Physical and Digital Distribution Management

PHYSICAL DISTRIBUTION

Physical distribution concerns the sale of musical works in stores such as supermarkets, cultural retailers, and record shops. However, the number of physical distributors has considerably decreased in recent years due to the emergence of digital.

CD and vinyl formats nevertheless remain objects that prove strategically useful:

- They can be a nice business card to leave with a professional - They allow the audience to keep a memory of the concert - Vinyl appeals to collectors and is integrated into DJs' cases - Vinyl can also serve as promotional material to send to sub-publishing structures abroad and to journalists who could relay the project's release

DIGITAL DISTRIBUTION

Digital distribution is the adaptation of the physical version, with the uses and constraints of the Internet. The "stores" of digital distribution are sales and/or streaming platforms (Spotify, Deezer, Tidal, Apple Music, etc.). With the arrival of digital distribution, everything changed, since in 2015 digital sales surpassed physical sales. The digital distribution offering has exploded, to the point that we distinguish 2 types:

Digital distributors, who like physical distributors, defend their catalog of artists to online platforms, and have real added value in marketing. In recent years they mainly work directly with labels.

Aggregators, who distribute all music without selection, but who limit themselves to the technical phase, without betting on the potential success of certain recordings. They stem from an ever-growing demand for online posting that digital distributors could no longer support. They therefore work as much with labels as with self-produced artists.

For the distribution of a first recording, you will need to choose the best aggregator offer, taking into account various criteria:

• The numerous rates: the price, which can vary depending on the number of tracks, albums; ancillary fees (online posting, annual subscription, etc.).
• The validity period of the online posting.
• A possible commission taken from sales and streaming revenues.
• The payment threshold, i.e., the amount of revenue that must be reached for revenues to be paid to the artist.
• Copyright and neighboring rights management from the aggregator's website.
• A specificity according to a musical style: it is for example recommended when making electronic music, to verify that your music will be available on Beatport.com.

THE DISTRIBUTION CONTRACT

A distribution agreement authorizes the distributor to sell recordings (CD, vinyl, cassettes). It may be exclusive or reserved for certain territories (countries). It may also stipulate specific channels or distribution networks (specialized, supermarkets, physical or digital, certain formats only (CD but not vinyl), etc.). The contract is signed for a defined period, and renewable, with a termination notice at the end of the period giving the distributor time to clear their stocks (or stipulating that unpaid stocks return to the producer).

Fees and commission: The distributor is paid on a percentage negotiated in the contract: between 15% and 30% of the wholesale price excluding tax. Promotional costs and other ancillary services can be included in this percentage (which will then be higher) or be billed separately, per service.

The distributor does not purchase the producer's (or phonographic publisher's) stocks: they will pay regularly according to sales.

SELLING PRICE: PVD / PGHT / PPC

To understand your margin or your royalty income on a record production, you must take into account the different price denominations and meanings used:

• Cost price or CR: The cost price is the producer's or phonographic publisher's investment prorated per disc produced. It's important to know how much one copy cost in manufacturing, or even in overall production (recording costs, artist payments, etc.) in order to determine the selling price.

• Selling price to distributor PVD: Generally negotiated excluding tax, this is the purchase price of a record by the distributor from the producer or licensed phonographic publisher. PVD-CR = producer/publisher's margin on a record. This price will directly impact the retail price including tax in stores.

• Wholesale price excluding tax or PGHT: Particularly important concept: the PGHT is the basis for calculating and negotiating royalties in artist contracts, license agreements, etc. This wholesale resale "distributor" price is expressed excluding tax and intended for record stores that stock from the distributor.

• Recommended retail price or selling price including tax: The selling price to fans at the record store is expressed including tax. You must therefore add to the PGHT approximately 30% margin for the record store and 20% VAT paid by the final customer.

Thus, a record that cost €3 excluding tax to produce and which is sold for €6 excluding tax to the distributor (50% margin for the producer-publisher) will be resold for €10 in PGHT to record stores who will sell it in store for approximately €16 including tax.

SDRM AUTHORIZATION REQUEST

When you press records yourself or through a manufacturer, you must pay the SDRM royalty.

SDRM is the Society for the Administration of Mechanical Reproduction Rights of authors, composers, publishers, and producers. Basically, all musical works reproduced on a medium (CD, vinyl...) are subject to payment of the SDRM royalty, if the works are registered with SACEM. If you are the author, you will recover these rights afterward, minus SACEM's management fees. Note that the collection of reproduction rights also exists for online sales, but it is operated directly with the platforms. You therefore do not have to manage an authorization request for this form of exploitation.

Let's return to physical media. SDRM makes the distinction between the objective of your pressing, promo or sale. All this is very well explained on the website https://sdrm.sacem.fr.

As an example:

• for each LP CD sold, you will need to pay 7.40% of the retail price of each copy, or at minimum €0.4955 in SDRM.
• for each LP CD given away (promo), you will need to pay the minimum, i.e., €0.4955 in SDRM.
• for 1000 LP CDs pressed, of which 500 sold for €10 each, and 500 given away free, you will have to pay 500 x 0.074 x 10+ 500 x 0.4995 = 370+249.75= €619.75 in SDRM.
• for 1000 LP CDs pressed, of which 500 sold for €5 each, and 500 given away free, everything will be at the minimum rate, i.e., 500 x 0.4995 + 500 x 0.4995 = €499.5 in SDRM.

Warning: if the songs you wish to press on CD or vinyl are not (yet) registered with SACEM, which is often the case for self-productions, no copyright amount will be charged to you: you will need to request an SDRM number, but will have no royalty to pay. Interesting in the case of a first CD! SDRM then notifies this non-collection of royalty by indicating next to each work the mention "Currently Unknown Owner". And you can register your works with SACEM later.

In the case where the reproduced musical works are registered with SACEM, and the SDRM royalty applies, several legal mentions are mandatory on the record, which you will find here: clients sacem

To conclude, know that while most pressing service providers respect the legal obligation to ask you for an SDRM number, some do not. And no one will ask you for it if you press the records at home. In case of non-respect of the author's rights (articles L. 335-2 and L. 335-3 of the Intellectual Property Code), the law provides for penalties of up to three years' imprisonment and €300,000 fine for individuals.

SELF-DISTRIBUTION

Failing to find a distribution contract, a self-produced artist or independent label can consider taking their own distribution in hand.

This is heavy logistical and canvassing work, to which you must add the price of possible deliveries of your stocks. Nevertheless, weaving your own micro-distribution network, whether local or targeted on an aesthetic, is always a plus for the visibility and sale of your physical album.

It is recommended to target your efforts on points of sale consistent with the project: open and interested record stores, local businesses whose customers will also naturally be interested in your productions, shops that may be far from your region but with a well-marked musical genre that corresponds to you.