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

Compare to Albini's "The Problem With Music"

[no_such_user]

Compare this to Steve Albini's somewhat infamous "The Problem With Music" article which appeared in print a few years ago. Here are links to it: (note that these are links to the same article -- pick one at random)

http://www.mp3.com/news/222.html
http://www.musicalevolution.8k.com/albini.htm
http://www.negativland.com/albini.html
http://www.ram.org/ramblings/philosophy/fmp/albini .html
http://www.musicianassist.com/archive/article/ART/ a-1098-1.htm

Re:Compare to Albini's "The Problem With Music"

[paulbd]

the problem with Albini's analysis is that it doesn't mention that the obscene $710,000 profit the record company made has to be used to amortize all the losses it made on the new mariah carey cd. see, there's this problem: you're a successful musician, and the record company appears to be ripping you off. they probably are. but a large part of the apparent rip off is because they are also making lossy investments in new artists which never work out. now, you could choose to excuse yourself from this charade, like ani defranco and others have done, by working on your own - you win, then you win big, but if you lose, you lose everything you put in. however, as long as you choose to allow somebody else to help you with the initial costs, you need to deal with the fact that their losses on other artists need to be covered by their profits on you. in such a system, the artists are simultaneously screwed and simultaneously supported. of course, the record companies are making obscene profits on the backs of underpaid musicians. but don't assume that when you get those numbers down somehow that the inherent inequality in the relationship will go away. if someone if going to make a risky investment in several artists, the ones that succeed will need to pay for the ones that fail. do you want your success subsidizing your fellow artists failures? do you want your failure subsidized by your fellow artists? or put another way, do you feel lucky, punk ? :))

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.

Stopping piracy

[mangu]

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.

Reduce costs with technology

[Sloppy]

A typical recording budget for an artist's first album is between $250,000 and $1 million. The record company will also spend approximately $250,000 to $500,000 to market a new artist to the public. A typical recording budget for an artist's first album is between $250,000 and $1 million. The record company will also spend approximately $250,000 to $500,000 to market a new artist to the public.

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...

If I ever need the services of that law firm...

[Dr. Awktagon]

Eric Leach is an intellectual property and business law attorney at the firm of Goodman and Leach.

Good Man or Leech? I think I'd like to talk to Mr. Good Man please!!

The truth is out there...

[thumbtack]

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."

Double counting

[Viadd]

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!!!