Money in the Music Business

paulbd writes: "Electronic Musician has a good article on the economics of selling music on CDs. Its a sobering read that gives some of the hard numbers that do a little to counter the sense of record companies being vultures. Recommended for anyone who seriously imagines making a living from selling music."

Comments

Not all record companies are evil

[ManInBlac]

I run a tiny bedroom indie record label, partially to release stuff by my own band (moonkat) but also to release stuff by other bands I like. The figures in the article, while more at the high-level end of the spectrum, are entirely plausible. So, for example, no-one makes any money out of selling singles - they cost about £1 to make, I sell them to the distributor at £1.23 and all of that 23p plus more besides gets spent on publicity.

As far as albums go, yes, I could make money because I sell them to the distributor at £5, but the promotion costs are also higher, and the album has to pay for all the money I lost on the singles. Besides which, they may turn out not to be popular at all, in which case I lose all the money I spent. The band themselves have already made more money than I will - through radioplay royalties.

So far, since starting a record label 6 months ago with £10000, I have made a loss of £6000, and a further £2000 is in the form of advances to bands (so they could buy equipment) which I will may well never recoup unless they suddenly become successful.

I don't advise anyone to start a record label unless they enjoy feeling like a glorified secretary to (often ungrateful) bands.

Re:But the real money is made

[remande]

Most retailers expect a 100% markup on what they sell - that is, the retailer expects to pay $7.50 to $11.50 for a CD that will sell for $15 to $22. When it comes down to it, the record companies may be greedy, but not so much as the retailers, who skim larger profit margins from the sale of CD's than do the record companies.

Yup, but look at their expenses.

I used to work stock at a Caldor's (defunct discount store). They grossed about $20K per day. I have to guess that, at any time, they had no less than fifteen employees on duty--some at the checkout, some visible in certain departments, and some busy in the back loading stock. Assuming the store is open for 12 hours a day, that means that they have to pay for $600 in payroll. Assume $10.00 per hour (in paycheck, plus employer-side social security taxes, plus benefits packages), and you are spending $6K per day in payroll. With 100% markup, your $20K in sales cost you $10K in merchandise, so now you're down to $4K margin on the day.

From that $4K/day, subtract the advertising budget, PITI payments on over a million dollars of building, parking lot, and land, consider shrink (missing inventory--often theft from your employees), unsellable returns, and utility bills, and how much is left? Not bloody much.

Retailers take a lot of gross margin, but not a lot of net margin. When many hands touch the merchandise, all that money goes many ways.

The fact is, it took a lot of people to get you that CD you bought in the store. The artist, the studio techs, the CD burner people, the warehouse jockeys, the retail drones, a couple of OTR truckers--and they all have to eat. So everybody gets a little piece of the sale.

I'm not saying that one or two people in the supply chain don't get a large piece of the sale, but it's not always as large as you might think.

Grrrrrr. Filters, and why my post is a link.

[stonecypher]

Well, I was going to post, but I kept hitting the lameness filter for too many junk characters (don't know what character's throwing it, though, so of course I can't fix it. What characters trip the filter aren't in the FAQ, either. Guys: make it a ratio, not a count. Long posts get screwed. And make it tell you what character is getting tripped.)

A link to my rebuttal, and a hope that people will still respond.

Warning: that rebuttal is *long*.