A music distribution company may be a music wholesaler of major label CDs and vinyl records, often called a "one stop." It can also be a digital music distribution network, such as CDBaby or iTunes, or an independent label distributor of music files, vinyl records and CDs. Album sales started dropping in the early 90s with the rise of digitalization in music production, but that increased the number of independent label distributors. Those have low start-up costs and are a good way to start distributing music.
The Economics of Digital Music Files
In most businesses, scaling up lowers distribution costs. With music distribution, the opposite can be true. If you start a niche company, you may have almost no physical plant costs -- you aren't manufacturing anything, and your sales will largely be virtual through the distribution of digital files. No matter which formats your artists use, file exchange programs make it almost cost-free to convert them to the formats required by various distribution networks. Historically, however, more than 90 percent of all albums distributed fail to recover costs.
Artists Can Be Free
Independent artists no longer welcome at major labels are a prime target for start-ups. Some can give you finished albums ready for distribution. Lenny Pickett, for example, the much-admired sax player of The Saturday Night Live Band, signed a contract with specialist label Random Act Records without an advance. Online sales began in May 2014, and a month later the album had charted in the top 50. The critical factor for success as an independent distributor is a wide and deep knowledge of the kind of music you select for distribution.
Physical distribution won't go away, but if you can distribute albums exclusively through digital sales networks, it can be done without upfront costs. As of 2014, the biggest networks were CDBaby, iTunes and Amazon. Dozens of smaller companies appealed to niche audiences, including TuneCore, Catapult and Ditto Music among them. The process of getting your artists in these networks is easy. In most cases, you simply go onto the website, follow a simple set of formatting and mailing instructions, then send your product to the network.
Promotion Is the Key to Success
No music company is likely to succeed without successful promotion. One cost-free way of promoting your company's music is through the thousands of blogs dedicated to particular kinds of music. Some of these, such as "JazzWeek," follow an older curatorial model, where you send the music blog your product for a rating and review. Others are largely freeform: anyone can contribute almost anything that is music-related. The "Hype Machine" lists over 800 of them. Many of these allow you to send sample tracks, which can increase the buying response.