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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."
this article basically restates everything that is known about how artists are ripped off, except in a lighter note, to make it seem an un-evil act. they neglect the artist's expences, be they legitimate or not. also, the writer is a lawyer, not an economist, so some of the points might be subjective to those cryptic legal interpretations. overall, nothing new, more of the same.
It seems to me that Radio stations often determine what songs will be hits. How often have I heard songs that are plainly second rate just because they're by an already famous group?
Due to the limited number of radio stations, and the (probably very large) 'entertainment' budgets (read this as: bribe money set-asides) the record companies pay to have their leading albums played, the number of new independent and local bands played is very, very limited.
If the local bands and groups have a following from a bunch of gigs they play where people know them and like them, they will be playable locally. Trouble is, the station is typically owned by a large corporation. Strategic investment by radio media means less choice for us consumers.
Likewise, if local bands have airtime, they can make their own label and print CDs as they're needed, stocking record stores and via website sales.
-- Kevin
Unitarian Church: Freethinkers Congregate!
The record companies certainly get a bad rap on this site (and in many other circles as well). However, we need to separate the facts from the emotion here. Record companies run a risky, speculative business, and it is a well-known fact that most of the artists they sponsor do not succeed. It is a testament to their ingenuity that they are able to make such huge profits by developing a successful formula to minimize losses on crappy bands (the 95%) and maximize profits on good bands (the 5%). How many speculators in other industries (such as real estate) can you name who are able to achieve such a high return on such risky investments?
My personal argument is not with the record companies on the basis of profit. They should be allowed to sell their wares and make money; after all, this is a capitalist world. My beef with the RIAA members is that in their zeal to increase profits, they advocate the loss of basic freedoms for U.S. citizens, in the name of "stopping piracy." The DMCA and SSSCA, as well as their continued attempts to squash fair use, spy on computer users, and shut down BearShare users are an affront to freedom and do nothing but mobilize public opinion against the entire industry. It's unnecessary, relatively unprofitable, and the public won't stand for it for long. The Ford Motor Company used to have a lot of popular support in this country before "Unsafe at any Speed" came along. And it took them years to recover from it.
If the RIAA companies would just focus a bit more on producing quality music instead of trying to control every aspect of their products' use, they will get a lot farther and probably make a lot more money. Which is fine with me.
~wally
by the retailers. 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.
The society for a thought-free internet welcomes you.
God damn! A million dollars in recording costs? Half a million in marketing? Quarter of a million advance, most of which goes to management, lawyers and recording studios?
Bah. We've ended up at these insane levels of cost through a conscious choice to make products instead of music. And it's the big labels (that we're asked to pity) that have chosen to do this. That's why they're the Big Labels, you see? Smaller labels and artists (and authors and print publishers) can make a good living by selling actual art without million dollar videos and marketing campaigns.
Here's a synopsis of this article: big studios have big costs. Well, duh.
If you were blocking sigs, you wouldn't have to read this.
Whta the RIAA tries to confuse is the fact that there are two kinds of "piracy". One of them is companies that print bootleg copies of records, which are hard to distinguish from legitimate records. This is, usually, done in industries in Asia, using mass production methods.
The second kind of "piracy" is done at home, by consumers who make copies of cassettes and CDs for their personal use, or, sometimes, for friends.
I think there is little doubt that industrial-size piracy does hurt the legitimate recording business and the artists. Those illegal records may be sold to totally unsuspecting stores and consumers.
However, the home-copying thing is much more fuzzy. I may make a copy of a CD to listen in my car, while my wife listens to the same CD at home. But this does not mean I have cheated the industry of selling another CD. I may feel that forking out $15 for a second copy of that CD is too much. In that case, my "illegal" copy brings a benefit to me, while hurting no one, since not making that copy wouldn't make me buy a second copy of the CD.
And all of the "copy prevention" methods being used and proposed are meant only against making copies at home. Industrial-grade pirates have more resources and can circumvent copy protection quite easily. If the RIAA would divert all that effort against industrial espionage and piracy, they would get considerably more return for their investment, while preserving their public image.
You have to remember (or realize) the dirty fact that the music business has almost nothing to do with music. It has to do with promotion. It makes about as much sense to complain about the music business ripping off the "musical artist" as it does to complain about the shock-absorber business ripping off the "drill-press artist" or the "rubber bushing #214A artist".
The music biz can pick, choose, or manufacture "artists" upon its whim, promote them with the guile that can only come from decades of dilligent mass manipulation - and truckloads of obedient kids will duly line up with money in hand, go shrieking to the concerts, and obliviously suck up every cross-promotional product without so much as a moment's reflection.
Please, once more for clarity: THE CONSUMER - AND ESPECIALLY THE TEENAGE / YOUNG ADULT CONSUMER - IS A FUCKING COW TO BE MILKED.
So don't be so upset that the music companies are taking all the money. They did the heavy lifting. They put out the ads. They put together the deals with Pepsi and Budweiser and AOL and Spin and Rolling Stone and MTV and the radio conglomerates to mind-fuck that band into your consciousness, and into the collective youth consciousness that virtually every teenager lives in terror of being excluded from.
So give credit where credit is due.
If you want real music, from un-exploited "artists", simply stop buying from the evil corporations. Leave the talentless, classless, unimaginative, over-produced, formulaic dreck on the shelves. Scour the net for independent work. Discover music your friends have never heard before. Find intriguing, mysterious music made by small outfits without massive distribution channels and focus-group-driven images. It takes some time to find them out there, but when you do, they are precious.
