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How Distributors Determine Fees and Percentages

As founder of one of America's foremost independent music distribution companies, Alternative Distribution Alliance, Andy Allen has nurtured the careers of artists like Better Than Ezra, The Arcade Fire, Liz Phair, Nirvana, and Tom Waits. Since founding ADA in the 1990s, Allen has managed to keep ADA true to its roots as a distributor and advocate of independent music (such as partnering with indie stalwarts Matador and Epitaph) while building strategic partnerships with major labels and manufacturers such as Warner Music Group. Today, Allen continues to refine ADA's operations and infrastructure to make the company robust enough to handle large releases yet flexible enough to allow for special projects like vinyl-only releases and other projects of more limited scope.

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Andy Allen, President of Alternative Distribution Alliance, discusses how ADA sets the fees and percentages they charge their partner labels and artists, and how ADA’s practices compare to the industry at large.

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Andy Allen: When we started – and again, I was never a distribution guy, I was always a label guy, so when we created ADA we were trying to figure out what's – just that question, what's a fair distribution fee? Well, you can't be fair and establish one thing, because if you've got a label that's doing 20 or 30 million dollars worth of business, like in Epitaph Records, for example, and you've got Saddle Creek from Omaha who, before these Buddies records came out, you know, was literally selling records out of a record store called Homers, and that was it. How do you come up with something that works for both? So we came up with basically a fee that's driven by volume, and the justification was, it's real easy to distribute well-known records – records where there's lots of demand.

It doesn't require a lot of work for us to go out and present – I'm trying to think of a real easy record to sell. An Elliott Smith record, right? Unfortunately Elliott was gone. There was huge demand for that record. All you have to do is present it intelligently, make sure you do the right thing. It's easy to sell. However, to take a brand new band that's unknown, that is not sophisticated from a marketing standpoint, with an unknown label, or a label that doesn't have clout or leverage in the marketplace; meaning, "Hey, I'll give you that if you do this for me, you know, as a favor, or whatever," it's really hard work. And for our organization, which is about 60 people, that's the hardest thing we do, so that we charge the highest fee for that. So we basically just came down to something as simple as possible.

If you sell less than a million dollars worth of business on annual – if you do less than a million dollars worth of business on an annual basis our highest rate is 24. Our lowest rate is about 14.2, and if you can do $20 million dollars a year, you can get to 14.2. Why did we get 14.2? It's what Warner charges their labels internally. We didn't want to be less than that, cause that seemed somewhat – you can imagine Atlantic would be kind of pissed off if Saddle Creek was getting a better distribution fee than Atlantic was. Atlantic does probably $350 million a year, so it didn't make any sense. But that's what we did, and it's based on trigger points. For example, if George comes to me and he's got a brand new label I'm gonna quote him 24. If Epitaph comes to me and says, "Hey, I consistently do $20 million dollars worth of business every year," I'll give him credit for that, and then they'll have the trigger points beyond that, so they determine their fee based on how they sell. And I think that most of the industry now, at least independently, is doing some variation of that type of situation.

Interviewer: You're well—I mean, you know this, but you're well below the industry standard.

Andy Allen: We try to be low, not because we try to be discount, but we try to be fair, you know. Our system is optimized to try to help indies grow. We want to be an accelerant to growth, so whatever we can do to help an indie along, that's what we try to do.

Interviewer: And I should point out, because Andy's too humble to admit it, of the Indie distributors that he mentioned, he has doubled the market share of his nearest competitor.
[End of Audio]

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