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. :)
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