Then whip our your credit card and support them by purchasing their work. You'll get a a CD with a home-made liner inside a plain brown wrapper with your address hand-written on it. And you know what? The artist will probably get every cent you send.
The band may not even exist in a couple years, but you will always have that CD, and the music on it - a memento of your discovery.
Oh well, never mind - I think I hear them ringing the bell up at the barn. They're putting out the hay. Time for you to eat what you're given, and have the suction milkers attached to your teats.
pr0n - keeping monitor glass spotless since 1981.
These are the numbers that need to be reduced to make music more profitable, and technology can help.
It's time to get rid of CDs. Vorbis (or, *sigh*, MP3) or even wav/aiff, combined with HTTP or FTP can do that. And by getting rid of the middlemen, You can either reduce the price (thereby increasing units sold) or make a greater profit per unit.
As for marketing, some music (e.g. heavy metal) is already getting by with virtually no marketing at all, so spending $0 here has become a proven strategy (though some of the musicians are unhappy about it ;-). Granted, that won't get you Big Bucks in sales, but it does work. One nice thing about the Internet is that messageboards, usenet, etc. allows word-of-mouth to travel a lot further and faster, so marketing gets replaced by just having better-informed and connected customers.
That leaves the production itself, and of course the musicians' time/labor. Personal computers can replace some of the once-expensive capital (my brother just mixed a friend's recording on his Mac). There's still some equipment and expense left here that can't be eliminated, I think. But it's a start...
As copyright owner of this comment, I authorize everyone to defeat any technological measure which limits access to it.
Only because they already control all channels of publicity (radio slots, major store shelf space, commercial slots). Otherwise, it would simply be an exercise of borrowing money, just like any other business.
funny munging
Suggested reading is Moses Avalon's "What the Reocrd Companies Don't Want You to Know" You can do a royalty calculation on his website. The Future of Music Coalition has an excellent document that analyzes the "standard contract" explaining how that 16% royalty turns into 6%. Both websites cut through the RIAA spin, and get to the underlying truths.
The truth is that the 90-95% of artists that don't recoup, don't recoup because of inflated expenses, the fact they don't get paid for "special" sales, such as overseas, and record club sales, and music taken out of the label catalog and not available for the public to purchase at any price. If the labels don't sell it, you can't make money off of it. In addition to this, you give up your copyrights to boot.
It took John Denver's Estate 5 years after his death to get a accurate total of his sales in which 19 MILLION more sales were "found". This Article on the RIAA website documents it. Talk about your "smoking gun".
I recently had a conversation with a member of a 60's group who had several top ten hits, his words explain it better than anything else I've ever heard. "If I were going to tell any group that is considering signing a major label contract any one thing it is, get as much money up front as you can, because you will never see another cent from royalties."
"Hey, if it doesn't work out don't worry about it, we'll take the loss; but if it does work out, before we pay you your cut we want to get our investment back"
But that's not what the labels are saying. The money they offer is not some sort of gift or venture capital, it is a loan. They're really saying:
"We'll give you this loan and jack every possible dime you might see in profit until it is paid back, but you have to use our people at our prices to record and market it, and if our people can't do their job very well, you get to try paying back a million dollars by being a nobody working a dead-end job at Hardee's."
This is also much the same way the game industry works, however you don't hear nearly as much public outcry on how the developers get screwed even though they never get a share of the profits, typically get laid off after a game ships and for the most part get paid sub pare in comparison to there skills.
I have no real sympathy for anyone that signs bad contracts in full knowledge of what's involved, but you don't get to reverse the situation and expect me to now muster up sympathy for the record labels who simply cannot change their business model fast enough to keep making a profit. The record labels could drop off the face of the earth tomorrow and I could still get a lot of new music, but if the artists vanish both me and the record labels are screwed. The artists are the ones with all the power, and once they realize that and stop signing bad contracts on the empty promise of fame and fortune we'll all be a lot better off.
The article would have been more credible if it were honest.
E.g. It talks about the record company initially being out of pocket $500k ($250k production & propaganda, $250k advance royalties to artists). The company wholesales the record for $10 out of which come $2 for pressing, shipping, and mechanical rights, leaving $8. It then states that $2.25 goes to the artist as royalties so the record company gets only $5.75 to amortize its initial $500k, requiring the sales of 87k units before it breaks even.
Did you notice that? Pretty slippery. The artists don't get the $2.25, it goes directly to the record companies until the advance earns out. So the record company makes $8 in marginal profit on the first 111k of sales, and is in the black after 62.5k unit sales.
By the time the artists start earning royalties beyond the advance (111k units) the record company has made $390k in net profits. After that, the royalty-reduced $5.75 profit is acceptable if they can't find another way to gouge the artists.
This ignores the fact that the pressing and distribution costs go to companies that are probably related to the record company, and make profits of their own. It reminds me of Hollywood accounting, where if any movie, especially a blockbuster, makes a net profit (leading to money actually being paid to someone who has monkey points) it means that somebody didn't do their job right and will never work in this town again.
Of course, there always has to be a villain in the piece. OOOHHH THOSE SCUMMY SONGWRITERS!!! They're the reason music costs so much. Burn them!!!