Skip to comments.RIAA Accounting: Why Even Major Label Musicians Rarely Make Money From Album Sales
Posted on 07/14/2010 11:38:18 AM PDT by a fool in paradise
We recently had a fun post about Hollywood accounting, about how the movie industry makes sure even big hit movies "lose money" on paper. So how about the recording industry? Well, they're pretty famous for doing something quite similar. Reader Jay pointed out in the comments an article from The Root that goes through who gets paid what for music sales, and the basic answer is not the musician. That report suggests that for every $1,000 sold, the average musician gets $23.40. Here's the chart that the article shows, though you should read the whole article for all of the details:
What happens to that million dollars?And that explains why huge megastars like Lyle Lovett have pointed out that he sold 4.6 million records and never made a dime from album sales. It's why the band 30 Seconds to Mars went platinum and sold 2 million records and never made a dime from album sales. You hear these stories quite often.
They spend half a million to record their album. That leaves the band with $500,000. They pay $100,000 to their manager for 20 percent commission. They pay $25,000 each to their lawyer and business manager.
That leaves $350,000 for the four band members to split. After $170,000 in taxes, there's $180,000 left. That comes out to $45,000 per person.
That's $45,000 to live on for a year until the record gets released.
The record is a big hit and sells a million copies. (How a bidding-war band sells a million copies of its debut record is another rant entirely, but it's based on any basic civics-class knowledge that any of us have about cartels. Put simply, the antitrust laws in this country are basically a joke, protecting us just enough to not have to re-name our park service the Phillip Morris National Park Service.)
So, this band releases two singles and makes two videos. The two videos cost a million dollars to make and 50 percent of the video production costs are recouped out of the band's royalties.
The band gets $200,000 in tour support, which is 100 percent recoupable.
The record company spends $300,000 on independent radio promotion. You have to pay independent promotion to get your song on the radio; independent promotion is a system where the record companies use middlemen so they can pretend not to know that radio stations -- the unified broadcast system -- are getting paid to play their records.
All of those independent promotion costs are charged to the band.
Since the original million-dollar advance is also recoupable, the band owes $2 million to the record company.
If all of the million records are sold at full price with no discounts or record clubs, the band earns $2 million in royalties, since their 20 percent royalty works out to $2 a record.
Two million dollars in royalties minus $2 million in recoupable expenses equals ... zero!
How much does the record company make?
They grossed $11 million.
It costs $500,000 to manufacture the CDs and they advanced the band $1 million. Plus there were $1 million in video costs, $300,000 in radio promotion and $200,000 in tour support.
The company also paid $750,000 in music publishing royalties.
They spent $2.2 million on marketing. That's mostly retail advertising, but marketing also pays for those huge posters of Marilyn Manson in Times Square and the street scouts who drive around in vans handing out black Korn T-shirts and backwards baseball caps. Not to mention trips to Scores and cash for tips for all and sundry.
Add it up and the record company has spent about $4.4 million.
So their profit is $6.6 million; the band may as well be working at a 7-Eleven.
A word here about that unrecouped balance, for those uninitiated in the complex mechanics of major label accounting. While our royalty statement shows Too Much Joy in the red with Warner Bros. (now by only $395,214.71 after that $62.47 digital windfall), this doesn't mean Warner "lost" nearly $400,000 on the band. That's how much they spent on us, and we don't see any royalty checks until it's paid back, but it doesn't get paid back out of the full price of every album sold. It gets paid back out of the band's share of every album sold, which is roughly 10% of the retail price. So, using round numbers to make the math as easy as possible to understand, let's say Warner Bros. spent something like $450,000 total on TMJ. If Warner sold 15,000 copies of each of the three TMJ records they released at a wholesale price of $10 each, they would have earned back the $450,000. But if those records were retailing for $15, TMJ would have only paid back $67,500, and our statement would show an unrecouped balance of $382,500.So, back to our original example of the average musician only earning $23.40 for every $1,000 sold. That money has to go back towards "recouping" the advance, even though the label is still straight up cashing 63% of every sale, which does not go towards making up the advance. The math here gets ridiculous pretty quickly when you start to think about it. These record label deals are basically out and out scams. In a traditional loan, you invest the money and pay back out of your proceeds. But a record label deal is nothing like that at all. They make you a "loan" and then take the first 63% of any dollar you make, get to automatically increase the size of the "loan" by simply adding in all sorts of crazy expenses (did the exec bring in pizza at the recording session? that gets added on), and then tries to get the loan repaid out of what meager pittance they've left for you.
I do not share this information out of a Steve Albini-esque desire to rail against the major label system (he already wrote the definitive rant, which you can find here if you want even more figures, and enjoy having those figures bracketed with cursing and insults). I'm simply explaining why I'm not embarrassed that I "owe" Warner Bros. almost $400,000. They didn't make a lot of money off of Too Much Joy. But they didn't lose any, either. So whenever you hear some label flak claiming 98% of the bands they sign lose money for the company, substitute the phrase "just don't earn enough" for the word "lose."
