What to look for in 

CD Distributors, CD Distribution Contracts

( If you're selling a DVD there's a thing or two to learn from this page too )

Unlike other websites that CHARGE you for simple information, this page is FREE.  I'm not an author trying to sell you a book either.  Having personally dealt with non-paying distributors and heard horror stories from others, I can give you the REAL scoop from the perspective of an artist who has inked consignment deals with 3 distributors, getting screwed by 2.

NOTE: This page was created back in 2002. Much of the media distribution business has changed due to the Internet revolution, file sharing, record store closures, etc. There's still much to learn from this page though so I am leaving it up.

Summary of links

Back to Main Page * Release Forms * Prank Call Legalities  

Yellow Pages of Rock * www.barcodesnow.com * more sales stats * SoundScan Registration Form  

Distribution Contracts * How to Record Broadcast Quality Prank Calls * Filmmaking

 Email Me Your Questions

DISCLAIMER: The opinions expresses are those of JunkyardWillie.com, INC. I am not an attorney. Nothing on this page should be relied upon as legal advise.

With the music industry in turmoil due to decreasing sales it is a HIGHLY risky time to sign with a distributor -- especially a small distributor.  Small distributors can collapse as easily as a house of cards, then the owner simply reopens shop under a fresh new (debt free) name. Bigger companies have more assets at stake and are less likely to skip out on their tab by going bankrupt.

It has ALWAYS been risky to sign a contract with an Indi distributor.  But recently file sharing, recession, lack of quality CD releases, inability of distributors to place their CD's into many stores (due to shrinking shelf space for CD's), and the fact that the CD itself is overpriced have all contributed to declining CD sales, and subsequently increased distributor corruption. Many distributors are continuing to operate while in SERIOUS debt, essentially dragging CD suppliers along in their sinking ship!! They simply further delay payments to their labels and artists. They pick and choose who gets paid first (or who gets paid period)! The SMALLER the artist (or label) the LOWER the payroll priority. It's sad but true that many distributors basically make a habit of paying artist X with artist Y's sales. In distressed times distributors want to HOLD ON to their labels that sell LOTS of CD's (and have more releases on the horizon) by keeping them paid and happy. Additionally I've always said that artists who live a few hundred or more miles away are an even LOWER priority. Distributors worry about their LOCAL artists who may potentially throws bricks through their windows - not the guy who lives 2,000 miles away. 

A distributor is certainly not going to volunteer to tell you that they are one punch away from declaring bankruptcy. In making such an announcement, their record companies and artists would go elsewhere, and business would collapse. If a major chain retailer goes bankrupt (without paying the distributor) OR if one of their other labels sues them, then that may be the final straw for the distributor. In most bankruptcy scenarios you NEVER get paid (or you get paid pennies on the dollar) and if you didn't take the appropriate steps described below, the distributor can legally keep your CD product that sits in their warehouse (as well as your CD product that has been shipped out to retailers) and NOT pay you for the sales proceeds of all those CD's. "Secured creditors" (meaning banks and lenders) are legally the first in line for liquidation assets; Labels and artists (also known as "unsecured creditors") are second in line when it comes to bankruptcy liquidations of their own CD's that were shipped to the distributor! Again usually there is nothing left for the labels and artists.

Your best advice is to find the biggest and most stable distributor that is financially on stable ground. Smaller distributors are more likely to fold. You might get lucky or you might get burned. Out of the 3 distributors I signed with, 1 went bankrup, the 2nd essentially went out of business and re-opened shop under a new corporation name, and the 3rd flourished and got bought out by a larger company. I got out just in time before an Internet CD retailer settled with it's vendors for pennies on the dollar. I also narrowly avoided signing with yet another distributor that later went bankrupt. They wanted a "set up fee" so I passed. I feel sorry for those who got screwed by this distributor.

Are indi distributors really that corrupt? Yes. Even some law professors are mentioning this tendency to their students. A lawyer told me that Atlantic Records almost never got to become the giant record company that they became. Back in the day so many indi distributors were screwing them over that they almost failed as a company.

Billboard Magazine reported in 2002 that distributors are typically paying about 18 months after the date that you ship the CD's to them. Yikes! Distributors love to make excuses, say that they are waiting for returns, and they blame various retailer's bankruptcies, even though other distributors are still paying on time. When it's been 1 1/2 to 2 years since you SHIPPED the CD's, that's when you realize that your distributor is full of crap, and you must take action. What is REALLY happening is they are building up debt (just like WorldCom, Enron, and K-Mart). It has become very common if not the NORM to ultimately have to sue distributors that slack off. Distributors may try to CONTINUE to yank your chain by fighting your lawsuit and offering to settle out of court so they can pay you LESS. The larger distributors that are on the stock exchange (like Navarre) are the ones that are held to higher standards and are much less likely to rip you off. But then again even Valley Media (once the LARGEST one-stop distributor) went bankrupt without warning, after having just opened a 2nd large warehouse in the Midwest! That was a huge surprise. I read that at it's peak Valley was selling 10% of all CD's in America! So even publicly traded companies can go bankrupt or even "cook their books" (as Enron did).

