This information is paraphrased from many different Music Business books. They may
each present it in slightly different ways, but the bottom line is always the same.
Here is a typical royalty calculation on a $14.98 CD where the artist’s base royalty is 12%:
12% of $14.98 = $1.80 on each CD. Sales of 1 million earns $1,800,000! Not Bad right?
But wait . . . there are a few DEDUCTIONS.
12% minus 3% (Producer’s Royalty) . . . adjusted royalty = 9%
9% times .75 (25% reduction for PACKAGING) = 6.75%
6.75% times .85 (15% reduction for “FREE GOODS”) = 5.74%
5.74% times .80 (20% reduction: “NEW TECHNOLOGY”) = 4.59%
4.59% times .65 (35% reduction for “RESERVES”) = 2.98%
THE REAL MATH
2.98% of $14.98 = 44.7¢ per CD . . . . Times 1 million = $447,000!
There is only one little problem . . .
On a typical major label deal, your recoupables are $500,000.
So, after selling one million CDs, you are $53,000 in debt!!!
YOU HAVE TO SELL OVER 1,250,000 COPIES JUST TO MAKE:
Disclaimer: If this seems confusing, it’s supposed to be!
Record Stores can return about 20% of their stock to the label for a Return Credit of about $10 each record. That’s a lot more than they can make on a normal sale! So there’s a big incentive to return records. The artist does not make any royalties on Returned Records.
But George, the label doesn’t make any money on the deal either, right?
They DO make money! Here’s how:
1. Label SELLS Returned Records to One Stops @ $2 each. One stops can return a portion of the records to the label for $10 Credit each!
2. One Stops sell “returns” to Mom & Pop stores for about $4 each. Mom & Pop stores can return records to One Stops, who return them to labels.
3. Big Chain stores can return loads of records to label ($10 credit).
4. A label can sell these new “returns” to Rack Jobbers @ $2 each. (Rack jobbers can’t return records to labels . . . But they can return them to One Stops.)
5. Rack Jobbers sell “returns” to One Stops @ $4 each.
6. One Stops return records (again) to labels for $10 Credit.
7. Label sells “Returned Returns” AGAIN to Rack Jobbers. ($2 more bucks)
8. This “Game” can go around 3 or 4 times. The label makes mucho bread.
9. Each credit is a commitment by One Stops and stores to buy new records from the label!
10. The label can treat all of these credits (receivables) as cash to run their business - interest-free.
11. The Artist never gets a single penny of Royalties on any of these transactions!!
Well, what about these Indie Labels I have been hearing so much about George?
Glad you asked!
What’s good about the Indies?
• They can make a profit selling fewer records (Lower Recoupables)
• Artists may be treated better and they have more creative control
• They may still care about “art” and artist development (this has changed)
• The artists have greater bargaining power in their contracts
What’s bad about the Indies?
• They have less money
• They have weak promotion and distribution
• They are less stable
• Some Indies also have horrible contracts!
WELL, WHAT DO I DO????
Remeber Knowledge is Power. There are tens of thousands of people trying to do exactly what you're doing. Set yourself apart and read some books. Here is a list of some amazing books that will do just that. If put into effect with your talent and new business mindset, you will be unstoppable.
Music Business Handbook and Career Guide, David Baskerville, Ph.D., 7th Edition,
2001, SAGE Publications, ISBN# 0-7619-1667-9 and 8th ed., 2006 ISBN 1-4129-0438-2
Sampling in the Record Industry, Michael Ashburne, Esq., 1994, the Law Offices of
Michael Ashburne, 8300 Golf Links Road, Oakland, CA 94605. ISBN# 0-9638219-0-3
SONGWRITERS MARKET, Annual, Writers Digest Books, available at most bookstores,
e.g. Waldenbooks, Daltons, Borders, Barnes & Noble
MUSIC LAW - How to Run Your Band's Business, by Attorney Richard Stim, 1998,
Nolo Press, ISBN# 0-87337-438-X; and 2006, ISBN-13: 9781413305173
"MUSICIAN'S LEGAL GUIDE"
Musician's Business & Legal Guide, Edited & Compiled by Mark Halloran, Esq., 1991
(There are now more current editions), Prentice-Hall, ISBN# 0-13-605585-0
All You Need to Know About the Music Business, Donald S. Passman (Attorney),
1997, Simon & Schuster, ISBN# 0-684-83600-9 (Note: Newer Version Now Available)
Making it in the Music Business, Lee Wilson, Attorney at Law, 1999, Allworth Press,
Stay Out of Court and In Business, Steven C. Brandt & Stafford Frey Copper,
Attorneys, 1997, Archipelago Publishing, ISBN# 1-888925-10-8
The Music Business (Explained in Plain English), David Naggar, Esq. & Jeffrey
Brandstetter, Esq., 1997, ISBN# 0-9648709-0-8 (Note: Newer Version Now Available)
The Craft and Business of SONGWRITING, John Braheny, 1995, Writers Digest
Books, ISBN# 0-89879-653-9
Confessions of a Record Producer, Moses Avalon,
2002, Backbeat Books, ISBN# 0-87930-660-2
The Art of Record Production, Richard James Burgess,
1997, Omnibus Press, ISBN# 0-7119-5552-2
A Songwriter's Guide — MUSIC PUBLISHING, Randy Poe, 1997, Writers Digest Books,
ISBN# 0-89879-754-3; and 2005, ISBN-13: 9781582973838
This Business of Music, Krasilovsky and Shemel, 8th Edition, 2000, Billboard Books,
ISBN#:0-8230-7757-8; and 10th ed., 2007, ISBN-13: 9780823077236
How to Make and Sell Your Own Recording, Diane Sward Rapaport, 5th Edition, 1999,
Prentice Hall, ISBN# 0-13–923947-2
Start and Run Your Own Record Label, Daylle Deanna Schwartz, 1998, Billboard,
ISBN# 0-8230-7924-4; and 2003, ISBN-13: 9780823084333
Secrets of Negotiating a Record Contract, Moses Avalon, 2001, Backbeat Books,
Networking in the Music Business, Dan Kimpel, 2000, Mix Books, 0-87288-727-8
How to get a Job in the Music and Recording Industry, Keith Hatschek, 2001, Berklee
Press, ISBN# 0-634-01868-x
The Copyright Permission and Libel Handbook, Lloyd J. Jassin & Steven C.
Schechter, 1998 Wiley, ISBN# 0-471-14654-4
A Music Business Primer, Diane Rapaport, 2003, Prentice Hall, ISBN 0-13-034077-4
What They’ll Never Tell You About the Music Business, Peter M. Thall, Billboard
Books, 2002 ISBN 0-8230-8439-6
Tim Sweeney’s Guide to Releasing Independent Records, Tim Sweeney & Mark
Geller, TSA Books, 1996 ISBN 0-9651316-2
“SECRETS” 2nd ed.
Secrets of Negotiating a Record Contract, 2nd Edition, Moses Avalon, 2002, Backbeat
Books, ISBN# 0-87930-660-2
“SECRETS” 3rd ed.
Secrets of Negotiating a Record Contract, 3rd Edition, Moses Avalon, 2006, Backbeat
Books, ISBN# 0-87930-874-5
Million Dollar Mistakes, Moses Avalon, 2005, Backbeat Books,