How Music Distribution Operates

Traditionally, distribution companies enter into agreements with record labels, granting them the rights to sell the label's products. The distributor retains a percentage of the revenue from each unit sold and remits the remaining balance to the label. Typically, distributors require record labels to supply finished, market-ready products; however, some distributors provide manufacturing and distribution (M&D) agreements. Under such arrangements, the distributor finances the manufacturing costs upfront and retains all sales revenue until the initial investment is recouped.

Throughout much of the 20th century, distribution companies served as intermediaries between record labels and retail outlets, including specialty music stores, large retailers such as Walmart and Best Buy, and bookstores.

Record labels contracted with music artists, overseeing the recording, marketing, and promotion of their work. Consumers purchased music in physical formats such as vinyl records, cassette tapes, and CDs.

In most instances, record labels bore the manufacturing costs of these products. To distribute albums to fans, labels partnered with distribution companies, which in turn established agreements with retail stores to stock and sell the albums.

Some distributors acquired albums from record labels outright, while others operated on a consignment basis. Similarly, retailers either purchased albums directly or agreed to display products on consignment.

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