CD DISTRIBUTION CONTRACTS

WHEN LOOKING FOR DISTRIBUTION...

NOTE: This stuff below applies to real brick and mortar distributors (not "Internet distributors" like cdbaby, digital distributors, 3rd party credit card processors like ccnow.com, which generally offer a standard, non-negotiable contract for all).

1. Unfortunately you don't have much leverage when shopping for distributors. Billboard Magazine reported in 2002 that distributors are looking for labels that  have a minimum of 6 to 8 releases on the horizon. Therefore if you are a band with only 1 or 2 CD's to offer you'd better have a BIG national buzz going for your product otherwise no distributor will sign you.  It may take LOTS of national airplay to catch the attention of distributors. Another attention getter is sales stats, which is a catch 22 if you're just starting out. 

2. Hopefully the prospective distributor has "accounts" with most or all of the national retail chains (like Best Buy). This is important because you get your CD's into all of the retailer's systems. A customer can special order your CD from ANY store in the US. Big chain stores can move big blocks of CD orders. Again watch out for distributors that SAY that they have accounts with Best Buy, Circuit City, Virgin, Sam Goody, and other major retailers. Often times they REALLY only have an account with a 1-stop distributor like A.E.C.  Major retailers won't order CD's from 1-stops unless it's a title with a HUGE buzz like "Brother Where Art Thou"!  So instead you need a distributor with DIRECT accounts with major retailers. So do NOT sign an exclusive contract with a distributor that does not have direct accounts with all or most of the major retailers. Chances are they aren't much of a distributor at all. Their 1-Stop sub-distributor will fall short, and even the stores that they are able to get you into will charge about a buck more. Why the higher price? The more distributors that handle your CD, the higher the price. 

DISTRIBUTION CONTRACT MUSTS...

1. **Strive to ONLY sign with a distributor that is based in your LOCAL area. This way they will be so much more likely to play straight with you. If your distributor is 2,000 miles away they WILL slack off on payments, not return your calls on time (or at all), etc, etc, etc. From half way across the country they don't have to worry about a brick coming through their window. Trust me small and even medium sized indi distributors are absolutely NOTORIOUS for not paying according to terms of contract! Indie distributors are soooo corrupt!  ASSUME that you will have to sue them (because they aren't paying). ASSUME that you will want to show up in their bankruptcy court to collect what's left for you. ASSUME that you will want to show up on their doorstep to pick up your CD's that they WON'T return after you end your contract with them. So only sign with a distributor who is within reasonable driving distance of your home. If you live in LA or NY then you have absolutely NO excuse for not exhausting efforts to hook up with a local distributor. 

**The only exception is if you enter into a COD agreement whereby you are paid 100% as soon as your CD's are delivered to them. However indie distribution agreements are usually done on consignment (in which you get paid at a later time, after your product is sold).

2. If you insist on signing with an out of state distributor then try to get it in the wording of the contract that legal disputes be settled in YOUR local jurisdiction*.  Chances are that a distributor will never agree to arbitration in YOUR jurisdiction anyway. Having said that, I would argue that any distributor who actually does agree to arbitration in YOUR jurisdiction is probably already resigned to defaulting on a judgment OR going bankrupt anyway (after they sap as much cash out of you as they can). The only exception is if you can sign with a MAJOR indie (like Navarre / Miami, Minneapolis). Navarre is a publicly traded company on the NASDAQ and accordingly must adhere to strict standards of business conduct. They aren't going to play the bullshit games that small indies always play. NEVER NEVER EVER EVER under any circumstances sign with a foreign distributor (Canada, Europe, etc) unless it's perhaps a lump sum buyout deal. You will get robbed! It's difficult enough to sue in the USA; You don't EVEN want to sue someone in another country! Get ready for $600 an hour attorney fees and long distance calls. Again the only exception is if you are getting paid up front 100%.

*Even without this clause it is possible in some states (including in California) to sue an out of state defendant if you can prove that the distributor had what are called "minimum contacts" with your jurisdiction (county). This could include if they did business in your local area (example Los Angeles county). Example #1: Supplied CD's to a store(s) in LA County. Example #2: They hired a sales rep to sell CD's to various store(s) in your County. Example #3: The distributor first approached YOU about distributing your CD's.

3. Instead insist in your contract that all disputes (arising from the contract) be settled by arbitration (and not in regular court). The American court system is a miserable failure that is lost in the 16th century. The civil court system of America has so many childish, procedural obstacle courses and anal retentive formalities that it is damn near impossible to sue someone without paying a lawyer huge amounts of money. Distributors KNOW this and will use this obstacle to their advantage... by feeling safe about not paying you!!! They know that 9 out of 10 people will give up and "settle" for some ridiculous rate like 10 cents on the dollar.

