Connect With Us

Add Hypebot To Circleson

Enter your email address:

Delivered by FeedBurner

• MTT POSTS BY CATEGORY
• TUNE MTT RADIO
SEARCH
« a Concept for Reinventing MySpace | Main | Man wins Grammy award and then racks up seventy-eight plays on MySpace the next day. »
Thursday
Feb042010

Digital Distributor Math: Choosing the Right Distributor for Your Band

Question:
You are a musician and you want to sell your music on digital retail sites.  You are deciding between two digital distributors to deliver your new album to retailers.  The two distributors, Distributor A and Distributor B, have different payment terms and fees.

  • Distributor A charges a one-time album set-up fee of $20, plus an annual “maintenance” fee of $20, and takes no percentage of your sales (Distributor A passes 100% of the sales revenue it collects on to the artist).

  • Distributor B does not charge any set-up or annual maintenance fees, and takes a 10% cut of your sales revenue (you the artist keep 90%).

Assume both distributors will deliver your content to the same stores and offer identical service except for the payment terms. Which distributor do you choose?

Do the math!

The answer, as you may have guessed, depends on how many albums (or single tracks) you think you can sell.  If you passed junior high algebra, you’ll find the math here quite straightforward:

Let’s suppose the average revenue per album sold that your distributor collects is $7 (this is what iTunes would pay out on a $10 album, after Apple takes their 30% cut).  X is the number of albums sold.

Artist earnings from Distributor A in Year 1 = $7 * X - $20 set-up fee - $20 annual fee

Artist earnings from Distributor B in Year 1 = $7 * 90% * X = $6.3 * X

Now we can find the number of albums you’d have to sell in Year 1 to earn the same amount from Distributor A and B:

7 * X - 40 = 6.3 * X

0.7 * X = 40

X = 57

And there you have it.  If you sell more than 57 albums in your first year, you’ll earn more money with Distributor A.  If you sell fewer than 57 albums, you’re better off with Distributor B.  Using the same calculation, you will see that for every subsequent year after Year 1, you need to sell more than 29 albums per year to earn more with Distributor A.

Beware of “small” percentages

In many business situations, a commission-based model between a client and service provider makes perfect sense.  There’s nothing inherently unfair about a distributor taking a percentage of an artist’s sales for their services.  However, it’s important to understand how commissions impact an artist’s earnings over time, especially if there is a flat-fee alternative for essentially the same service.

Returning to our example, let’s look at what it would cost you to distribute an album for 2 years using Distributor A and Distributor B.

Under Distributor A, the cost is $60 ($20 set up + 2 * $20 annual fee) regardless of how many units you sell. 

Under Distributor B, the “cost” is 10% of your sales, which in our example is $0.70 per unit.  The table below shows some examples of what Distributor B’s fee would be depending on your sales numbers over a 2 year period:

Albums Sold Distributor B’s Fee
50 $35
100 $70
200 $140
500 $350
1,000 $700
5,000 $3,500


As you can see, 10% of revenue adds up quickly.  Distributor B’s model becomes significantly more expensive than Distributor A’s $60 flat rate, even for a relatively modest level of album sales.

Again, there’s nothing wrong per se with a distributor taking a percentage of revenue.  But when a distributor says “We only make money when you make money!”, remember that they also take more money as you make money.

Choosing the right distributor for you

There are other factors besides payment terms that you need to consider when choosing a distributor.  Which stores they deliver to, how frequently they pay royalties to artists, data reporting/analytics, reputation, reliability, and promotional services are all important factors to think about.

Ultimately, you should be able to answer the following questions before selecting a distributor:

1. How much will it cost me (in upfront payment and/or % of revenues) to work with this distributor, based on the number of albums I think I can sell?

2. Is this distributor more expensive than the next best alternative?

a) If so, how much more expensive?

b) Do they offer enough extra services/value over the next best alternative to justify the higher expense?

You can use this spreadsheet to compare how different assumptions about revenue per sale, album sales, and distributor terms impact artist payout: 

Digital Distributor Math Worksheet

Reader Comments (28)

If you make money and the distributor makes money, that's a win-win situation. If you need to pay each year for a 'maintenance fee' and no revenue, that's a lose-win scenario for you.

The 10% cut on revenues are nothing compared with what record labels used/use to do, 50/50 deals or worse. Of course the labels do a good job with marketing and PR so that has to be taken into account, too.

My guess is that for 80% of artists who want to release music, the 10% deal is just fine.

