Andy Allen: Independent Distribution

Indie vs. Major Record Distribution / Why Choose Indie Distribution?

Andy Allen, President of Alternative Distribution Alliance, talks to Musician.com about how ADA chooses label product to distribute. He also compares independent and major distribution, and discusses how a label gets the best out of their distributor.

Musician.com: How is independent and major distribution different?

Andy Allen: Major vs. indie distribution is probably best defined by what it's not. If you're not distributed by one of the majors, it's considered indie; it's simple as that. But many would question whether ownership plays a role in it. For example, ADA is 95% owned by the Warner Music Group, which is definitely one of the majors, but we are an independent company. We do our own shipping, our own collecting, and we work with primarily independent artists, and I consider us as an independent distribution company. Sometimes an indie distributor can be defined as working with, in most cases, developing bands or niche-oriented bands, whereas a major distributor can be defined as working with new bands, developing bands, and huge superstars like Clapton or Madonna and that type of thing.

Musician.com: What is the difference between working with independent and major labels?

Allen: The difference between an independent label and a major is you always have a variety of hats to wear. So the person who does press from an independent standpoint often does production, or artist development, or marketing. So from that standpoint you generally get people that are a little bit more knowledgeable because they have to know what's happening in all facets of the artist’s campaign. They probably have more contact with the artist, so they are probably better spokespersons as a result of it because they spend a lot of time with the artist. They become part of that family. And I think that if you were to talk to an independent artist the one thing they may like about an independent label is that when they walk into the building, they generally know everybody that's there. They really feel like they are acknowledged and part of that group.

Musician.com: Which labels are best suited for independent distribution?

Allen: I think anything that is considered a niche is a great candidate for independent distribution because you can be a little more efficient at lower levels as an indie. For example, a major label may need to sell 300,000- 400,000 records just to break even, just to support the signing of the artist, the recording, the artwork, the overhead that they have in putting the record out, the marketing expense, etc. Whereas a small label may only need to sell 10,000 - 15,000 records to break even or to make money. Often an artist will choose the independent route for far less money up front because the payoff, if the record is successful long-term, can be much greater. Because they're going to get paid based on records sold over a long period of time, as opposed to trying to recoup an advance they might get from a major, where they may never sell enough rrecords to actually recoup.

Musician.com: Does major distribution sell more records than indie distribution?

Allen: If you have a major distribution company's full attention, and therefore the label's full attention, there is nothing better than that. They have a huge operation with literally thousands of people in the field. They have unlimited manufacturing capability, and almost unlimited money. However, if you are a baby band on a roster of hundreds of acts and your manager is not one of the strongest in the industry or if you don't have a very quick, developing record, you can quickly find yourself in a position where you are not the number one priority. And sometimes in that case, a comfortable relationship with an independent that knows what they are doing and has good quality distribution, can be a better way to go. And I think a good illustration on that is in working with Mammoth Records and the Squirrel Nut Zippers’ [1997 album Hot], which was an unlikely platinum record. And frankly, I think if that record was done on a major label, it would be unlikely because it took six or seven months for it to develop, and most majors don't have that kind of patience. Occasionally, they do, as Atlantic demonstrated with Jewel. They took a long time to develop Jewel into a platinum act. And most majors wouldn't have stuck with an artist that long.

Musician.com: What have been ADA’s biggest selling CDs?

Allen: Our biggest selling CD is a Better than Ezra record [Good] with Elektra. It was actually a record that the band released on their own as an independent, and Elektra picked it up mid-way through and put it out through ADA. It was one of those lightning hit records where the very first record went platinum. Nirvana's first record is in our catalog, which is one of our best sellers. Prodigy is one of our best sellers. We had the Jilted Generation record, which really broke them in America before they went to Maverick and had Fat of the Land, which was their big record. Squirrel Nut Zippers, which I mentioned. We currently have a soundtrack album that's doing really well called Love and Basketball, which is a film that has done quite well at the box office, and it's got a huge soundtrack associated with it. Of the 3,000 records that we have in our catalog, we probably have 100 records or so that have sold 100,000 units or more.

Musician.com: What factors affect your ability to sell a record?

Allen: If you put out a record and then start the marketing on the release date, nobody's going to know it's out. And by the time you put together enough activity around that record, there have been hundreds of other records released. For us to do a good job as a distributor, a label has to have set up the record properly. They have to have the record done well in advance. They have to have serviced it to media and the press well in advance. They have to have a good marketing plan. They have to have the money to be competitive. And they have to have a good distributor that can get the record out where it needs to be.

Any weakness in that campaign or in that chain means that it's almost impossible to have a successful record. Projects suffer from timing problems all the time. The release comes out and the tour doesn't kick off until eight months later, or the record that has artwork problems and was delayed and missed the opportunity to go on tour with a great band -- those are kisses of death at this point. It's very difficult to recover from something that is not perfect these days. You really have to be smart and a little lucky. And you have to have great music to break a new band.

