Distribution Plays Integral, but Overlooked Role in Music Biz

Record labels and record stores get their fair shares of credit for driving the music industry.

But most music fans don't stop to think about how music gets from one to the other. It's a process more complicated than it seems, and it takes hundreds of CD distributors across the country to move music from your favorite bands to the record store in your hometown.

If you think distributors are just glorified shipping companies that needn't concern you, think again next time you complain about shelling out $17 for a CD. Distributors, along with record stores, play a major role in setting CD prices.

It's sometimes too major a role, according to a federal lawsuit filed against the largest music distributors in August. Twenty-nine states and territories joined together in the antitrust suit, which alleged that most major distributors (BMG, EMI and others), their labels and retailers conspired to fix the prices of their products.

Distributors allegedly established policies which prohibited retailers from advertising prices for music other than those set by the distributors. Noncomplying retailers faced the loss of millions of dollars per year in advertising funds if they did not sell music at the set price.

Then-Attorney General Mike Easley, who filed suit on behalf of North Carolina, said in a statement, "There is evidence that the music distributors and retailers conspired to eliminate competition in the marketplace and keep music prices high.

"The distributors and retailers profited at the expense of consumers," he said. "Consumers are entitled to a fair pricing system and that is what this lawsuit seeks to ensure."

Thus the same bad rap that plagues major record labels also affects major distributors, and that's partially what drives the success of independent distributors like the Alternative Distribution Alliance. ADA was formed in 1993 to provide better service for independent labels, who otherwise might have to affiliate with a major label to get widespread distribution.

"There are a great many indie labels who don't want to affiliate with a major," said ADA President Andy Allen. "ADA provides them with a good quality national distributor where they get almost everything, and in some cases even more, than a major could provide for them. It's just smaller, which means it's a little friendlier."

But distributors of all sizes, like every other element of the music business, are feeling the blow dealt by the digital revolution. Just as downloaded music is cutting profits for labels and artists, it's also eliminating the money that distributors make from moving CDs from place to place.

So distributors are scrambling to restructure their operations to get in on digital distribution while they still can.

"Entertainment retailing is currently facing one of the most significant challenges in its history," said Pamela Horovitz, president of the National Association of Recording Merchandisers.

"The Internet presents artists, labels, wholesalers and retailers with a tremendous opportunity to innovate products and create powerful new marketing and distribution engines, which result in more personalized relationships with consumers. But meeting these challenges will have a dramatic impact on industry structure."

A NARM study suggests that digital distribution will, in the end, have a positive impact on the music industry as a whole.

But Michael Norkus, president of the group that conducted the study, said, "In the final analysis, some industry segments will be better positioned to succeed than others" -- and distribution probably isn't one of them.

The future might not be bright for brick-and-mortar music distributors, but as long as physical product remains to sell, companies will be there to distribute it. They comprise an integral part of the music industry as it stands, and while they don't possess the aura of cool that the super-hip label or the dusty record store does, it would be a lot more difficult to buy CDs without them.

The Arts & Entertainment Editor can be

reached at artsdesk@unc.edu.