4. While bigger distributors charge "set-up" fees, I don't believe that small indi-distributors should be charging you "set-up" fees. Watch out for small distributors that charge even $75 to "get you entered into their system". If you've got a big national buzz going then a distributor needs to prove themselves to YOU; not vice versa!  In 200 I found one distributor that was charging a $1,000 "setup fee". If you're actually contemplating paying these obscene fees then you should remember that you can't substitute money for hard work! It all comes down to whether or not consumers will BUY your CD's and whether or not retailers will stock your CD's. BUYING yourself a distribution deal doesn't sell CD's. Once you attain a "buzz" you don't NEED to be paying to get "set up" with distribution. Besides, with distributors going bankrupt left and right these days, it just isn't worth paying up front fees.

5. Ask for NON-EXCLUSIVITY in your contract. This basically means that you have the right to open accounts with OTHER distributors. Bigger distributors might not budge at all on this issue, but an exclusivity clause with a small distributor can be problematic for you. Small "local" distributors that don't have the CLOUT and the sales associates in various cities, which is necessary to get the maximum number of retailers to stock your CD's. You don't want to handcuff yourself to a distributor who is local, regional OR just isn't getting the job done!  Imagine if your regional distributor is in Seattle and you've got a large new demand growing in Florida that can't be met by your Seattle distributor because they have NO sales rep(s) working the streets there and no relationships with the key stores in Florida. Of course if a small distributor IS doing their job and they're getting your CD's into tons of stores then you would have no reason to seek out other distributors. This should be mutually understood and therefore they should not make a big deal over your insistence on non-exclusivity! For this reason I believe that you have every right to insist on non-exclusivity with small distributors. 

NOTE: It may be reasonable for a distributor to be granted some exclusivity to their regional area and / or to certain accounts for a specific time frame - Perhaps 60 or 90 days. Why? Because they will be investing time and effort into opening accounts with retailers. They don't want it to be suddenly cut short if you were to find a new better distributor.  If they're only a local distributor and they want the right to distribute OUTSIDE of their home region (or with certain major accounts) then strive towards leaving yourself the option to sign with another distributor at any time (for that outside area). What if they can't get you into Best Buy stores because they don't have enough of a catalog, enough clout, or whatever? Why should you have to wait around?? You need to have other options.

TRAP!  Keep in mind that a regional or local distributor may boast about being a "national distributor", but what they aren't telling you is that they merely have an account with a one-stop (like A.E.C.) and therefore they claim to be a "national distributor". In fact they are bending the truth.  Fact of the matter is that A.E.C. will only get you into all of the ONLINE stores (BestBuy.com, TowerRecords.com, etc.) and probably as many stores as you can count on one hand. This is hardly what I would call "national distribution"! One- stop sub-distributors suck.

6. NEVER NEVER EVER contractually allow the distributor to KEEP your CD's that sit in their inventory in the event that they go bankrupt! Then legally they can sell YOUR CD's to pay back debt owed to banks!!! How screwed is that?!!! So it must be written in the contract that in the event that they go bankrupt, any residual CD inventory that they possess in their warehouse, or that may happen to be returned to their warehouse from a retailer, must be returned to you immediately. You will probably have to pay for the exact cost of UPS shipping, but insist on NO handling or other fees. This might seem like an automatic but it absolutely is NOT and it certainly wasn't for record labels that supplied Valley Media. This is how tons of labels got royally screwed by Valley Media. After Valley Media filed for chapter 11, the company turned labels away when they showed up at Valley's warehouse up to pick up their own CD's that sat in Valley's inventory. Imagine that!! Valley wouldn't even allow these labels to come get their OWN CD's!!! (trivia note: The only label that was "allowed" access to Valley's warehouse to pick up their CD's was Death Row Records. It appears as if Valley was intimidated by pissed off brotha's!!! But apparently lawyers for the other record companies found out and corrected this by basically kicking Death Row farther back in the bankruptcy liquidation food chain. So Death Row may not have been any better off in the end anyway.) So insist that you retain ownership of your CD's in the event that the distributor goes bankrupt and that the remaining inventory will be IMMEDIATELY shipped back to you. This is non-negotiable. If you are already in a contract that doesn't allow you to own your inventory then call them up and amend this immediately. Contracts can be amended at any time.

TRICK: Keep in mind that your distributor's other sub-distributors may go bankrupt. If your distributor's contract with that sub-distributor doesn't protect inventory against retention of CD's after bankruptcy, then your distributor has NO control over getting THOSE CD's returned. The only thing that can override their contract and get your CD's back is if you previously registered your CD's with the Uniform Code Council (as described below). 