February 4 | Unregistered CommenterKent Sandvik

Very interesting article! Commissions, storage fees, and the like are all really just ways to keep money in someone else's pocket. I can't imagine paying for my mp3 taking up all that much storage space on a virtual shelf, But .... there's an even better way to put more cash in your pocket: sell music on your own website!


Without sounding too partial, Nimbit lets artists distribute to all of the major online retailers -AND- sell on Facebook, your own website, and just about anyplace else. We dont' take commissions on 3rd party distributors, and our rates are really easy to figure out - no storage fees, or anything like that. It's a much better deal than what's out there, and you'll get MUCH more for the money you do spend.


Get all the info at www.nimbit.com/signup ....

February 5 | Unregistered CommenterScott Feldman

"If you make money and the distributor makes money, that's a win-win situation." The reason win-win situations are better for you than win-lose (assuming you are that winner) is that it creates incentives for both parties to continue to work together. But the less actual working together that can be done, the less importance these financial win-wins are. Take digital distributors. Unlike record labels, they have tens of thousands of artists. There is really nothing approaching a working relationship with a digital distributor, unless you are U2. They are not record labels.

Getting off on a tangent here..., why the heck do we want to encourage digital retail stores, anyways? Shouldn't the goal be for all artists to sell directly from their website and not have to worry about splitting profits with iTunes, especially when they do next to nothing for you other than maintain the transaction infrastructure.

Frankly, its bizarre to me that it has become an accepted norm that, when you want to buy an mp3, you go to an impersonal website like amazonmp3 or itunes. What are they providing to consumers? Its not easier to use their search bar and find the artist that you're looking for any moreso than it is to google for the artist's webpage. Is it a better shopping experience? Not really, in fact its guaranteed to be impersonal and disconnected from the artists brand. Is it because we want a central location to "browse" music? I can think of at least 10 websites that offer a more fun music-discovery experience than the major online distributors, and I bet you can too.

We need to say this to ourselves more often: There is absolutely no reason why we should have to share digital download profits with a middleman.

But why do we? Why did I choose to put my music on iTunes? Well, regardless of the fact that I don't have a merchant bank account (yet), I rushed to do so because I think that there is a bit of a credibility-building aspect to being on iTunes. But thats a social perception, and an innacurate as well as unhelpful one. iTunes is doing nothing for me other than allowing me to walk around and say, "my music's on iTunes."

All artists should work to get their own personal stores on their own websites, keep all of their own profits, and chip away at the mental expectation that you aren't supposed to buy music from the persons who made it, but rather, from a big sterile and uninteresting online warehouse.

February 5 | Unregistered CommenterJustin

ah, you beat me to the punch, Scott! I'll look into this Nimbit contraption.

February 5 | Unregistered CommenterJustin

I've recently done this math for about 8 different distribution-aggregators, taking into considering their reach, services, reporting etc.

Any my conclusion is:

They all have pluses and minuses.

It really depends on your type of music, your audience, your geographical location and how much you actually think you can sell.

This might sound obvious, but it makes a huge difference to how you interpret the numbers.

February 5 | Unregistered CommenterJeremy G.

"There is really nothing approaching a working relationship with a digital distributor, unless you are U2"

i have to disagree with this - i communicate with my digital distributer almost every day about releases and we ain't u2 or anything like as big. they actively seek front page placements for us, and offer advice on howbest to present our catalogue. not going to name them, as this might seem like an advert, which it is not.

February 5 | Unregistered CommenterCrazy Baldhead

Justin:

There are many good reasons to sell through a 3rd party seller:

1) Trust. I know Amazon, I know iTunes. On the other hand, as a consumer, I don't know what a "Nimbit" is. What's this cart thing? I don't think I trust you with my card...

2) Selection. As an artist, my tunes benefit from showing up alongside better-known artists. Technology like iTunes Genius and Amazon's "People who bought X also bought" can make recommendations that may include my songs.

3) Maintainability. Amazon and Apple have racks and racks of servers built to scale and teams of engineers to service them. If something breaks, I'm not the one stuck fixing it.

4) Credibilty. You addressed this above, but like it or not, it's true that some people see being on Amazon and iTunes as pure magic. But even I, who knows better, would look upon any artist who willfully keeps their music off of Amazon or iTunes as a fool. Why on earth would you keep your music away from the largest online marketplaces where the majority of online music buyers shop? So you can make a dollar instead of $0.70? Really?

As someone who's done both the 3rd party thing and hacked my own shopping cart software: do both. Given the choice between selling less but earning more per sale, and earning less in order to sell more, I'd choose the latter.