Darth Vader Banned From 'Star Wars' Party (inside movies July 12, 2010)
Dave Prowse, who wore the Darth Vader costume in the first three 'Star Wars' films, has been banned from the forthcoming Lucas Film Star Wars Celebration party in Orlando, Florida. Not only that, he's been told his presence won't be welcome at any Lucas Film/Star Wars-related events.
There could be a reason, though, seeing as Uncle George is probably fuming at the comments Prowse recently made to SlashFilm about not receiving any residual payment for 'Return of the Jedi' -- because it didn't make a profit
My favorite singer, Dwight Yoakam, went with an independent label, New West, reportedly for more artistic freedom but after reading this I suspect some of the reason may have been to keep some of the money he earns. Related to this post, I have heard that recording artists make pretty much all their money on tour, not from record sales.
Paul McCartney went from EMI to Concord (a jazz label) this year.
EMI sold 69,000 post-Beatles albums from McCartney last year. Or so that is the tally.
Music on radio and tv sucks so much because the public is fed what the big labels are forcing, as they did in the 1970s.
The monopoly needs to be broken up. The racketeers in the music industry (real crooks) need to be sent to prison.
None of this will happen. So now the public listens to music off the grid and “big sellers” are far below what they once were.
450,000 bands instead of 14,000.
Artists make their money via publishing, ASCAP/BMI, and touring. If they don’t write their own songs, it is with touring. Some artists make a lot on recording. But the bulk just get their advance per album.
There was a time when I was a college kid with a guitar and keyboard, just wishing I could get hooked up with a deal like this. What a sucker.
Now with the digital revolution anyone can produce an album start to finish in their basement—with absolute control over the project and the same return: zero. :)
I’m sure more and more especially established bands will go the independent route. Radiohead apparently licensed the release of In Rainbows to the labels. After they gave it away for whatever people wanted to pay for the digital download.
Trent Reznor is now unsigned as well I think.
Who pays the song writer (if it is not the musician)?
The guy who sang his “pants on the ground” song on American Idol should have gone into a studio within a week to record that and sell the mp3 through itunes/Amazon.com
He would have sold 50,000 units minimum in that first week.
Yeah! Something goes viral like that...boom...you gotta capitalize on it.
Not sure why that didn’t happen.
I actually read Courtney Love’s article when it came out. It was good for the first few pages but then started to meander. Nevertheless, before I read it I was against stuff like Napster. After reading it I was all over downloading music. ;)
Musicians are to record labels what cars are to Hertz.
Didn’t musicians, before the advent of recording, make their money performing? Sounds like a good paradigm to me. And just like professional athletes, if they really stand out they can even make money sponsoring products/companies.
>>Now with the digital revolution anyone can produce an album start to finish in their basementwith absolute control over the project and the same return: zero. :)<<
But it is a lot more fun!
Music is like softball. People do it because they enjoy doing it.
Because by being on American Idol, he is under contract and cannot do so.
Katie Perry had 2 number 1 hits and couldn't make ends meet so she had to start doing zit medicine commercials.
And whoever invented Ke$ha deserves the death penalty. :)
I couldn’t believe it when I heard that there was a rapper naming himself “Flo Rida”. Flo is a girl’s name.
Bookmarking for later
Sadly, everything here assumes the record label is playing relatively nice with the accounting. Even of the royalties owed, they will often try to hide them under a wall of accounting, then conveniently forget to tell the artitst the royalties exist. Hiring an auditor to exercise your right-to-audit in your contract will cost $10,000 and up.
One of the few good things Eliot Spitzer ever did was go after the record labels on this. He found tens of millions in unpaid royalties that the labels had been sitting on and had not bothered to pass onto the artists. In case you’re wondering, he had the authority to do it under the state’s abandoned property laws, since unpaid royalties where the artist truly could not be contacted would logically belong to the state as abandoned property. It certainly wasn’t the property of the labels, although they of course wanted to keep it.
For a homebody like me, absolutely. And that's a good point you made. Most people don't expect to get paid playing softball--they just do it cause it's fun.
Speaking as a presenter of live shows and a music writer, I can say that touring COSTS money, it’s not where the profit is made, unless the artist is a supertar filling a stadium/arena. More than half the lif=ve music on tour is there becauae of the record label’s TOUR SUPPORT — paying the shortfall between what the tour costs and what it earns.
The label pays, thousands of dollars for the tour because it’s a chance to sell records.
Without tour support it’s very hard for artists to travel — think of the costs of transporting a band of 5 or 6 from NY to Seattle. Add hotel. Add food. Add paying the band. THen take a venue that holds 300. Multiple that by about $20 a ticket. Still not enough to cover costs. And that’s not counting advertising and promotion.