7. NEVER NEVER EVER give up your personal website Internet sales to a distributor or record company! If you have an account with Amazon.com you might not want to give that up either. YOU should make all of your profits from your website. Don't let any record company or distributor try to convince you otherwise. When you consider that Internet sales only comprise about 10% of all USA CD sales, then it should be mutually understood that you are ONLY interested in doing business with this distributor because you want to tap into that other HUGE percentage of sales that occur in stores! If a distributor has a problem with this then you have to ask yourself... What's their problem anyway? Are they really able to get my CD's into LOTS of stores? Or once the ink dries are they merely going to just sell my CD's on Internet for the most part? Are they looking for an easy "free lunch" from you? Are they really a brick and mortar distributor or are they all "talk"? Probably not if they're insistent about controlling your Internet sales. There's no point is pissing away 25% of your profits to an "internet distributor" because you've already got that covered (via your website and Amazon, which accounts for the cast majority of Internet sales).

Furthermore it would probably take your distributor 6 months or more to pay you for Amazon.com sales; Whereas if you setup your own account with Amazon you will be paid in about 45 days! Don't underestimate the possibility that your distributor may go bankrupt. You need to get paid for at least some CD's!!!!

Also consider that when a distributor puts your CD's for sale on Amazon, your CD's will sell for a higher price than if you sell them yourself via Amazon's Advantage program (even though Amazon offers individual artists only 45% of list along with a $30 per year fee).  A distributor will take at least 6 months to pay you for Amazon sales. Not good.

You can also argue with your distributor that under a consignment agreement you are basically an "unsecured creditor" who will get screwed in the event of his bankruptcy, and therefore you NEED to have at least SOME secure income! That income will come from the small percentage of sales that comprise Internet commerce.

8. Be definitive about who is entering into the contract. An individual? An individual dba as a fictitious name? A Corporation? Or a Corporation dba as a fictitious name? Make sure that it says VERBATIM the exact name throughout the contract with no slight name changes or omissions. This is important in case of a lawsuit later in time. It will cost you money to correct a wrong name in the contract. Conversely if you are entering into the contract as a corporation then you don't want there to be any confusion in the contract that might allow them to sue you PERSONALLY. Conversely if you wind up having to sue THEM, then you need to know WHO you are suing. Finally do go to the secretary of state's website and run a search to see if the business exists in good standing. You can do dba searched on the net for free too.

Don't enter into a business relationship without researching the financial stability of the prospective distributor. Just as you shouldn't hire and give money to a contactor that isn't bonded, you don't want to do business and ship CD's to a distributor that is close to bankruptcy.

Who has gone bankrupt?

Valley Media, Pacific Coast 1-Stop, MS Distributing, Platinum Entertainment, KTD, Paulstarr Distribution, Southwest Wholesale, V & R Distribution, Midwest Artists Distribution

9.  Just what is the financial stability of the distributor? Distributors are notorious for leaving labels unpaid. For starters you can ask this potential distributor if they have any open suits, liens, and/or judgments against them and have them warrant in the contract that they don't have any such difficulties (verbal representations are meaningless). Keep in mind that (if they are forth coming with you about open law suits and financial troubles) they will always brush off any and all suits as "no big deal" in a reassuring voice. I once was told by a distributor (who as I later learned was in deep financial trouble) that business was "EXPANDING". Famous bright and rosy last words! I also heard of a call center that was about to go bankrupt who told a friend of mine that the reason he wasn't getting paid on time was because "We're late on payment because we're upgrading our computer systems." Therefore asking them DIRECTLY how things are going will never get you a reliable answer. Corruption is the norm. Count on them to secretly string you along. Count on these companies to lie if they are in financial trouble! Count on it!

If you know that you'll be selling a lot of product then you should go further by purchasing what is called a "business information" report from Dunn & Bradstreet to find out before you think about signing any contract. www.DunnAndBradstreet.com  This could be the best damn $117.00 you ever invested if you uncover a ton of open law suits (or even one) against a distributor! Contact some of their vendors and find out if they are getting paid on time. This will cost you NOTHING. You are STUPID to enter into a business relationship without researching the financial stability of a prospective distributor. This is a lesson from friggin' Business 101 for Christ's sake! They could be teetering on bankruptcy, hoping to leech off of you to save their sinking ship! If there's just ONE open lawsuit you have to ask yourself WHY the hell isn't this distributor playing fair with their vendor? Call up the vendor and speak to them. Speak to lots of other labels who do business with the distributor. Speak to others who are familiar with the distributor. Make as many phone calls as you can and send emails asking questions. It isn't hard to search in quotes on Google.

10. If choosing between 2 or more distributors pick the one that has the most DIRECT accounts with major accounts (like Virgin, TransWorld, Tower, Hastings, Gallery of Sound, Rasputin's, Music City, Circuit City, Wherehouse, Bull Moose, Homer's, etc). As previously mentioned, supplying these chains via A.E.C. One-Stop does not qualify as a direct account. 