February 6 | Unregistered Commenterscottandrew

There are services, like bandbox.com, and bandcamp.com, that allow you to sell music and keep all teh money from your downloads, Thats one place to go if you want to have music for sell on your website, and not have to deal with the headache of people hacking, or whatever.

Now on the subject of giving up a percentace of your income to a company that basically does nothing but place the song on a website like itunes, DOES annoy me, and it does seem unfair, they do nothing, yet they get paid on my talent, and hard work, its bad enough most artists are broke, but then you have to pay just to be listed somewhere, and then you have to direct people form your website to Itunes and basically give them more traffic so then they can sell your album, and get paid sucks, and on top of that the distributor also gets a cut.

Now scott on your point of "So you can make a dollar instead of $0.70? Really? " FUCK YES. REALLY. Add up 30 cents per transaction times all the transactions itunes does, mean while most artist are getting screwed. They should operate on an advertizing basis rather than charging artist who are already broke.

February 6 | Unregistered CommenterChris

They should operate on an advertizing basis rather than charging artist who are already broke.

You're speaking Ethics, though, and Steve Jobs strictly speaks Business. Think about the staffing and time requirements involved in shifting to an ad model, as opposed to the automated, scaling profits they generate charging artists who are "already broke" fees upfront.

This is the same reason that JP Morgan is so invested in the food stamp business. Negotiated costs are always more expensive that automated charges, especially as you scale up.

February 6 | Unregistered CommenterJustin Boland

Now on the subject of giving up a percentace of your income to a company that basically does nothing but place the song on a website like itunes, DOES annoy me, and it does seem unfair, they do nothing

They do nothing? How about creating the largest marketplace for digital music? How about creating a direct pipeline to the largest concentration of digital music consumers willing to pay for files?

Now scott on your point of "So you can make a dollar instead of $0.70? Really? " FUCK YES. REALLY. Add up 30 cents per transaction times all the transactions itunes does, mean while most artist are getting screwed.

Yeah, except for all the transactions you're losing because consumers don't recognize trust your Bandcamp (read: no-name) shopping cart. Assuming they actually find your website in the first place.

February 6 | Unregistered Commenterscottandrew

Now on the subject of giving up a percentace of your income to a company that basically does nothing but place the song on a website like itunes, DOES annoy me, and it does seem unfair, they do nothing

They do nothing? How about creating the largest marketplace for digital music? How about creating a direct pipeline to the largest concentration of digital music consumers willing to pay for files?

Ok so they have created the larges marketplace for digital music. Ok so They take a percentage for placing you there, but if you are an indie the only way people will actually find you on itunes is if a customer goes there and types your name to find you, (lets face it becoming a feature artist is not easy on itunes) Or they see a "Buy from itunes" button on your website, myspace, facebook, or whatever marketing your doing posters, flyers etc. itunes its hardly a place where people go discover new artists, people go to itunes knowing what they want to buy already, for the most part. What Im saying is if you can use a bandcamp, or bandbox, or even pay pal for the full album youl be better off. It still makes sence to have your music listed with them for the people who Trust them as opposed to another website, and it makes sence to have an itunes botton on your website in case thats what a customer specifically wants sure, but to be focused on sending most customers to a site which takes a percentage, and then having to pay the distributor their percentage, its just not a good deal across the board no matter how you look at it.


Now scott on your point of "So you can make a dollar instead of $0.70? Really? " FUCK YES. REALLY. Add up 30 cents per transaction times all the transactions itunes does, mean while most artist are getting screwed.

Yeah, except for all the transactions you're losing because consumers don't recognize trust your Bandcamp (read: no-name) shopping cart. Assuming they actually find your website in the first place.

On your second point read above.

February 7 | Unregistered CommenterChris

For what it's worth, we test and survey our small fanbase rabidly.

Graphic design has a lot to do with trust. For instance, back when we took MySpace seriously, we looked into Nimbit and the response we got from fans was that it looked cheap and they didn't like it. (I felt the same, and I also have no idea what improvements and changes have been made since -- but this is business reality. I don't have the mental bandwidth to re-assess these services and sites, snap decisions tend to stick.)

Bandcamp has gotten a great response from fans, though, and nobody's brought up not trusting the site. In fact, we've had a few folks say they preferred some of our Bandcamp layouts to our actual site.

February 7 | Unregistered CommenterJustin Boland

I love the idea behind Bandcamp, but the consumer trust isn't there yet. Their music player is by far my favorite--it's clean, sleek, and actually works, unlike the Myspace one.

