Advanced Label Economics II: Digital Distribution

Please read post "Advanced Label Economics" below, before reading this post.

Digital Distribution

Approximate breakdown of dollars for a "typical" download:

$9.99 Customer pays digital store for an album

(digital store keeps $2.99)

$7.00 Digital Store sends to digital distributor

(digital distributor keeps $1.05)

$5.95 Digital Distributor sends to Label

$1.00 Label sends to songwriter/publisher (mechanical royalty)

$4.95 gross margin

The digital distributor makes sure that 100's of platforms around the world have our music, and provides us with a single payment and most important a single accounting by track of all payments each month. Not all digital stores pay based on downloads. Some digital stores are subscription based; some are based on ad revenue. Some are downloads and some are just streams. In some cases we receive much less than we receive for typical download.

Our gross margin is about $4.95, nearly the same as a CD. We generally receive the money 60-90 days after the sale. Advantages are that we don't have to carry excess inventory in our warehouse to be ready for demand, place extra inventory in stores in order to ensure enough visibility, or wait for returns. We also don't have to worry about whether the product is in stock at the store.

The downside is that there is no packaging which might include information about our website, our other artists, or biographical material about our artist to help the consumer become more familiar with the artist. Downloading also means that consumers can pick and choose tracks. For our artists, who work on creating an album, this is generally contrary to their artistic vision.

With digital distribution there is still a need to buy "shelf space" which is more like an ad on a page of the digital store or an email blast to the store's customers. There is also still obviously a need to pay for PR, advertising, and marketing.

As music has become digital, the transfer of it in bits and bytes through digital platforms like iTunes, Amazonmp3.com, mp3.walmart.com, Sprint, Verizon, LaLa, Shockhound, eMusic, Zune, or any number of other sites seems to be the future. We also like our own digital branded store. But...we hope CDs stay around for awhile.