No. 10

In this months feature article we will discuss the good, the bad, and the ugly of online distribution. In the past decade, the world of music distribution has changed dramatically, shifting from a paradigm of brick and mortar store distribution to a moderrn world of online distribution. In the past year I have had discussions with dozens of musicians who feel the industry has taken such a slide in profitablility that they are choosing to retire from the business, others insisting they will no longer release music on physical formats like compact disc in favor of digital media. Where does this leave a once thriving music industry ?

There is no denying that the music industry has been in decline for at least a decade, as we have watched the mom and pop brick and mortar stores disappear under the weigh of bigger chain stores, then watched those same chain stores themselves go bankrupt and out of business. Gone are the days of a thriving community of stores such as Sam Goody, Sound Waves, and more localized businesses such as Record and Tape Traders. This past year Europe's biggest distributor HMV, who were bought out by Hiltco several years ago to become HMV/Hiltco, have themselves announced they are closing their doors in the face of poor sales. Before long, the only choice musicians will have to release their products is through online distribution.

Piracy has been a detrimental factor in this decline, while arguably many feel otherwise. I have read many a discussion on the subject where consumers weigh in with their comments that piracy has no affect on the industry debating the subject on the merits that music artists are overpaid, making a fortune, and riping off the consumer with outrageous prices to purchase music. One of the notable deluded comments came from a consumer who argued that it costs only 50 cents for a band to make a CD they are then trying to sell you for $15 or more. Many others are of the opinion that music artists are making millions so they barely feel the effects of piracy. Lets first address the reality of manufacturing and distributing music. While there are major label bands that are surely making money, few sell millions of albums and most are selling 100,000 or less of their albums. The percentage these bands are paid on sales has been a de facto standard in the industry for decades, generally about one-two dollars per unit sold. This utlimately split between the number of band members. If they are selling 100,000 copies, a gold record, they are earning $100K-$200K split between what is usually four-five band members, so in other words each band member is grossing $20k-$40K before taxes. No band member is getting rich off that. While it might be true that the 1% of music artists selling a million or more copies of an album are making money and may not feel the effects of piracy as hard, the rest most certainly feel those effects especially when piracy in todays age can amount to as much as 50% loss of sales. Most consumers are otherwise unaware that most small labels and independents sell less than 10,000 copies of their albums, that's $2K-$4k for each band member, less with the effects the piracy. These are the starving artists and represent the majority.

So if the music artist isn't getting rich off sales, then the next fallacy is that it must be the record company getting rich and therefore ripping off both the artist and the consumer. By this logic this would in turn apply to the independent music artist, who acts as their own record label. In both cases nothing could be further from the truth. To produce a professional studio album, rates can be $75 an hour or more and top-notch quality can require hundreds of hours in a studio. It is not uncommon for an album to cost at least $10K or more to produce. For a major label who are manufacturing to compact disc in a bulk quantity of tens of thousands at a time, the cost of manufacturing can be reduced to less than one dollar per unit, but for the majority of small labels and independent artists they are manufacturing in pressings of 1,000 cd's at a time for a cost of between $1-2 each depending on the packaging. To bottomline these figures, producing and manufacturing a compact disc for most artists costs about $1500 per 1,000 cd's with a substantial studio bill to


recoup and costs involved with shipping the product to distributors/stores and promoting the release. Whoever thinks it costs 50 cents per compact disc released is grossly misinformed. What most consumers fail to realize is the record label/independent artist does not set the retail price, nor do they recoup this amount. An album release needs distribution, and most distributers only pay a rate of between $4-6 per CD. As such the music artist is being paid on average one-two dollars per cd, the releasing company is paid two-three dollars per cd and all have costs to recoup from these earnings. The distributor in turn has contracts with physical stores and online distributers in which the retail outlet is making the bulk of the earnings, usually 50% of the retail price taking into consideration the retail outlet as well has overhead and money it must recoup in this process. The fact that retail outlets are taking huge losses due to piracy is the chief reason that the price of compact discs has become so outrageous. It is the chief reason corners are being cut in the recording and manufacturing process resulting in substandard products, the reason many artists are considering retirement, and the reason that the quality of music today has been compromised.

Today there are a multitude of online distributors at every turn of the internet, ready to take your products and profit from your investment. They are a dime a dozen and everyone is a distributor now. Sadly though most are ill-equipped to do any real distribution of a product, lack any promotional investment, and are simply taking advantage of a failed industry where the majority of musicians are uneducated in the business. Two of the biggest online distributors are CDBaby and Tunecore, both appealing to the mass of artists out there in the world. For fees they will distribute your product to a host of online stores like Amazon, iTunes, Rhapsody, and many more. CdBaby has a system where an artist pays a one-time fee of $79 per album release, whereas Tunecore charges a monthly or annual fee for the same service. In both cases what do you really get ? CdBaby would like to claim they are the biggest online distributer, but quickly music artists will find that they offer little to no promotion of the products they are selling, and the time and expense of promotion is all up to the artist. Unless the artist is selling substantial quantities of cd's on a regualr basis, they can quickly find Cdbaby requesting a stock of only one cd at a time, and attempting to stock more cds ending with the artist either paying for return shipment or products being destroyed due to the fact that CdBaby " has limited warehouse space". No music artist is earning anything when their products are being destroyed and no music artist is making money when it costs two dollars or more to produce and manufacture a CD, then has to pay two dollars or more to ship it to CdBaby one cd at a time in maintaining their meager stock, for a payout on average of $6 per CD. In short, the only one I see making money off this arrangement is CDBaby, not the music artist. The same with its competitor Tunecore, both whose operations are designed to merely take advantage of the music artist. Both companies are as well offering the same "pay to sell" arrangement for publishing rights, designed to collect publishing royalties for the music artist without their ever having to make any investment in promoting the artists material as a real publisher would do. It has sadly become a world of online distributers and publishing companies who are profiting off the misfortune of music artists for doing nothing that actually generates revenue for the music artist.There are dozens of sites on the internet like Reverbnation, SoundCloud, etc. who charge fees to get rich off the music artist while delivering little return on investment. Even for a music artist to promote themselves on social media sites like Facebook costs hundreds of dollars per month in advertising costs, where the return on that investment is unrealistic requiring thousands of cd's top be sold to merely recoup those costs. The music artist has essentially ended up in a position were it is working for free or next to nothing to make everyone else money off their misery. The princple behind this algorithm is unsustainable.

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