I have some friends who recently signed a record deal with a "big player" in music. I was asked a bit about my opinions regarding their advance, their cut on sales (i.e., "points"), etc. Having grown up in the San Francisco music scene, I have had several friends sign these type of deals. As an economist, I've had lots of them ask me these questions. Personally, I find the deals too complicated to give any real advice. However, I always refer people to the famous (or maybe infamous) essay by Steve Albini on the "music industry." In this essay, he comes up with the following rough accounting of a record deal.
Since some of you may not read to the end of the quote from his essay (not quoted below), the last statement in Steve Albini's essay is usually what I tell my friends once they have signed these deals.
These figures are representative of amounts that appear in record contracts daily. There's no need to skew the figures to make the scenario look bad, since real-life examples more than abound. Income is underlined, expenses are not.
Advance: $ 250,000 Manager's cut: $ 37,500 Legal fees: $ 10,000 Recording Budget: $ 155,500 Producer's advance: $ 50,000 Studio fee: $ 52,500 Drum, Amp, Mic and Phase "Doctors": $ 3,000 Recording tape: $ 8,000 Equipment rental: $ 5,000 Cartage and Transportation: $ 5,000 Lodging while in studio: $ 10,000 Catering: $ 3,000 Mastering: $ 10,000 Tape copies, reference CDs, shipping tapes, misc. expenses: $ 2,000 Album Artwork: $ 5,000 Promotional photo shoot and duplication: $ 2,000 Video budget: $ 31,000 Cameras: $ 8,000 Crew: $ 5,000 Processing and transfers: $ 3,000 Off-line: $ 2,000 On-line editing: $ 3,000 Catering: $ 1,000 Stage and construction: $ 3,000 Copies, couriers, transportation: $ 2,000 Director's fee: $ 4,000 Band fund: $ 15,000 New fancy professional drum kit: $ 5,000 New fancy professional guitars : $ 3,000 New fancy professional guitar amp rigs : $ 4,000 New fancy potato-shaped bass guitar: $ 1,000 New fancy bass amp: $ 1,000 Rehearsal space rental: $ 500 Big blowout party for their friends: $ 500 Tour expense [5 weeks]: $ 50,875 Bus: $ 25,000 Crew : $ 7,500 Food and per diems: $ 7,875 Fuel: $ 3,000 Consumable supplies: $ 3,500 Wardrobe: $ 1,000 Promotion: $ 3,000 Tour gross income: $ 50,000 Booking Agent's cut: $ 7,500 Manager's cut: $ 7,500 Merchandising advance: $ 20,000 Manager's cut: $ 3,000 Lawyer's fee: $ 1,000 Publishing advance: $ 20,000 Manager's cut: $ 3,000 Lawyer's fee: $ 1,000 Record sales: 250,000 @ $12: $ 3,000,000 Gross retail revenue Royalty [13% of 90% of retail]: 250,000 @ $12: $ 351,000 Less advance: $ 250,000 Producer's points [3% less $50,000 advance]: $ 40,000 Promotional budget: $ 25,000 Recoupable buyout from previous label: $ 50,000 Net royalty: $ -14,000
Now, on the other hand, let's look at the Record company income:
Record wholesale price $6.50 x 250,000 $ 1,625,000 gross income Artist Royalties: $ 351,000 Deficit from royalties: $ 14,000 Costs of manufacturing, packaging and distribution @ $2.20 per record: $ 550,000 Label's gross profit: $ 7l0,000
The Balance Sheet: This is how much each player got paid at the end of the game:
Record company: $ 710,000 Producer: $ 90,000 Manager: $ 51,000 Studio: $ 52,500 Previous label: $ 50,000 Booking Agent: $ 7,500 Lawyer: $ 12,000 Band member net income each: $ 781.25
The band is now 1/4 of the way through its contract, has made the music industry more than 3 million dollars richer, but is in the hole $14,000 on royalties. The band members have each earned about 1/20 as much as they would working at a 7-11, but they got to ride in a tour bus for a month.
The next album will be about the same, except that the record company will insist they spend more time and money on it. Since the previous one never "recouped," the band will have no leverage, and will oblige.
The next tour will be about the same, except the merchandising advance will have already been paid, and the band, strangely enough, won't have earned any royalties from their T-shirts yet. Maybe the T-shirt guys have figured out how to count money like record company guys.