11. No "Creative Expenses", "Creative Accounting" or "Hollywood Accounting" - This is one of the most common ways that distributors avoid paying their vendors.  Clarify in the contract that they don't get to invent any additional fees to subtract against what they owe you, otherwise there's no end to what they can short change you for (rent, gasoline, utility bill, office supplies, phone bills, weekly salary, generous fees paid to their buddies, etc). If push comes to shove and you wind up in court with them, then they can simply invent very creative ways to bill you (offsetting what they never paid you) in order to avoid being nailed for fraud or embezzlement. The only way to stop this is to have it worded in stone in the contract with no ambiguities or room for varying interpretations, otherwise the only remedy is costly litigation. ONLY A LAWYER knows how to word it properly. It is important to require IN THE CONTRACT that the distributor gives you an accounting (of all expenses and profit) I'd say at least every 3 months. This way they can't invent "fees" years later in court. With a properly worded contract any attempt by a distributor to rip you off will be regarded by the courts as "fraud" (punitive damages + attorney fees) instead of just "breach of contract" (only compensatory damages). Verbal promises made by the distributor mean nothing and they are NOT enforceable in court. Written promises outside of the contract (such as those that might be contained in emails communications) should be regarded as meaningless and unenforceable if the contract says something to the effect of "this agreement constitutes the entire understanding and agreement between the parties". Many distributors are aware of this and may freely make verbal promises to hook you in.

12. DUMMY contracts - Many distributors are in the business of catching naive people off guard who don't hire attorneys or don't hire knowledgeable attorneys. They try to get you to sign a "dummy contract" as they are called. I personally know of people who have been absolutely robbed by distributors / as well as by record companies. Some have signed away their copyrights to distributors - a HUGE no no. Others have entered into 5 year contracts or more! I have been offered "dummy contracts". I say avoid these companies that can't offer you a standard contract on the first try!  Run for the hills! Unfortunately nobody can be trusted when money is involved.

13. Don't sign over your copyrights! - With a traditional record deal the record company invests lots of money to record the masters. But if YOU recorded your calls YOURSELF then you put hard work into creating your masters, which have lots of value. The distributor didn't risk investing money into creating your masters so they have no right to demand a "security interest" in owning your masters. Period. Fact of the matter is that you will be shipping CD product (that has additional value) to them, AND they will be in charge of collecting not just THEIR share of profits from retail sales (20% - 30%), but YOUR share of profits (70% - 80%) too. So what risk are they taking that would justify them owning your copyrights? Get the picture? Any distributor that wants to OWN your copyrights is trying to rip you off.

Even if a distributor wants to additionally do the actual manufacturing of the CD's that they will distribute, you do not sign over your copyrights; You merely license them the right to distribute copies.

14. Lawyer billing gone wild - Having an entertainment lawyer review your contract will cost you as much as $300 an hour but is a necessary evil as the final step in negotiating a deal. But do as much work on your own as you can before you have a lawyer to advise you on a prospective distributor's contract. Attorneys are usually looking to make as much money as possible and will likely go ahead and do all of the work unless you keep them in check. You don't need to pay your attorney to make phone calls to the distributor to discuss the contract, send and receive FAXes, etc. This you will do on your own. You want a lawyer to just look it over and tell you what needs to be added in, taken out, and reworded. Preferably you can set up an appointment to show up at their office to have them review it in front of you. That way they can't be left to "run wild" and bill you up the @ss for more than an hour. Consignment contracts are usually only 1 or 2 pages long. There's no reason why this shouldn't take an attorney more than an hour to look over and make suggestions. Left unchecked an attorney will quickly rack up a $3,000 bill, whereas it could cost you as little as one hour. Tell them how YOU want the contract review handled and then ask them up front "how much is this going to cost me?" and "I'm on a budget. Can you look it over and advise me in 1 hour?" Once you know a thing or two about contracts you will be able to look over a contract offered by a prospective distributor and decide on your own if their contract is "in the ballpark" or a "farmer's price" scam, then decide whether to take the final step and have a lawyer review it.  If a prospective lawyer get irritated by your insistence on doing it "your way" rather than letting him handle everything (so that he can max out your bill), then keep on searching. There's a few of these pushy attorneys out there who are in the business of getting as much money out of clients as possible, and they should be avoided. Don't pay more than $300 an hour. Avoid attorneys who want you to put up a retainer (deposit) in advance. I know of one entertainment attorney who is only $175 an hour last time I checked.

Do not use a general practice attorney. You need an entertainment attorney. You will have to make phone calls and do some research to find an attorney who deals with CD distribution contracts and who knows what to look out for, how labels/artists/vendors get burned, etc. E-mail me before you sign any contract. Again I am not a lawyer but I'll give you my opinion as a business person.

AFTER THE INK DRIES...

1. Always ask for your distributor to FAX or email you a purchase order slip before shipping anything. Be sure and back up your digital email files (Netscape email is usually located in Documents and Settings > user > Application Data > Mozilla).  A verbal request for CD's does NOT cut it!! The written documentation is important in case quantities of CD's shipped is ever disputed in court. If it's a FAX make sure it has their company name letterhead at the top of the page, the quantity of each CD ordered, the cost per CD, the date, and purchase order number. The FAXed page should also show their correct FAX number and company name at the very top of the page. Otherwise call them up and tell them to program this information into their FAX machine, and then resend the FAX to you, or send it from their company email address. Then send them back an invoice / confirmation with tracking information on the shipment that you send them. Cut NO corners on all of this!!! Otherwise it could cost you dearly when you have to sue them. "Purchase orders" and "invoices" are like the "checks and balances" that you will need if and when you have to go to court with them.

