and a good marketing story, a big fanbase, or a huge back-catalog to be interesting for them. Of course, they do charge you for this.

Here's my advice:

I think percentage deals are better than flat fee deals, but only when made with small and specialized aggregators. For starting artists, or labels, getting such a deal can be unattainable. If you're in that scenario, but still want your stuff distributed, I'd go with a bulk aggregator that takes a simple flat fee, where you keep all the royalties and are able to walk away within a month or two. If your stuff picks up, and you still want to stay indie, find yourself a specialized aggregator that wants to run for the money. Until then, take the simple route, and expect little more than just seeing your stuff appear on the stores they need to. Take note to make sure they service the stores you need to be in though. There is not a single 'best' distributor, but there are many great ones out there. What works best for you is dependent upon your scenario and wishes, and will probably change over time.

A list of options

Here's a list with a selected few companies that I consider good options. I've divided them into 'bulk' and 'specialist' aggregators to signify the difference between the ones that almost any indie artist can team up with, and the smaller and more refined that focus on labels.

If you wish to look at more aggregators, you should check out the partner lists of iTunes and Spotify: https://itunesconnect.apple.com/WebObjects/iTunesConnect.woa/wa/displayAggregators?ccTypeId=3 https://www.spotify.com/about-us/labels/aggregators/

Once again, there is no 'one size fits all' solution. Pick what is best for your situation. And if you can, find the ones willing to run for the money.

I highly suggest you to get in touch with the customer service of the distributor you're interested working with. This will give you an indication of how good their customer service is, and hopefully get you a specific person whom you can ask all your questions and establish a relationship with.

Bulk Aggregators:

These three companies are my selection of whom I think are the best bulk aggregators worth considering. Keep in mind that as these are bulk aggregators, it's unlikely that you'll receive intensive one-to-one customer care and marketing support. In return though, they are cheap, and allow you to retain a good chunk of your royalties.

My preference goes out to Songflow, as this is a subsidiary of the much renowned specialist distributor FUGA. Also, they allow individual artists to distribute to Beatport without being on a label.

TuneCore (http://www.tunecore.com/)

– Flat fee, 10$ for single, 30$ for album (first year, then $50 per year).
– Indefinite contract. Cancellation period unclear.
– Takes 0% of your royalties.
– 4 weeks delivery time.
– Payment and reporting with a two month delay, however daily trends for iTunes and Spotify are visible.
– Offers publishing for a 10% royalty rate on collections and 20% on income from sync licensing.
– Doesn't distribute to Beatport.
– UPC codes are provided for free.
– Find their Terms & Conditions here: http://www.tunecore.com/index/terms

CD Baby (http://www.cdbaby.com/)

– Flat fee, $13 per single, $49 per album.
– Indefinite contract which can be cancelled with 24 hours notice.
– Takes 9% of your royalties.
– 4 weeks delivery time.
– Payment and reporting with an initial two month delay. Afterwards, payments are issued weekly.
– Offers publishing for a 20% 15% royalty rate.
– Doesn't distribute to Beatport.
– UPC codes are paid, costing $5 for a single song and $20 for an album.
– Find their Terms & Conditions here: http://members.cdbaby.com/membercontract.aspx

SongFlow (http://www.songflow.com/)

– Flat fee, €5,00 per single. Discount of 10% for a three year subscription, and 20% for a five your subscription.
– Annual contract, which can be cancelled anytime.
– Takes 0% of your royalties.
– Unknown delivery time.
– Payment and reporting with an initial three month delay.
– Distributes to Beatport under a private label namely 'Songflow Beats'.
– EAN/ISRC codes are provided for free.
– Find their Terms & Conditions here: http://songflow.com/terms/  

Specialist Aggregators:

Here's a selection of six specialist distributors that have a good reputation. I have split these up into two groups, one being for band music and one for electronic music.

As you know by now, these parties tend to only work with record labels or artists with an impressive catalog or fanbase. They also enforce a quality filter on their content, so you will have to start a dialogue with them to see if a partnership is possible. This has an advantage though, as your agreement with them can be negotiated. The stronger your fanbase and content, the stronger your position to do so.

Specialist distributors rarely publicly disclose their normal pricing agreements and terms & conditions, so providing you with this information hasn't been possible.

Band Specialist Distributors:

The Orchard (http://www.theorchard.com/)

– One of the biggest specialist aggregators out there. Merged with IODA.
– More information here: http://en.wikipedia.org/wiki/The_Orchard_%28company%29.
– Speculated to take a 30% royalty cut.

InGrooves (http://www.ingrooves.com/)

– Another one of the biggest out there. Merged with Fontana.
– More information here: http://en.wikipedia.org/wiki/INgrooves
– Speculated to take 10-30% of the royalty cut.
– Speculated to have indefinite term contracts with short notice cancellation.

State 51 Distribution (http://www.state51.co.uk/)

– Smaller specialist distributor, focused on a personal approach.
– Based in London, available over phone.

Electronic Specialist Distributors:

This is where my personal and first hand experience comes in. The aggregators I've listed below can be counted on to deliver top notch service when it comes to electronic music.

From all of these, my preference goes out to FUGA, as they are the most reputed of the bunch. They distribute to all major dance labels, be it Armada Music or Spinning Records. Also, they're the portal that many other EDM focused distributors (such as Beatport's Baseware) use to issue their music with. Take note though that FUGA is a costly partner, taking either a recurring flat fee, or a cut of royalties if your baseline catalog sales can cover their initial costs. If they are out of your attainability, I'd go for Label Engine or Baseware as your first choices.

FUGA (http://fuga.me/)

– Biggest dance distributor in the game.
– Great reputation, but severe pre-selection and hefty price.
– Offer many label management tools, such as a system for royalty management and DJ promo pools.

Beatport's Baseware (http://www.basewaredistribution.com/)

– EDM focused distributor with ties to Beatport.
– Contracts last for one year, with a one-month cancellation notice.
– Take a 15% cut of royalties, no flat fees involved.

Label-Engine (http://label-engine.com/)

– EDM Focused distributor.
– Contracts speculated to be annual.
– Take 15% cut of royalties, or offer different models with flat fee and royalty cut combinations.
– Offer many label management tools, such as a system for royalty management and DJ promo pools.

Label-Worx (http://www.label-worx.com/)

– EDM focused distributor.
– Take a 10-20% cut of royalties.
– Offer many label management tools, such as a system for royalty management and DJ promo pools.

———-

To conclude

Make sure that whatever distributor you choose, you do your due diligence first. Google them, search for reviews, contact their customer service and actually read their Terms & Conditions. That way, you'll get a feel for the different parties and options available to you, and are way more likely to pick a partner that is just right for you.

Like I have said before, I prefer the personal approach, and think that if you have potential as a musician, you will benefit from going with a distributor that you'd want to stick and grow with over a longer period of time.

Hopefully you now have a much deeper understanding of what digital distributors do, what drives them and which elements are important to look for when determining the right partner and deal.

This guide was written by Budi Voogt, founder of Heroic Recordings and artist manager. He writes about music marketing and leveraging digital media on his blog. His first book 'The Soundcloud Bible' is available here.

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