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 [2]: | $ 3,000 |
| New fancy professional guitar amp rigs [2]: | $ 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 [3]: | $ 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.
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