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. 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.
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. 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. 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.
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