2. Absolutely positively do NOT allow your distributor to order too much CD product! You may think that the more product a distributor orders the better. Business is booming right? WRONG! Insist on shipping them as little as possible because what distributors will do is slack off on paying you. Instead of paying you in 60 days they might fall behind by up a year or 2, while telling you that they still haven't gotten paid by retailers! When CD's sell through they just keep on dipping into their excess inventory INSTEAD of re-ordering from YOU. They no longer have any incentive to pay you on time! They have you by the balls. If they go bankrupt then you get royally screwed! So ship perhaps about as many CD's as will sell in 3 - 6 months time. If you are unsure how much will sell then ask to ship LESS. If they are not paying you on time then absolutely STOP shipping them product! Make them pay up FIRST! The number one complaint labels and artists have with distributors is that they don't stick to payment schedules, they fall behind and then they go bankrupt. While some people may accept late payment as the norm I consider this unacceptable bullshit ...not to mention a breach of contract, which in most contracts calls for net payment in about 60 days from the time the distributor is paid by the retailer. Again STOP shipping product when they don't want to pay for sales that you know are happening because it shows up in SoundScan reports. Terminate your contract with them if they don't straighten up.  Before you sign a contract make sure to get from them a detailed "layman's terms" explanation as to how long it will take to be paid for various accounts (Best Buy, one-stops, MusicLand, etc). "From the time your ship CD's to store X, how long will it be before I am actually paid? How often can I expect to be mailed checks?" Getting paid on time is Business 101.

3. Always pay the extra $ to ship with UPS or FedEx because they have tracking and documentation that will legally prove that the CD's got to their address (in case you run into legal trouble later). Do not save money by shipping 1st Class US Postal mail or even "Media Mail". You need documentation that the CD's got there. Keep in mind that UPS only retains tracking information for about a year. FedEx is probably similar. If you foresee problems with your distributor then you may wish to get online and print out the details of the delivery from the delivery company's website. Better yet have UPS auto-email you delivery details.

4. Get paid! With distributors you must constantly monitor how many CD's are selling. Then evaluate if you're being paid according to terms. You must always be ready to pull the plug on your distributor. If you want to be nice and work with the distributor you can renegotiate to ship your CD's COD rather than on consignment. However if months continue to go by and your distributor doesn't pay for those old sold CD's then you need to think about just terminating the contract and filing a law suit ASAP.

5. If possible try to keep your case a small claims case (in most states it's $5,000 or less). The small claims ceiling varies from state to state. Otherwise you're looking at a "civil" case which can be mind numbingly complicated, slow, expensive, etc. The civil court system of America is utterly and completely lost beyond repair in 16th century anal retentiveness! Our court system is why people take the law into their own hands.

Beware what the statute of limitations is for small claims in your state. (For example in Missouri the statute of limitations for a written contract is 5 years and with a maximum suit of $3,000, or in California it's 4 years from the point of discovery of the breach and $5,000 for a written contract) When things go sour your distributor may use these limitations to their advantage. Conversely you can use it to you advantage. For example if you're in California and your distributor owes you $8,000 then you would politely try to get another $3,000 out of them and once they pay you THEN sue them in small claims court for the full amount, instead of short changing yourself by only suing for $5,000. Keep in mind that SMALL CLAIMS cases can only be brought against LOCAL individuals or businesses. Civil cases of over $5,000 can be brought against individuals or companies in any state (as long as you can prove "minimum contacts"). If you are suing as an individual (from California) you may represent yourself in court. If you are incorporated in California, legally you MUST be represented by a lawyer.

6. Let's say you want to lower the price of one of your CD's. Be VERY suspicious of your distributor. Many distributors will actually never lower the price to their buyers. Essentially your distributor will POCKET the difference! With 2 of my old distributor partners I told them I wanted to lower the price on a CD and they said "OK. We can do that."  When I saw that a year later retailers were still charging the old price, I knew I had been had by my distributors.  They pocketed the discount for themselves!!! Apparently it is also a bit of a pain in the ass to change CD prices once it's in the retailer's system. Plus it seems to throw off the distributor's accounting. So you must have an in depth conversation about any price lowering and get it in writing. Find out exactly how much they will charge retail buyers. Usually distributors earn between $1.75 and $3.00.  $2.00 is average.  Get something in WRITING that they are supposed to lower their price to buyers... not just pocket the difference.

7. Contracts may be amended by mutual agreement at any time.

8. In today's market, charge your distributor $6 for comedy CD's. For older comedy titles charge $5 or maybe even $4.  Some labels charge distributors $7.75 but then those CD's sell for $18.99 in stores! Nobody pays $19 for CD's any more.