My wife has an "Aunt Flo" who comes to visit every month.
Someone SHOULD tell him that there IS that association too.
Are what authors are to publishing houses.
That business model is bad then. Downsize your band to 2-4 members. Play at pubs or include a meal in your band’s rider for the show (either way, get the venue to provide a meal).
Seattle is relatively “new” to being on tour routes, just as Miami isn’t easy to tour if you are driving because it means making a double pass through Florida.
The tax deductable for gas per mile is sufficiently high (unless this has changed) because they hiked it as gas prices went up.
The bands don’t pay for concert advertising, that is on the promoter. Don’t want to take that risk of tickets at the door? Ask for a guaranty (like $1000).
Similar, but the difference is that they don’t really “perform”. That is, the published material is it.
For anyone representing talent, the analogy fits to one degree or another. The talent comes on board, it is marketed and then discarded when its shelf life ends. One big difference is that there is no copyrighting or residuals with rental cars. But like rental cars, even if it were, the talent rarely saw it in the past. That is changing, of course, as talent gets more savvy.
A friend of mine was signed to a major label in the 80s. He had been pretty successful in the local scene and was making enough to live off his music.
The label signed him and he though he was on the way to the big time. They gave him an advance and he set about recording his debut — essentially a remix of an unreleased album he had finished.
By the time the label had charged him for recording, flights to NYC, hotels, and every other expense they could find, he owed them $250k against royalties. They owned his copyrights, they even owned his name. Despite sales in the low six figures for the debut, he never saw another penny from the label.
Within 18 months, he was back living with his mother. Here he was, a musician signed to a major label and he was living with his mother in the same room he had when he was 10.
Luckily, he was dropped during a major cost-cutting purge, so he was forgiven his “debt” to the label.
Once back as an independent, he returned to success as musician and a decent middle class lifestyle. He was even able to buy back the rights to his music after a few years.
Thanks for your post -- I can't tell you the number of times/people I have seen complaining over the cost of a concert ticket thinking that the performer/band is raking that whole as profit.
You haave no idea what you’re talking about — business is not a one size fits all structure that can be imposed willy-nilly on anything and everything. It doesn’t work that way — it’s not just a bunch of numbers that you add up on paper. The tour is to PROMOTE AN ALBUM. The album sounds a certain way. Imagine the Rolling Stones or The Beach Boys or Miles Davis or Aretha Franklin or James Taylor or any artist/group you can think of with only two members.
Furthermore, the venues won’t book a duo if the recording hasn’t been designed as a duo, and even if it has, they want “the full band”. They won’t book a smaller act because they think that people won’t pay to see it.
Newsflash — pubs and bars don’t pay enough to have a touring act — that’s why you almost never see a touring act in a pub. Most pubs and bars don’t charge admission, so there’s no door fee.
We always get dinner. But that still leaves breakfast and lunch. And hotel,
Getting a guarantee of $1000 is science fiction — that’s why there are what we call anchor dates. If you don’t know what that is, you shouldn’t opine. I’ve been doing this for ten years and have run a bunch of national tours. Including a national tour for a solo artist and that cost more money than it made.
You don’t go to perform where it’s geographically easy — you go WHERE THERE IS A MARKET FOR THE MUSIC. FOr the kind of music that I work with, Seattle is one of the great places. It’s alos not geographically inconvenient onece you ge there — a short distance from Olympia and easy to get to Portland Or — which is also a GREAT MARKET.
You can’t leave it up to the club/venue to promote — they don’t know how and won’t promote your show over others. They simply send out a monthly press release. They won’t promote your record.I know from experience.If you leave it up to them you have 8 people in the audience.
Distances between the U.S. cities that have appropriate venues are so great that driving is not an option when you are working with professional musicians and not teenagers in a garage band.
And now, please tell me what business you are in so I can tell you how to run it.
The music industry has seen to it that smaller acts won’t get on radio or tv.
You have to be owned by the corporations to be promoted on the media corporation’s outlets.
You are thinking of the older music industry, the way it existed 30 years ago.
Those days are gone.
450,000 bands versus 14,000.
Plenty of smaller venues that are not beholden to tickemaster-livenation.
No, I’m not thinking of 30 years ago. Thirty years ago I wan’t doing this. I am doing this now. Smaller venues are even harder to get into than the bigger ones — many of the bands PAY TO PLAY in the smaller venues. It’s much more complex than you know.
Here's 3 in Houston alone:
Maybe you've heard of some of these acts. Maybe you haven't.
Bob Log III
Bobby Bare Jr.
Asleep at the Wheel
Two Tons of Steel
In Austin you can find upscale food/music venues like La Zona Rosa and Threadgills.
