Ok welcome to distribution 101.....here is how it works. There are two basic kinds of distribution in todays industry, digital and physical. Let's discuss digital first as it is a little less complicated.
For digital distribution you (the artist) can either find a digital distribution company who has negotiated deals with a number of various online retailers (such as cell phone companies, itunes and rhapsody) to provide digital distribution for you. There is a great company called Blue Pie (
www.bluebie.com.au) out of Austrailia that falls into this catagory. They will present you with a contract that will explain how much you get paid for each download, ringtone, ringback or other type of sale of your music. The distribution fee on these deals is usually in to 15-30% range. What that means (using simple numbers) is that if your song is downloaded for $1, the distribution company gets anywhere from 15-30 cents and you get the rest. As a general rule of thumb digital distributors DO NOT require a marketing fund commitment from you (more on this later). You will need to send them a few copies of your album so they can upload it into their systems and then by the magic of the internet your music is for sale online. The distributor tracks your sales, makes reports, collects earnings for you and will pay you on either a quarterly or semi-annual basis.
Then there is Physical Distribution. A lot of the details here are the same as digital dist, the distributor will have deals in place with Wallmart, Target etc, they will take a fee for providing services. The distributior will provide warehousing and trucking services for your product. They will also track your sales, make reports, collect earnings for you and will pay you on either a quarterly or semi-annual basis.
Here come the differences. A physical distributor will require a marketing commitment from you, generally $2-$3 per unit you are having distributed. That means if you have 10,000 CD's in stores you need to be able to spend $20,000- $30,000 in marketing as well as a marketing staff to design the campaign. This money goes to advertising in the retailers advertisments (you know all those CD's you see in the Best Buy catalog on sundays) as well as in the store itself and online with the retailers. If you can not provide this fund you will not get distributed. Retail stores are not interested in stocking products that aren't going to sell because no one knows they are there.
Physical distributors also hold whats called a "reserve" of usually 25% of sales against returns. What that means is that if you sold 100 CD's you wil only be paid for 75 of them incase someone returns your CD to the store. This reserve is generally liquidated out to the artist every 12 months or so.
Now there are certainly a number of ways to overcome the marketing issues, for an extra couple of % the distributor will provide a marketing team for you but you still have to have the marketing funds avail to support the product.
The long and short of it is that in order to get into national physical distribution you need to have some funding sources behind your endevor, this is generally where the record label comes in. This is also why I tell my artists to forget about how much the advance is and focus on the marketing budget, that's what matters because it's what will get your album sold!!!
Until you are in a situation with a label or investor you should focus on digital dist. It's where the industry is headed anyway. And with digital, you can get you stuff out there to your fans while you are still and "up and coming artist". Then once you are established and have marketing budgets behind your project you can spend money on digital marketing for your album and it will go a lot further.
Hope this helps.
RJ
