Pressing & Distribution Deals

This Article Originally Published February 1999

by Donald Passman

If you are truly a record company in your own right, then this is the deal for you. It gives you the most autonomy and control of your life, as well as the highest profit margin.

A Pressing & Distribution (P&D) Agreement is exactly that--the record company agrees to manufacture your records for you (although in some situations this isn't even so; the product is manufactured elsewhere), and then to distribute them solely as a wholesaler. This means you sell the records to the distributing entity for a wholesale price less a negotiated distribution fee to help cover the distributing company's overhead, operations and profit. The distribution fee ranges in the 18%-25% range (less, if you're a big label), and the balance of the monies is paid to the production entity.

For example: If a cassette wholesales for $5.00, under a deal with a 25% distribution fee, the production entity gets $3.75 per cassette ($5.00 less 25%). Out of this, the production entity pays manufacturing, mechanicals, artist royalties, promotion, overhead, salaries, and everything else.

This arrangement is not for the weak-hearted:

1. In these deals, the entire risk of manufacturing falls on the production entity. Remember how records are sold on a returnable basis? This means that, if you guess wrong, the returns come back home to roost. So not only are you losing your potential profit on the sale, but you're also coming out of pocket and losing the cost of manufacturing and shipping a record you can't sell (although they make passable doorstops). Many deals also require you to pay a distribution fee even if the record is returned, adding insult to injury.
2. The distributing company typically offers no services whatsoever in terms of marketing, promotion, accounting, etc. You really are on your own.
3. You may well be treated as a second-class citizen. This is because the distributing company will favor its own product over yours--they make a bigger profit on their own stuff, and they have a bigger investment in it.

These types of deals can be made at the highest level (for example, A&M Records was distributed by BMG under such an arrangement for many years), and the true independent record companies make these deals with independent distributors.

P&D deals can also be made at a more modest level by anyone insane enough to want to try or desperate enough to get their records out even when no one else wants to pay for the privilege. However, unless you're a real record company, with a full staff, I strongly recommend against this type of deal.

Donald Passman is a Los Angeles-based music attorney with the firm of Gang, Tyre, Ramer & Brown. Specializing in music business law for over 20 years, his clients include major publishers, record companies, film companies, managers, producers, songwriters, and artists such as REM, Janet Jackson, Quincy Jones, Tina Turner and Green Day. On a regular basis, we will be excerpting from Mr. Passman's best-selling book, "All You Need To Know About The Music Business."

From "All You Need To Know About The Music Business" by Donald S. Passman. ©1991, 1994, 1997 by Donald S. Passman. Reprinted by permission of Simon & Schuster, Inc.