September 19, 2020

How Music Distribution Deals Work

how music distribution deals work
Image Credit: Brandman – www.brandman.com

Not so long ago, if you wanted to break into the music industry the most common advice was “get a record deal”.

But the industry has changed so much that successful artists (including Independents) are now signing music distribution deals instead.

 In this day and age, almost every artist has some sort of a label BUT without adequate distribution, your chances of success are quite limited. Self-distribution is okay for the entry-level musician because it teaches you the music business but it’s not scalable.

However, a formal music distribution deal can take your career to greater heights. Music distribution is the process of moving your completed product (Single, EP or Album) from the studio to buying consumers. That’s just stating the obvious.

But how do music distribution deals really work? That’s what we will find out. 

And so without wasting any time, let’s dive in.

Music distribution deals in South Africa

Music distribution deals offered in South Africa are in line with the International best industry practice. The music industry as a whole is structured the same way, whether you are in South Africa, USA, UK, Norway or Nigeria.

Of course, some markets are more formalised and lucrative than us. Music distribution deals in South Africa come in all shapes and sizes, but the market is small and everyone is competing for the same pie.

Types of music distribution deals

As an artist or label, the type of music distribution deal that you sign can make or break your career. Distribution deals are not created equal and you have to know what your deal entails.

Below I will explain to you the types of music distribution deals available for artists and record labels. After reading and understanding how each deal is structured, you will be much more informed.  And that should make it easier to find a deal which suits you.

Licensing Deal

A licensing deal is also referred to as a label or production deal in this context. The term licensing in music is broad and can mean a lot of things. But for the purpose of this article, I will be referring to the label deal as a licensing deal.

This is probably the most popular and common music distribution deal not only in South Africa but in the world.

How the deal works, is that an artist or record label goes in the studio and records an album and once completed, you have to hand over the final master recording to the label (in most cases the major label) to market and distribute your work.

The licensing deal is usually set for a fixed period, say 3 to 5 years (or more depending on the agreement) for the distributing label to market and generate revenue in exchange for a fee and royalties.

But you own the masters and all the copyrights of your music by virtue of funding all the production of your albums. When the licensing agreement expires, the recordings will return to the rightful owner (you).

A licensing deal works well for small labels (or artists) with limited resources. Instead, you partner with the bigger company which has the infrastructure and financial muscle to market and distribute your projects on a large scale.

P&D (Pressing & Distribution Deal)

Some artists tend to confuse a licensing deal with a pressing and distribution deal. But these are two different things.

A P&D deal is a direct deal with a music distributor to manufacture (pressing) and distribute your products (compact discs) on your behalf for a 15-25% cut.

But you are responsible for funding your own recordings, marketing, public relations and promotions. The distributor’s job is to ensure that your CD’s are manufactured and available in stores countrywide, that’s it.

In some cases, the distributor might request a cash deposit upfront as “Insurance” before they can start doing any business with you. The deposit remains in a holding account but a percentage is deducted each time you (label) fail to meet your monthly sales target.

But the deposit is fully refundable by the distributor should you manage to meet your sales targets consistently for the remainder of the agreement.

A P&D deal is risky but can be financially rewarding should album sales take off. Margins are typically high since you keep at least 75% to 80% of the gross profits. In South Africa, Independent artists such as Bojo Mujo thrived under this type of a deal.

However, the p&d deal is not for everyone because you need investors and extensive funding to set-up such an operation.

And with the current state of the music industry, the P&D deal has become less appealing for most artists and Independent labels.

Digital Distribution

Digital Distribution has become the industry norm. The internet has changed the game and any artist can release music worldwide without a label’s assistance.

But the only difference between digital distribution and traditional distribution is the format. Digital distribution involves uploading audio master files on to a server for downloads or streaming – no warehouse storage, printing or manufacturing is required.

In order to distribute your music to online shops (locally or abroad), you need to sign up with a digital aggregator. Some will charge a fee, which has to be paid upfront but you retain 100 % of the royalties.

Others provide “free” distribution service but deduct not more than 18% from your royalties and the remaining 82% is yours. Not a bad return considering that it’s “free”. 

And I almost forgot to mention that you retain 100% of your masters.

However, the barrier to entry is low because almost everyone has access to digital distribution. It’s hard to sustain a label or a music career on digital sales alone and especially as an Independent. 

But digital distribution has made it easier for anyone to jumpstart a music career with limited resources, so there’s no excuse.

360 Deals

The 360 deal is self-explanatory. But just in case you don’t know what this entails, I will explain this further.

A 360 deal is an all-round record deal offered by the label to the artist (sometimes label to label) and includes recording, marketing, distribution, management and tour support.

The label funds you but takes take a cut from everything you make – all revenue streams available.

Some of these revenue streams include but not limited to the following:

  • Physical sales (CD, vinyl, etc.)
  • Digital Sales (Downloads, streams, and ringtones)
  • Tours and shows
  • Endorsement deals
  • Publishing
  • TV Commercials 
  • Merchandise

This type of deal was structured by the labels when the internet disrupted the music industry. Prior to that, physical sales were the main source of revenue for the average record label.

But the margins started to decrease and the labels saw the need to change the business model in order to remain in business. 

Final Thoughts

I just took you through all the music distribution deals that you should know about. I have also included additional links and resources that might want to look into.

I hope that I have given you a better insight but you are more than welcome to ask any questions or share your thoughts on the comment box below.

Thank you for reading.