We've just put out a Danzig record. Danzig is an artist that has had tremendous success at majors, and has been on a couple of independents. He [Glenn Danzig] put out a record in November of last year, which is not an opportune time to put out a record. The tour didn't really come until February, and as a result I think that we are probably 50,000 units short of what it could have been had we had the luxury of setting everything up a little bit better. But that was a situation where it's on a new independent label. Danzig felt very strongly about having it out for the holidays and things got delayed and as a result it probably didn't have the impact that it could have if it was timed better.

Musician.com: What role do one-stops play in distribution?

Allen: One stops are called one-stops because an account can come to one vendor and virtually pick up every record that's released in the industry. So there are stores that choose just to buy from one source. They pay a little bit of a premium to do so, but in some cases they get better service, overnight service. Plus, they only are taking one phone call and they can buy virtually every record released in the industry from that one place. So we rely on one-stops to get to those stores that we don't get to directly or those stores that choose not to buy from everybody.

Musician.com: Do you try to work with as many labels and artists as possible?

Allen: As a distributor, you want the fewest label relationships you can possibly have. You want to put out the fewest amount of releases you possibly can, in hopes that you can sell enough records on each release to cover your overhead, to pay your bills, and to grow and to be competitive. We are really careful with the new relationships that we have, and we put a lot of thought into it. I have to say at this point we look for people that we feel are strong and can identify talent, and know how to nurture and develop that talent and break their acts. If the label is not strong, we are not going to be able to do much as a distributor to overcome that. We are not looking at the acts as much as we are looking for the ability in the people that run the labels we are working with, so that that they can pick those artists.

Musician.com: What is a typical agreement between ADA and a label?

Allen: ADA was really formed as an alliance. We are called Alternative Distribution Alliance and what we think that means is that it's important that each one of our labels have the same deal. Everybody has the same deal points at ADA, and the reason we do that is since we don't have an in-house label, every label and every band we work with can be our number one priority based on what's going on. There's no unnatural system of priorities.

In other words, I don't make more money on any one release over another. The typical deal with an indie distribution system is you have a distribution fee that the distributor makes their money on. I don't make money unless I ship records. If those records are shipped in a way that doesn't make sense and they all come back, every dollar that I made I give back. If I don't ship records, we don't make money. So it's important that we partner with record companies that can potentially sell records. When you ship records it costs money, which comes out of our fee. When you market records it comes out of the label side of the fee. It's all pretty well spelled out and it doesn't change amongst our agreements.

Musician.com: What is a standard distribution fee, and what discounts are involved?

Allen: There is a wide range of distribution arrangements. Most of the national independents work around a distribution fee, which means that the independent label owns the music. In some cases, the distribution arrangement may include manufacturing; it may not. The distribution company holds a fee of, in some cases, as low as 18 percent all the way up to 30 percent of the sales of the record. If discounts or advertising dollars are used as a marketing tool, the distributor may participate in that in some cases based on a formula, or the label may fund that entirely out of their share. So in most cases, an independent label should be seeing around 80 percent of the wholesale cost of a record. These days, $15.98 wholesales for anywhere from $10.30 - $10.70. That's the wholesale value. So the label should be seeing from the distributor approximately 20 percent less. The 20 percent is what the distributor keeps.

Musician.com: Are there any other accounting techniques that are commonly employed?

Allen: The other accounting mechanism that a distributor may employ is a returns reserve. A returns reserve is really in place because it's assumed that a certain percentage of what you ship is going to be returned to you. The national average is about 20 percent; therefore most distributors will keep about 20 percent in reserve. And what that means is that instead of paying the label 100 percent of what's due them the month you sell the record, you would withhold 20 percent of what's due for some period of time, assuming that it may come back or be returned by the retailer.

Most good distributors have a formula in which they give that money back to the label over some period of time. Our view is that the label can spend that money in a way to sell those records, so it's in both of our best interest to get that money back to them as soon as possible. For an independent label that may only put out six to eight records a year, there is going to be dips and peaks in their cash flow, and the returns reserve can kind of level that off a little bit. You always want a situation in which the distributor owes the label money. You don't want a situation in which the label owes the distributor money. That's basically a negative cash flow situation, and it's just not very healthy. So the returns reserve is something that can smooth that out a little bit.

Musician.com: When can a label expect payment from a distributor?

Allen: We generally hold monies due to the label for about 60 days. And one of the reasons that we hold it is that it takes about 30 days for us to go through the accounting process, to tally up what we've shipped, to deduct discounts, to look at the effect of advertising and manufacturing on what the monies due would be. The other 30 days we hold to see if that label would be in a negative position. That way we have another month's worth of billing where we can see in what we call our pipeline, and we can see whether it's going to go back up into a positive flow or it's going to continue down. If we can see two months of negative cash flow, we need to have a meeting with the label and discuss how we are going to work with them, because it's going be devastating for everybody.