In the music industry, numbers are the name of the game. While your favorite artists may flaunt the fast life vigorously, there’s a 98% chance that they’re even making bank from their record sales. Despite the cars, jewelry, fashion, etc., the likelihood of these same artists being able to afford the lifestyle portrayed in their videos and songs is slim. We’ve all heard the stories of numerous celebrities who rented out homes, cars, jewelry, and furniture in order to keep up the perceived image when “MTV Cribs” came knocking. Meanwhile, the average artist is living in an endless black hole of debt.
The Money Isn’t In Album Sales
The Root has a great article breaking down the distribution of album sales’ revenue. Who gets the smallest piece of the pie? Surprisingly, it’s the artist. They note that “according to the latest Nielsen research, only 2.1 percent of the albums released in 2009 sold even 5,000 copies.” For the ones who are moving units, they only reap anywhere from 12-20% from these record sales.
Keep in mind that the money earned from album sales isn’t necessarily profit. If an artist is signed to a major record label, they undoubtedly have a hefty sum of debt owed to the label. Since the music industry continues to decline in revenue, most labels aren’t willing to shell out major bucks anymore. They put more of the costs on the artist: signing advance, music videos, packaging costs, etc. So, if an artist boasts about how big their signing advance was, they are accountable for paying that back, unless they’re a mega superstar already. In addition to that, the Root details other costly fees the artist must shell out:
As if that weren’t bad enough, even the bands who do move units end up paying through the nose, mouth, eyes and ears for management, legal fees, producers and other expenses, leaving most of them scrounging to pay for record advances and, if they can afford it, health care.
SLRP: The suggested list retail price of a CD is currently $16.98, while the standard wholesale price — what retail stores pay the label per CD — is about $10. Once the retailer gets the CD, they can sell it for however much they’d like — hence “suggested.” Artist’s royalties are a percentage of the retail price. Superstars can get 20 percent of the SLRP, but most get 12 percent to 14 percent.
Packaging charge: 25 percent of the SLRP goes back to the record company immediately for what’s called a “packaging charge” — that’s the label literally charging the artist for the plastic case in which his or her CD is sold.
Free goods: In essence, “free goods” are a roundabout way for labels to discount records so stores will be more inclined to buy them. So rather than sell Best Buy 100,000 records at the regular wholesale price, the label will sell them 100,000 records for the price of 85,000. The artist is then paid for the 85,000 CDs, not the actual 100,000 sold to the retailer.
Reserves: Records, especially records by newer artists, are generally sold with the caveat that retailers can return to the label whatever copies they don’t sell for a full refund. Thus to ensure they don’t lose too much money on artists, record labels will sometimes pay artists for only 65,000 copies out of 100,000 copies, just in case 35,000 (25,000 if you consider the free ones) are returned. If the retailer ends up selling all their copies, the label will then pay the artist the balance owed, which can sometimes take years.
AFTRA and AFM: These are the musicians unions. Singers join AFTRA (the American Federation of Television and Radio Artists), while players join AFM (the American Federation of Musicians). If an artist cuts an album, he has to join a union, which will then take $63.90 in base dues plus 0.743 percent of the artist’s first $100,000.
Record advance: Unlike touring fees, of which the record company can only recoup half, record advances are 100 percent recoupable. That means that if the label fronts an artist $75,000 to pay for whatever he or she needs to record an album–studio time, new instruments, etc. — the artist then owes the label that initial $75,000, regardless of whether the record is a success or not.
Distributor: Music distributors are entities designed to promote and distribute records. The major labels maintain in-house distributors, while most all indie labels use private distribution companies. For smaller bands’ records, the distributor can take as much as a 24 percent cut of the SLRP; bigger bands might only be charged 14.2 percent.
Songwriter/publisher: If an artist doesn’t write his or her own music, someone else has to. And someone who writes a song must first go through a music publisher, whose job it is to place that song with a recording artist who will agree to perform it. If an artist buys the song, the writer and publisher then receive 9.1 cents for every copy of the song sold, a sum they must then split.
Personal manager: This manager guides the career of the artist and gets about 15 percent of the artist’s gross earnings.
Business manager: This manager is the artist’s money man, making sure the musician repays his debts and invests his earnings wisely. A business manager charges 5 percent of an artist’s gross.
Lawyer: While it’s not always the case-many charge hourly-some artist’s lawyers charge 5 percent.
With the hefty costs involved, your average artist boasting about major profits is only referring to ghost money. While their brand may have brought in $1.6 million dollars, they likely only have $150,000-$300,000 of that. This is why you witness artists who completely dominated the scene at one time completely fall out of relevance in the industry (i.e. Ja Rule, Mike Jones, Juvenile, Toni Braxton, all Bad Boy artists minus Diddy, Camron, Dipset crew, etc.). They overspent, did not read their criminally stingy contract, and can no longer recoup their label’s money. So do not be fooled by the industry’s smoke and mirrors.
Stay tuned for Part II: Where is the Money in the Music Industry?
*Images courtesy of The Root and Cracked.
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