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RIAA Accounting: How To Sell 1 Million Albums And Still Owe $500,000

• hezekiah 15y ago
  Really good article. Mentions the different fees, how they are calculated, their amounts for a typical successful album. This kind of info you normally don't come across.
• deleted 15y ago
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• vermontdevil 15y ago
  I still don't understand why musicians continue to sign up with record labels? With all the other options out there, the record labels should not be the first choice for any aspiring musician.
  • MichaelApproved 15y ago
    Those other options aren't always as easy to execute for everyone as you might think. Marketing, web site building, video editing, tour scheduling, public relations, accounting, etc. That stuff is hard work and you have to be a jack of all trades. Each band is like a little startup looking for a technical cofounder.
    • mashmac2 15y ago
      This. Is exactly how it works. A first-time startup gets worse terms then an established entrepreneur, right? A first-time band is the same way. You do well with your first venture, you get better terms the next time. The indie film industry is very much the same way with distribution rights. So, VC ~= Record labels ~= Film distributers
  • nate_meurer 15y ago
    Any illusions that artists had about the big record labels should have been extinguished in 1999, when they snuck through a bit of legislation that made all music recordings "works for hire", thus depriving musicians of the copyrights on their own music. "work for hire" is what programmers do in the employ of a company, who then assumes ownership of the copyright on the code. The RIAA has always resented the fact that musicians retain ownership of their copyrights, and it defended the legislation vigorously. It was repealed in 2000 under pressure from a coalition of musicians. The most offensive thing about the episode to me is the way it was done. A congressional staffer named Mitch Glazier snuck the change in at the last minute. Three months later, Mitch was hired by the RIAA. Afterwards, the RIAA coyly refused to admit anything had changed, but were plainly committed to enforcing the work-for-hire language.
  • warfangle 15y ago
    Oft-times larger venues will not play you if you are not signed. Sometimes this isn't true, but it typically is. Especially if the venue is owned by Clearchannel (most are).
  • kragen 15y ago
    I asked my brother. He said, "All the big projects are still on record labels."
• sanswork 15y ago
  Does anyone know why he left out the $300,000 advance from the final calculation on how much the artists make? I'm not sure if that was just an oversight or if there was a valid reason for it.
  • MattBearman 15y ago
    Even so, for a 5 member band, assuming they took the whole advance, (no manager fees, etc) they've earned $60,000. Which considering there's usually 2-4 years between albums, and they still owe the label money, that's a pretty shitty wage of $15k - $30k P/A.
    • tjansen 15y ago
      Sure, but in the meantime the label made the band famous, which is worth a lot of money. They have a much larger audience at concerts, can sell merchandise and possibly have other sources of income. And, when the record contract expires, they can negotiate better terms.
      • MattBearman 15y ago
        No question, any band will tell you that record sales is their least significant income source, for most merch is the big earner. What bothers me most about this situation is that musicians would exist without labels, where as labels would not exist without musicians, the balance of power is all wrong.
        • deleted 15y ago
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        • maxxxxx 15y ago
          The balance of power is all wrong in many areas. E.g.: There would be no Wall street without Main Street but they still get all the power. Main Street could exist without Wall Street. People with lots of money have the means to shape laws their way and to produce propaganda so everybody believes they are important. The same could be said for venture capital.
• rndholesqpeg 15y ago
  Steve Albini's explanation is much more colorful and now almost 15 years old, http://www.negativland.com/albini.html http://www.negativland.com/albini.html
  • hluska 15y ago
    Good work linking to that - I was just going to comment that I liked this article a whole lot more when Steve Albini wrote it...in the 90s.
• seanalltogether 15y ago
  The crazy thing to me is that the deal is structured more like a loan then an investment, and yet they are still only entitled to 10% of net income. Could you imagine a tech entrepreneur accepting that kind of a deal from a VC?
  • klbarry 15y ago
    Programming ability has a great deal more economic value than entertainment ability.
    • StavrosK 15y ago
      How so, given how much money top singers/bands make?
      • cageface 15y ago
        Power law thing. Most musicians make next to nothing whereas the average programmer does ok.
        • StavrosK 15y ago
          Makes sense, thanks.
      • tertius 15y ago
        Compare that to Sergey and all the IPOs. I think you'll see that it's slanted towards programmers.
      • mikeash 15y ago
        The total revenue of RIAA members in 2009 was about $7.7 billion. At their peak around the turn of the century, they were doing a bit under $15 billion. And that is revenue, not profit. The entertainment industry is tiny. Top artists make a lot of money for an individual, but it's only millions, and there aren't a whole lot of them. That 2009 music industry revenue would pay for, what, 70,000 programmers? And there are a whole lot more programmers than that earning good money. (Note: I'm only looking at RIAA figures, and ignoring independent artists, so it's understated to a certain extent. However, I believe RIAA revenue still makes up the majority, probably the vast majority, of total music revenue.)
• Confusion 15y ago
  Similar: Courtney Love does the Math: http://news.ycombinator.com/item?id=1714338 http://news.ycombinator.com/item?id=1714338
• exch 15y ago
  A guy named 'merethan' posted a great essay on the subject in 2010. It gives a good explanation of what the music industry is about and why it still operates the way it does, without going too much into the financial details. The original article is in Dutch, so I translated it into English a while ago: http://site.jteeuwen.nl/misc/copy_is_my_right.html http://site.jteeuwen.nl/misc/copy_is_my_right.html
• johnarleyburns 15y ago
  The same is true of startup funding. Beware the VCs! They use these same tactics so that if your startup is sold for $20m you can easily end up with zero, even as a co-founder, even if the VCs made a big profit off their investment.
