Music Industry Manufacturing and Distribution Deals
Not as common as they once were, M&D deals can help small record labels
In the music industry, a manufacturing and distribution (M&D) deal refers to a standard contractual arrangement between a record label and a music distributor. Under an M&D deal, the distributor pays for the manufacturing costs of an album from pressing to printing labels and then recoups those costs from sales (plus a pre-determined percentage profit). Companies that offer these kinds of deals often offer other services like marketing.
These kinds of deals are becoming less and less relevant in the face of falling music sales and increased digital distribution, but from a record label's perspective, especially an indie label, an M&D deal can be a lifesaver if they plan to produce physical copies of albums.
Why M&D Deals Are Good for Record Labels
For record labels, M&D deals make sense because they can press records without any upfront expense. This means less disruption to the cash flow situation of the company, which can be a significant plus for independent and small labels. Traditionally, big record labels rarely enter into M&D deals.
Record labels pay less for manufacturing under an M&D deal, because the distributor manufactures albums in large quantities, allowing the label to cash in on their preferential rates. And since the distributor has invested in a release, they will be motivated to get it into the stores and make some sales.
The Disadvantages of Manufacturing and Distribution Deals
Of course, where there are pros, there are cons. There are a few things that labels should keep in mind about M&D deals. First, the label doesn't get any money at all for its releases until the distributor has recouped the manufacturing costs and their portion of the profit, which could make a small cash flow problem into a very large one.
If a label's release schedule is fairly busy, it could end up in serious debt to the distributor, pushing that payday even further away (especially if each release is not treated as a separate account).
But that is not the only possibility of debt. If record sales are poor or less than expected, the label can also end up in debt to the distributor.
Labels could also end up ceding some control over releases to their distributors. For instance, they may object to the cost of printing that 16-page color booklet the label or artist wants or that clear vinyl 10".
The M&D Deal Bottom Line
While these kinds of deals may be going the way of the dodo, thanks to streaming music and the decline in physical album sales, for independent record labels they can be a vital way to keep cash flow healthy.