9. Routinely send your distributor a detail of all outstanding invoices. This should show how many of which CD's have been shipped, at what cost, how much of each invoice has been paid or is still outstanding, and show total money owed. This gives your distributor a chance to make sure that you are both on the same page. If a lot of money is owed then they will hopefully call you up to tell you that a check is on the way. Sometimes distributors have so many accounts that they can't keep track of how much they currently owe everyone. It is not uncommon that they actually depend on you to let them know from time to time how much they owe you!

- Always stick to these guidelines no matter what. MOST distributors never stick to the payment schedule time line laid out in the contract. Beware! Even if they sound honest, assume that they aren't.

@mzon.com's "@dvantage" program: What @dvantage? Stores like Newbury Comics and Bull Moose only mark up products 1.5 times what they pay the artist for the product. More often than not @mazon sells the same indie product at the full list price (of 2.2 times what they paid for it). @mazon.com is so popular that they are able to get away with offering to pay artists only 45% of the list price (while keeping 55%) AND conveniently also charging you about a $30 per year fee. AND I've noticed that @mazon usually sells CD's at full list price. Understand that if you were to sign with a distributor, who in turn supplied @mazon.com, you would be paid about 40% - 50% of list price from your distributor, and your distributor would earn about 20% - 30% of list price, leaving @mazon with a 20% - 30% profit margin. Therefore under the @dvantage program, and when @mazon.com sells your CD at full list price, they are pocketing what they AND a distributor would earn COMBINED, even though there is NO middleman/distributor when you supply them directly! I don't think that is fair to the vendors. I think retailers should be earning 30 - 35% from independent artists - not 55%. Stores like Newbury Comics and Bull Moose only mark up products 1.5 times what they pay for those products directly from artists on consignment. Even though Amazon's sales prices vary, it looks like more often than not @mazon sells the indie CD's that I've seen at the full list price (of 2.2 times what they pay for it). All of this is a sign of the times. According to this site http://www.halsguide.com/sweeney_02.html @mazon.com was responsible for a WHOPPING 94% of all independent artist sales in 2001. The site says that CD Baby is responsible for about another 3% and the artist's home page are responsible for about 3%. It's now 2008 and sites like DeepDiscount DVD and DVD Planet have certainly taken some of the market share but I doubt much. So don't expect @mazon's 55% profit margin to change any time soon. Artists are just going to have to live with the meager 45% return. @mazon also may ask that the list price that you sell your product to @mazon for be "at or below the suggested retail price at which you offer or sell that product via any other online sales channel".  On the surface this might sound like price fixing (which would be against the law), however you are free to have your product "on sale" for less than suggested retail price on your website, via ccnow.com, etc. Simply jack up the list price so that you can sell to @mazon at whatever price you want, then if @mazon insists on ultimately selling your product at a ridiculously high price then that's their business. Compensate for their $29.95 per year fees and their 55% profit margin (when they sell at full list price) by raising the price of your CD a few extra dollars. If consumers are stupid and lazy enough to only visit @mazon.com (instead of your home page) then they deserve to pay much more.

 

the Recession and File Sharing Claim more Casualties April 26, 2003 - Billboard Magazine has reported that Universal One-Stop has filed for chapter 11.  The New Jersey chain CD World has also filed for chapter 11. Who is next?   In his subscriber newsletter, Martin Weiss has rated TransWorld as a "risky" stock because the company is suspect of manipulating their earnings. Tower restructured, then went bankrupt.

What happens if my distributor has fallen way behind on payments?

Something fishy is going on.  Your distributor seems to be falling way behind on paying you and yet they keep re-ordering product. What do you do?

Typically distribution contracts call for payment within 60 days from the time they are paid for selling your product (also known as "net 60"). If they've fallen behind then that's a breach of contract. If it persists and because they've breached the contract you can amend the contract by insisting that the distributor must pay COD for any new purchase orders of CD's. If they don't want to pay COD then stop shipping them product until they correct the breach of contract (and pay up!). 

If your distributor is severely behind on payments then DO NOT DELAY any longer!  Don't buy any of their lies about "Oh I got stuck with a bunch of returns" and "Such and such retailer went bankrupt" and "I still haven't been paid for those CD's" even though SoundScan reports tell a different story.

Some distributors tell you that SoundScan reports are not accurate and therefore they're not reliable. It is true that not every store reports to soundscan and to compensate SoundScan will count 1 sale by retailer X's as perhaps 1 1/2 CD's or whatever is necessary to compensate for other retailers in the particular area that do not report, BUT the law of averages evens it all out and in fact SoundScan is VERY accurate. Don't believe the lies you are hearing from your distributor. 