• mdasen 15y ago
  So, the question I have is: how many of those bands/artists make it? The article mentions an advance of $1M. I think the $20 per CD rate claimed in this album (1M CDs sold is claimed to be $20M in sales) is a bit high (then again, I haven't bought a CD in a while). Suffice it to say, I'd lower that to $10-12M gross and maybe $7-8.4M when costs are accounted for. Even with digital distribution, I think the iTMS/Amazon are taking 30% which would lower $12M gross to $8.4M after Apple takes its cut. Correct me if I'm wrong, but from what I've heard/seen an album costs around $10-12 on iTunes and Apple takes 30% of that. I can't imagine physical stores (who have the overhead of real-estate and employees) taking less. I mean, 20% breakage fees are outrageous, but arguing that selling 1M albums equates to $20M gross is also outrageous since CDs don't cost $20 a piece. So, how many of these bands succeed? If I gave a $1M advance to ten bands, would nine of them sell a million albums or only one of them? Thinking of it like an investment, that's an important question. If only one of them sold a million albums (and the rest failed), it would mean that I've put out $10M while the CDs sold grossed $12M (and probably $8.5M after the selling store takes its cut, before any other costs). In this case, there isn't a lot of money for the successful band to be well rewarded. Even though they brought in 8x what was invested, there was only a 1 in 10 chance of them succeeding and a lot of that money is going to subsidizing the investment in the failed bands. However, if 9 out of 10 sell a million records, around $75M is being brought in (after the selling store's cut) while $10M was invested and so there should be plenty of money for the bands/artists to be well-rewarded for their success. I'm not saying that there aren't dirty tricks being used. I simply don't know how often bands that get these advances do well. If the risk is that most ventures are very unprofitable, it means that the ventures that do become profitable don't get well-rewarded because of the risk involved. There's also the issue of the amount of money. In this case, it's $1M. That isn't a sum that most people can come up with and, as such, commands a premium. A lot of the larger VC investment comes after a team has shown that it can get a bit of traction. Places like YC invest early, but it's small amounts. In the end, if you believe in yourself and think there is little risk, it's always best to invest in one's self. However, it can be hard to stomach the risk if the costs are high and the industry failure rate is also high. I'm sure that the record companies are making off with loads of money unfairly, but what's absent from the article is a sense of how many bands that get the advance make it and how many fail. That's a critical piece of information that could turn their whole argument on its head. And without that information, it's impossible to realistically evaluate fairness. I'm no fan of record labels. I think they're an antiquated system in an age where digital recording, editing, and distribution can allow people to create high-quality media. However, if the article wants to convince me of its merits, it needs to offer some statistics about the success/failure rate of the bands/artists getting the advances. If the success rate is 90%, they have a good point. If the success rate is abysmal, it casts some doubt. I'd say it casts more doubt on the system of offering advances (than offering a defense of record labels) and argues for a more efficient initial production, but that's the hacker ethic in me.
• deleted 15y ago
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• Produce 15y ago
  And I'm supposed to be against piracy? I have no problem giving money to people who deserve it but these people do not deserve a single penny from me. The other issue is that by paying for CD's, I'm directly funding the unethical legal bullying that these companies are undertaking. Really, it's the same issue with the government. I, for one, do not want to fund operations which kill people in foreign countries. I don't care if it's a 'democracy', I don't care if there's a hierarchy and that I'm supposed to vote to make myself heard. I simply want to cut funds to things I don't agree with but the issue is that doing so results in an entity orders of magnitude bigger than me bullying me into submission.
• hluska 15y ago
  Honestly, I can't imagine how any band could be stupid enough to sign a contract with a big label and expect to make money off of album sales. The money is in touring and selling merch - bands should learn to look at selling albums as a promotional expense that helps them line up tours and sell overpriced t-shirts. Or, there is always the indie fortune 500...
• ethank 15y ago
  I hate this headline. This is not RIAA accounting: its having a bad lawyer and not negotiating a good deal. I've been in plenty of deal meetings and seen the good and the bad. The good artists retain most of their rights, negotiate a buy out of master recording rights, retain all fanclub/merch rights, etc. The labels try to gun for 360 rights, but the fact is while there was a brief moment when they could deliver on the promise of the 360, that moment has long passed. If you are a band, and you want to be a multi-platinum act selling world wide: get a really really good lawyer and sign with QPrime, Frontline, Red Light/ATO, etc. Let me repeat: GET A GOOD LAWYER.
  • zaphar 15y ago
    If you get a good lawyer and he drives a hard bargain that doesn't mean you get the record label deal though. What's more important is determining how much you are willing to give up for a record label deal. The label is perfectly capable of telling you no deal if they don't want to give you all your demands. There are a lot of other artists out there who will drive an easier bargain. The lawyer is helpful in actually understanding the deal but he can't guarantee the deal you want.
    • ethank 15y ago
      Very true. You also need to be willing to walk away and hold the line. I've seen contract negotiations go for YEARS.
• hootmon 15y ago
  Read Courtney Loves coverage of this topic. 99% of the so called costs are bogus. The mega-corp owns everything it is charging for. The recording studios, the engineers, the ad agencies, the pressing plants etc. Its all a paperwork scam. They can inflate their charges as much as they please. The other trend that has ruined music sales is fascist corporations prefer to hire moron musicians like rappers who are satisfied with a few ho's, a fancy car or two, some blow, and some publicity. Many can't even read a contract. Much rather deal with that lot than some college educated white boys who make music and can read a contract.