The Black Keys until recently toured as a duo, and about 75% of their concerts remain just the two of them on stage. I’m sure The White Stripes wouldn’t have any trouble booking a tour were they to return to touring.
The story about Wilco recording Yankee Hotel Foxtrot is pretty fantastic.
They recorded it for Reprise owned by Warner Brothers, who didn’t like it. They gave Wilco the rights to the album for free. After they streamed it on their site, a bidding war started and they signed with Nonesuch. Nonesuch is owned by WB as well. They had the recording paid for, got the rights for free and then got WB to pay them again for the album.
Plenty of bars booking road acts in Austin and Houston. Bands from within Texas, from out of state, and from outside this country.
Just because it’s not on MTV or in Rolling Stone, does not mean that it doesn’t exist.
Not everyone wants to be Lady Gaga.
They went to Nashville for three recording sessions with producer Owen Bradley. However, he chafed under a restrictive atmosphere that allowed him little input. Among the tracks he recorded was an early version of “That’ll Be The Day”, which took its title from a line that John Wayne’s character says repeatedly in the 1956 film, The Searchers. (This initial version of the song played more slowly and about half an octave higher than the later hit version.) Decca chose to release two singles, “Blue Days, Black Nights” and “Modern Don Juan”, which failed to make an impression. On January 22, 1957, Decca informed Holly that his contract would not be renewed, insisting however that he could not record the same songs for anyone else for five years.
Holly then hired Norman Petty as manager, and the band began recording at Petty’s studios in Clovis, New Mexico. Petty contacted music publishers and labels, and Brunswick Records, a subsidiary of Decca, signed the Crickets on March 19, 1957. Holly signed as a solo artist with another Decca subsidiary, Coral Records. This put him in the unusual position of having two recording contracts at the same time.
On May 27, 1957, “That’ll Be The Day” was released as a single, credited to the Crickets to try to bypass Decca’s claimed legal rights. When the song became a hit, Decca decided not to press its claim. “That’ll Be the Day” topped the US “Best Sellers in Stores” chart on September 23 and was the UK Singles Chart for three weeks in November. The Crickets performed “That’ll Be the Day” and “Peggy Sue” on The Ed Sullivan Show on December 1
The song had “no commercial appeal”, nothing worth pursuing, but they wouldn’t let Buddy have back his songs EVEN IF HE PAID FOR THE STUDIO SESSION COSTS.
Only managed to get it out by going through a subsidiary.
Go to the hyperlink at WFMU and listen to Buddy’s phone call.
The music industry is the same as it always was.
I’m not working with that kind of music. Again, this is not one size fits all. I’m not remotely talking about Lady Gaga.
You don’t know what you’re talking baout — you don’t know how much those bands are being paid, if they are meking a profit, or if they have tour support — so of what value is your information?
It is really irritating when people think that by clicking onto the internet they can come up with solutions to a business and field they are not in. Why don’t you tell me your field so I can find 2 second internet solutions for you?
You don’t get it at. The White Stripes went through a process and became huge. Once you are huge you can do whatever you want. I’m talking about groups that have awards and national recognition but who aren’t huge. It’s like the difference between being middle class and being Donald Trump.
I’ve been to Austin. I know some of these acts. I also know the venues. They don’t pay enough to cover the expenses of getting there. You have no idea what goes into setting up a tour. Many of these acts have corporate sponsorship and record label tour support.
The White Stripes toured and were on an out of state label before they “became huge”.
They didn’t even have a contract with their label so they could freely take their albums to Virgin and rerelease them under a corporate imprint (just as New Order had done before them).
Did the songs “suddenly become better” because the industry owned their copyrights instead of the performers outright?
Why did radio shun them for years before they “made it”?
Yet that same label released records by Hole, Beck, RL Burnside and other.
Been going to shows in Houston and Austin for 20 years.
Your denials fall flat.
You said that bars don’t even charge covers.
thanks — next time, ask them how much it cost to rehearse the group for 3 weeks (that’s rehearsal space PLUS paying the band) how much it cost to get there, how much the hotel cost, and how the band is being paid.
People don’t mind paying for food and cars and clothing, but they think that music shoudl be free.
the record label pays for the publishing (the songwriter).
Amateurs do it that way. The world of professional music is not a hobby.
I said most or many bars/pubs don’t charge.
You may have going to the shows, but you don’t know how much the venues pay the bands and what the costs are. I have put together, booked and run several national tours. How many have you run?
I’ve done my share and known what others have dealt with.
The venues I know make enough on bar that the door (sometimes minus $50 for a soundman) goes to the promoter/bands to divide up. Not every show even has a promoter “outside” of the bar management.
$8-15 a head is common. Usually local/regional bands for support acts.
The labels put out the albums and get press for the records. Some labels like YepRoc and Bloodshot do more to hype their bands’ tours. But the ones I’ve seen are lucky to get generic posters from their label to send out to the venues.
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