The artist gets 100% of the money, which is also of course a huge plus.

Unfortunately, I just don't see trust. People who are music-savvy that I introduce to the site like it, but are still hesitant to purchase from Bandcamp, even as they agree that it's one of the better platforms out there.

I'm hoping they find a way (partnership, maybe?) to get into the broader marketplace because they're the digital distribution equivalent of what Facebook was a while back--sleek, simple, and user-friendly.

February 7 | Registered CommenterTony Pascarella

@ Tony

I am having difficulty believing that "trust" is a problem for just about any legitimate site that processes credit cards using HTTPS. There are thousands of sites that sell millions of dollars worth of product (all categories of products) across the Internet. When you say "trust" are you referring to potential credit card fraud, or are you referring to interoperability of the file type (DRM or not)?

I think BandCamp suffers from another problem: the name "BandCamp". I would wager that there are plenty of legitimate artists that don't want to be tied to the hokey name. Perhaps consumers are having trouble taking the service seriously also?

February 7 | Unregistered CommenterBruce Warila

As far ad the trust issue they take Paypal, and thats a company that people trust. But guess what if you don't have a Paypal you can still buy without having one, which makes it easy for people to purchase music and the artist gets all of the $$$,
Now on the name bandcamp I don't see that being a major factor honestly.
you can customize your bandcamp page to where it doesn't say bandcamp anywhere in the url at all so your customers don't even have to know its bandcamp.
I found a good example of this on this link.
http://omardigital.rodriguezlopezproductions.com/
Its clearly a bandcamp page, its feature on bandcamp front page on bandcamp.com, but if you notice, nowhere in the url does it say bandcamp. (I want to find out how they did that by the way) but its brilliant.

I got a question tho, has anyone here tried bandbox.com at all, if you have what do you think? Ive seriously considered using their widgit. Any comments on that.

February 8 | Unregistered CommenterChris

It's about removing friction. As a customer used to online shopping, I may already be familiar with Amazon or eBay. If I already own an iPhone, I'm definitely going to know about iTunes.

On the other hand, I may not have a Paypal account. You and I know we don't need an account to purchase items, but Paypal has done a terrible job of communicating that (and why would they? It's not in their interest.). So as a potential customer, I might think I need an account is required. Another point of friction. I may have heard horror stories about fraud and ID theft. More friction.

Given the extremely low sales volume that most indie artists see for digital (and revenues being further eroded by streaming every day), does it make sense to completely opt out of these huge marketplaces to claim what amounts to pennies? Seems foolish to me. Why not cast the widest net possible?

February 8 | Unregistered Commenterscottandrew

I don't want to say anything negative, but it should be mentioned that in the Bandcamp FAQ it does say something to the effect of "we don't charge for this yet, but we may in the future."

As far as being on iTunes & them getting 30%. When I sell a CD to a distributor & it eventually gets to a store I'm only getting half of what the consumer pays. So I can't complain about 30%. I can complain about the lower quality of MP3 they sell or the lack of additional MP3 tags/liner notes/artwork associated with them selling the content.

I have no problem with the one or other calculation. If I sell others should win too.
I think that the "elite takes all" is the major problem of the whole crisis. If I don't buy music myself no one will buy my music too. It starts all with you. same with air, pollution, ....

love wolfgang

February 9 | Unregistered Commenterwolfgang

Great article. I’ve written about this in several places but this gives you the math in a easy format.

Another important factor is a concept known as “threshold.” That is the amount of money that you have to earn using the distribution service that will trigger a payment. You could earn $100 in payments but still not get paid because you have not earned enough for them to bother writing you a check. For some contracts the threshold quite high--$300/a month. Some are very low $20 a month. Some are $0. The percentage is interactive with the threshold because the higher the vig the harder it is to trigger a payment.