Distributors love dumping other people's debt on YOU even though they've already been paid for your CD's, or they're using your sales proceeds to pay their more favored distributors and keep THEM happy, or maybe they're just pocketing it for themselves.  You must get paid while your distributor is still trying to save his business otherwise you won't get paid at all.  So here's what I would do:  I would FAX them a copy of just your "Complaint Contract" that you plan on filing in court. The purpose of this "11th hour" FAX will be to let them know you mean business and hopefully get one last payment out of them. If you're lucky then maybe you can bring down the amount that they owe to "small claims" levels. In California that would be $5,000 or lower. Then you can sue them in small claims court (much easier). Otherwise if you are suing in California for between $5,000 and $25,000 this is a "civil" case. You don't even want to go there. In layman's terms, "civil" basically means "unholy expensive", anal retentive complexities and cases take years to run their course. The civil courts of America are precisely the reason why people take the law into their own hands!

TIP: When you need to get paid from your distributor it helps if you have more product releases on the horizon. Your distributor knows that if they're going to win the opportunity to distribute this future product of yours, then they will need to keep you happy (paid). So LIE if you have to! Tell 'em you've got big plans just around the corner!

What happens if your distributor goes bankrupt? 

The bankruptcy court will order the distributor to sell off their remaining (unprotected assets) CD inventory, and property (like furniture, computers, etc), then this raised money is deposited in a trust account that will be used to pay the creditors (people who are owed money).  But wait!  "Unsecured creditors" are first in line to get paid, and you are LAST. Will you get paid for dollar per dollar for YOUR unprotected CD's that sell or have sold?  No! It all gets evenly distributed to the various creditors who are owed money. The "secured creditors" (Banks and lenders) will be first in line to be paid off. Once they are paid off 100%, then the "unsecured creditors" (artists and labels) are next in line IF there's even anything left for them! Usually there is nothing left. That's why it's so important to be on top of things during your business relationship with the distributor and FORESEE this shit way in advance and ACT on it soon! Better yet, have it written in the contract that if they go bankrupt, any product of yours that is in their possession or gets returned to their possession is legally yours and not part of the bankruptcy assets.

INTERNET DISTRIBUTION and FULFILLMENT CENTERS

For internet retailers, call centers, and fulfillment centers you should get paid no less than by the month, and within 30 to 45 days after the end of the month of sale. Amazon takes about 45 days.  Ccnow.com pays every 15 days (but with a delay to wait for funds to clear. Interest is paid on funds that sit waiting). Be prepared to cut off supplying an internet retailer with CD's if they start taking too long. Late payment is a red flag that they might be on the verge of going bankrupt. Call centers and fulfillment centers are ESPECIALLY notorious for going bankrupt by surprise, and should be avoided! I personally know of someone whose call center told him shortly before going bankrupt, "Oh we're just late on our payments because we've been upgrading our computer systems." Soon afterwards he was screwed out of $60,000 of back payments. And he told me about another fulfillment center that went out of business. The proof of a healthy business is timely payment! The red flag is when they tell you some story about how they are basically in some sort of transition, and therefore they haven't been paying on time lately. I noticed this red flag with cdstreet.com back in early 2003. They hadn't paid me for 3 months. I think because I was generating a lot of sales, they finally paid me when I called to complain. But once I got paid I then smartly took my money & inventory and ran! Sure enough... months later I got word from two smaller artists that they were owed for 1 year's worth of CD sales and they are trying to work out a "settlement" of pennies on the dollar. Go figure.

Consignment to Individual Stores

A consignment deal with a distributor is a good thing, but consignment to individual stores is a nightmare. Consignment is when a store agrees to stock a few of your CD's to sell, then pay you later. Consignment is a total waste of your time, unless it's to a chain like Best Buy or Wal-Mart. If for some stupid reason you INSIST on doing it, then understand that stores almost NEVER take consignment CD's. Consignment is a HUGE big pain in the ass anyway. Stores hate it too because it takes them just as much time to consign 2 CD's as it does to consign 5,000 (from a distributor). Most stores will only take like 2 CD's. It's too much work to just sell a few CD's. If they don't sell within a time span that was agreed upon you must pick them up or they get to keep your CD's (if you agreed to such a contract). They never call you when they run out. Employees don't want to be bothered with it. You hate it. It's not even worth the gasoline. Why bother? If you really want to try doing consignment then only try a major impact store in a city where you have a buzz (example: Tower Records on Sunset in Hollywood - which went out of business and kind of stopped taking consignment anyway during their last few years of business). The better thing to do is to just sell your CD's on ccnow.com. Also get into Amazon.com, which  has a sales ranking system that ANYBODY can view online. Thank God for the Internet revolution! Unfortunately Internet sales only accounted for about 3.3% of US CD sales in 2002 (indi artists actually sell more than 3.3%). But Internet sales have been slowly growing. Now it's over 10% (2008).

Never do business with a Mom and Pop record store that is out of your local area. Mom & Pop stores are becoming obsolete. Typically they will not pay you the complete balance due when your consignment runs it's course. Why? Because they know you'll never travel a long distance to take them to small claims court. 

CONCLUSION

You can't trust anybody when money is involved. Keep your eyes on the dollar. Have an entertainment attorney approve and tweek any contract before you sign it. As much as artists just want to be artists, they have to be "businessmen" or they'll get burned. I've heard as well as lived too many horror stories.

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Since 10/14/04