In the recording industry, a cut-out refers to a deeply-discounted or remaindered copy of an LP, cassette tape, Compact Disc, or other item.
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When LPs were the primary medium for distribution or recording, manufacturers would physically cut the corner, punch a hole, or add a notch to the spine of the jacket of unsold records returned from retailers; these "cut-outs" might then be re-sold to record retailers or other sales outlets for sale at a discounted price. A special section of a record store devoted to such items was known as the cut-out bin or bargain bin. [1][2]
As tapes and CDs supplanted LPs, the mechanisms for indicating a cut-out changed. On cassettes, a hole tended to be punched or burned through the case and through its printed insert. On CDs (a practice that continues today), a section of varying size is taken out of the spine of the jewel case and its paper track listing. Other methods of cutting CDs include punching a hole through the UPC and clipping a corner off of the front insert.
Cut-outs are typically wholesaled to retailers as non-returnable items, meaning that the store cannot send them back to the distributor for a refund; the reason for the cut or hole in the packaging is to mark the item as non-returnable.[2] The marking also serves to prevent the retailer from selling the discounted item at full price.[1] Recording artists also typically do not get full royalties from cut-outs, since they're sold at a "promotional" cost, far less than the retail price.[1] Except for the physical damage to the liner notes and outer case, the inner disc (LP or CD) is generally unharmed by the cut-out process, and sounds the same as the originally-sold recording.
A similar cut-out procedure was practiced with the laserdisc home video format as well as the 8-track tape cartridge. The practice has also been extended to DVD.
Cut-out (打口, dakou, in Chinese) cassettes and CDs played an important role in the development of Chinese rock music in China[3]. Dakou was the major and often the only source of foreign rock and pop music in China[4].