Here’s a chart that compares many of the top Digital Distributors. I haven’t’ updated it in a while, but most of it is still relevant.

http://www.mosesavalon.com/digidist.html

February 9 | Unregistered CommenterMoses Avalon

My name is Pete Johnson -I have been in music sales since getting out of the Arista Records Mailroom back in 93. I am the East Coast Sales Rep for Select-o-Hits Distribution www.selectohots.com -I also run two companies through my vendor number with Selectohits-one with a partner which has released 49 cd's and a new one I run myself-The current project I have is the great solo cd by Dennis Diken of the Smithereens called Late Music featuring Jason Falkner The Wondermints and Andy Paley-The key point everyone seems to be missing here is the advocacy part of doing cd's-Just listing a upc# on a website server is fine,but not having a sales rep who knows the music and how it fits into the different markets is a key element to building a successful band. That is really what a band is paying for when they step up to the regional level or the National one.Also a lot of the getting paid aspect is helped by a strong distributor.A store is not likely to skip a payment to a distributor that consitently releases good product. There is a lot to be said for physical product aswell as digital-I do retail consultation as well as full distribution deals-if anyone is interested contact me at pjohnson@selectohits.com

February 10 | Registered CommenterPete Johnson

The fact is that buying on itunes is like buying in a physical retail store. I might come in to purchase a Jay Z cd but going up and down the isles I find this little indie thing that interests me and snatch it up.

Same thing here. Someone coming to iTunes and Amazon to purchase something else might end up with one of your tracks. It's happened to me on many occasion.

Lastly, If I'm interested in 10 different artists... I don't want to or just may not have the time to go to 10 different websites, enter my billing and credit card info 10 different times. It's just not convenient. Why lose a sale?

BTW: I'm using 3 different digital distributors and the only one that I've received money from.. and still do on a monthly basis is Tunecore.

We use Reverb Nation (they take no rights and pass through 100% royalties, like Tune core does). It less expensive than Tune Core or CDBaby if you have more than 5 songs on your album, or need a UPC. But they charge you higher amount then Tunecore for your second year. But by that time you know if you are selling or not, so its really the best for trying out digital distribution on the cheap to see if you've got something - you can always switch to another provider in year 2, as it is not exclusive. They also payout when your balance reaches only $5, which is nice. They only payout via Paypal which can be kind of annoying as we had to setup a paypal for the band, but it was worth the savings as our alubm was 16 songs.

Here is their calculator for anyone interested:
http://www.reverbnation.com/c/artist/distro_calculator

February 15 | Unregistered CommenterDavis

hEY I just went to Watunes.com they distribute, to Itunes, Rhaposody, and bunch other sites, and they do it for free.

March 1 | Unregistered CommenterChris

HI I have a distributor but I do not get an itemised royalty statement and I have a feeling he is ripping me off saying itunes dont give itemised statements!!!! My musician friend does get his royalities itemised and he can go in with his login details - what do you guys get - help much appreciated!

March 11 | Unregistered CommenterJilly

Jilly,

I use TuneCore. The last time I checked, the monthly report was itemized by song and by store. Perhaps your distributor does not have the technical ability needed to break out the information?

-Bruce

March 11 | Unregistered CommenterBruce Warila

I dont agree with anyone taking a percentage of online sales, or a large yearly fee. At Ditto Music we provide a host of services to unsigned artists so we do not choose to make a profit on digial distribution.
Distribution to iTunes is free with Ditto. Feel free to check us out and whoever you go with , research them thoroughly. Good luck!

Lee

July 14 | Unregistered CommenterLee Parsons

After a year and a few months, I have figured out that Reverbnation is a bit of a scam. The fee listed here is wrong because its almost double that amount or 60 bucks annually...however, they not only charge a $50 take down (making your so called one time payment, 50 dollars more than that initial amount spent), there are also fees taken for every transfer of money to your paypal account. Therefore, no matter what at Reverbation, you are spending $110 to set and take down each release. Its not reflected in any of the sign up document and they added it on to the FAQ a few months after I initially signed up...But I was not happy with that system. Forget about the fees, they hardly got our product anywhere that cant be done at any other aggregator and/or distributor. They have great marketing tools but this where and how they scam money from artists. Which sucks because obviously as a young artist, trying to grow in this industry, every penny counts. And, its hard to read thousands of lines of fine print like they have in their FAQ section. The fees they take are very easy to overlook even now...I was honestly shocked a company with so much going them, acts that way towards young bands....as if its not hard enough to break into the marketplace, you have look over your shoulders at your own partner because Reverbnation is not at all forthcoming about these fees....not even remotely...they hide it....and that sucks because I could have gone to every other company, that would and does not act this way towards artists. Most companies do not take advantage of young artists, but this company is a nightmare with regard to digital distribution. I am telling you its a nightmare to deal with their digital services. Its very hard. Let alone you will not get paid on time. Its now 8/11 and I have had money due to me since 8/5. And, they refuse to deal and/or answer to it. Its very hard...and I know they are scheming some way to keep that money...which is incredible to do to young artists in this industry today....

August 11 | Unregistered CommenterJames

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
Some HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>