Tuesday, June 7, 2011

The Tale of Retail

In the last post we saw how a recording artist needed to sell 85 CDs each month to make U.S. minimum wage, $1,160. Not every Indie musician can do that. We are competing for sales with a lot of very heavy hitters, the two biggest being iTunes and Amazon. And to make things worse, hopefully they are selling our stuff too, which means our own websites and performances are competing with two of the largest marketplaces in the world.

One of the ways that an Indie artist used to be able to do to get their music out in stores was get their recordings carried by independent distributors. This was especially true for New Age artists, or its off shoot genres, Celtic, Native, Flamenco, Chill... At one time there were a lot of little stores out there that mostly sold books, crystals, incense, wind chimes, and music. They had recordings that the big box music stores did not.

Many of these small independent distributors still exist, but a lot of the stores that they sold into are gone or don't carry music any more. (We'll get to that at another time.) The stores liked dealing with distributors because they could make one phone call and get all of their music and or books, and not have to deal with a bunch of artists and authors. One order, one payment. Plus the distributors were gate keepers. Product that they didn't feel was going to sell, or for which the artist couldn't prove a sales history were not picked to be in the catalog and this, hopefully, weeded out a bunch of bad music. So not everyone with one CD and no sales to show for it would be picked up for distribution.

This presented a challenging "Catch 22": retail stores wouldn't sell your recordings if you weren't carried by a distributor and distributors wouldn't carry you if you weren't in stores...

The main benefits of being in a distributors catalog were they had the accounts with the stores and they had a sales team and would talk about new product. Simply put, they had way more places to sell a recording than an artist did. The artist didn't have to be there to make the sale, didn't have to get the product to the end customer and being in the catalog meant they'd passed the gate keeper and were somehow more worthy of attention, by both the store buyer and the final customer.

The artist did have to give something up for this access-- 55% of the retail price of their CD to be exact.

In the last post we looked at how many $15 CDs an artist had to sell to earn U.S. minimum wage, or in my case, pay rent. Let's go back to that $15 CD because it is your listed price. What this means is that you, as the artist, label, or both, would state that your CD's sell for $15. This would be the price on your website, your concerts and any other place you could make a sale. A distributor, if they accepted your title(s) would only pay you a wholesale price of $6.75 for every CD they bought from you to be resold to one of their accounts.

While this seems like a lot to lose, remember that the hope is your recording will be seen and purchased in little stores all across the country Stores that you didn't have to call directly (if you even knew they existed) and therefore you would make way more sales that way than you would on your own, More sales mean more money. Hopefully more than an artist could make directly through performances or their websites.

It should be noted that distributors do not promote titles, they just make them available. The artist still has to promote their title so that the stores want to carry them. This is done through buying ads in trade magazines, in the distributors catalogs, touring, getting reviews, getting interviews, getting radio play so that the store customers want a copy. There are many ways to promote a title. They all cost the Indie artist money.

So let's crunch some numbers. Just to make this easier let's say the wholesale price is $7.00 instead of $6.75. First we need to remove the cost of manufacturing the CD. That leaves us at $5.65. At that price, instead of having to sell 85 CDs to make minimum wage you'd have to sell 205. For me to pay my $1,300.00 rent I have to sell 230 units instead of 96. Oh, but wait, I have to ship those CDs to the distributor and they don't pay for that. The average ground shipping price via UPS is about $0.14 per CD, so now the wholesale price comes down to $5.51 per disc. So I really have to sell 236 CDs per month just to pay my rent. (BTW anybody want to buy a CD?). If I'm living on $2,500.00 a month then I have to sell 454 CDs each month to pay my bills, eat, buy gas for my car, toothpaste, have a website, run an ad, keep my gear running, buy shampoo... BTW the monthly living expense number of $2,500 does not include the cost of having to make more CDs. That adds quite a bit more as we saw in "Let's Get Physical: The Real Price of CDs"

Another thing to remember is that most distributors pay 60 or 90 days, end of month (EOM). That means that I won't see a check until after 60 days from when I get them the product, plus to the end of the month. So if they order at the beginning of the month in a worst case scenario I won't get paid for 4 months. Others, like Amazon, work on consignment. They don't pay you until they sell it. That makes you a de facto bank.

When I'm performing at a music festival and have to tell instrument makers I can't afford to buy one of their instruments they usually look at me like I'm crazy, saying "How is that possible, you're one of the headline acts!" Well that $275 instrument they're trying to sell me means I have to sell 43 CDs through a distributor, after I sell the ones I need to pay my bills first...

To finish this up, in my experience I have done very well with some distributors and not so well with others. I place a very high value on what my distributors do for me and my recordings, but this post is ultimately not about distributors being good or bad for an artist, it is about pulling back the curtain on what goes into a musician making or not making money. The disconnect between the amount of money that the music fan thinks an artist makes, and what that reality is. As you've seen, just because you spent $15 on that CD you just purchased doesn't means the artist is making anything close to $15. Far from it.

For a true Indie artist, like myself, who is covering the costs of everything and needs to sell their work at a wholesale prices to get it out in the world, including Amazon.com, the profit margin per CD is very low. And just like that instrument an artist can't afford to purchase because of that low margin, so they can't afford a tube of toothpaste, a box of breakfast cereal, and a couple gallons of gas to get to that gig, if their fans are copying their CDs for their friends or accepting copies from others...

Next up Digital Downloads

© The Musical Disconnect (TMD)

As always H/T to Faza at The Cynical Musician for the info on the minimum wage and his great insights.

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