Music Business/Law Tips - "How Distributors Pay" (Part 2)

The artist will only be paid the remaining 75% of the monies for records actually sold and paid for in/at the store. Although it is a bit complicated, a distributor normally has an arrangement with a store whereby the store can "return" any record it orders for a refund or credit from the distributor if it cannot sell the record over a certain period of time. Since there is no way for a distributor to know how many records sold to a store will ultimately be sold to customers (and hence not returned), the distributor will hold back a "reserve" of the sales monies it was paid by the store for a period of time to see if there are returns (which are common). This is how a distributor protects itself so it does not overpay the artist. To combat this, the artist needs to provide in the distribution agreement that there is a return limit. (The average is 25% for an album and 50% for a single.) Also, the artist needs to provide that the reserve can only be held back for a limited time; the shorter, the better. Note that there are/should be no reserves hold back against digital sales.

Finally, once a distributor is paid by the store for the record, the distributor has a duty (after its fee is deducted and reserves are accounted for) to pay the artist his or her share. Generally, the distributor will pay the artist anywhere from between 30 to 90 days after it is paid by the store. Obviously, the sooner the better.

A distributor is a necessary cog in the record selling wheel if the goal is to maximize record sales. Therefore, an artist should seek out a reputable distributor for its product.

Ben McLane Esq
benmclane.com