How Music Works (42 page)

REVENUE BREAKDOWN FROM WHOLESALE

EARNINGS ON
GROWN BACKWARDS

(
140,000 UNITS SOLD)

$40,000

$42,000

$7,000

Label gross before expenses

(overhead, distribution, marketing,

promotion, etc.)

$140,000

ARTIST/PRODUCER REVENUE

Advance against royalties spent on

record production (the cost of making

$218,000

the record)

$1,233,000

Writer’s mechanical royalties

Producer’s royalties (3%) paid from

artist’s share

Artist’s net royalty (15%) after recoupment

Artist’s net income from advance after

recording costs

My point is that you have to sell an awful lot of records to expect to live off record sales alone, and maybe you shouldn’t count on that happening. However, if you keep the recording and marketing costs down, you might squeak by.

So how is a mid-level artist—someone who sells more than 5,000 cop-

ies of a record but less than a million, supposed to live, given this scenario?

Naturally, some of our records sell better than others—our careers have hills and valleys—but how can you sustain a career over time? The answer seems

to be by supplementing your royalty income with other sources or by looking

at the other distribution options I’ll discuss next.

For decades, the standard royalty model made a lot of money for the record

companies—and for a few artists. When sales were good, everyone was satis-

fied and the artists didn’t feel they had to concern themselves with business matters too much. But that very lack of concern might explain why this model also led many artists to go bankrupt. Like real estate and home loans, it only works well when sales are booming and growth looks like it will continue

upward forever.

Over the last decade, many of the services traditionally provided by record

labels under that standard deal began to be farmed out. Press and publicity, digital marketing, graphic design—all are now often handled by independent

firms. Even record companies that used to have departments dedicated to

that stuff no longer provide such services in-house. It became cheaper to hire a graphic designer working out of her apartment in Brooklyn than to have a

slew of designers taking up precious office real-estate. However, record companies still try to make the same kinds of deals with the artists, as if they were still incurring all those expenses. The record companies still cover the payment and supervise these services, and he who pays the piper calls the

tune. If the record company pays those subcontractors, then that company

ultimately decides which artists have priority. If they “don’t hear a single,”

they can tell you that your record isn’t coming out. Or maybe they’ll say it can come out, if you insist, but it won’t get any promotion or publicity, which amounts to the same thing as not coming out at all.

So what happens when online sales eliminate many of these collateral

expenses? Look at iTunes: $10 for an album download reflects the cost sav-

ings of digital distribution, which seems fair—at first. It’s certainly better for consumers. But after Apple takes its 30 percent, often the same old royalty

percentage is applied and the artist is no better off, and maybe even worse.

232 | HOW MUSIC WORKS

iTUNES’ ALBUM REVENUE

I smell another revolution in the

BREAKDOWN ($10 RETAIL PRICE)

works.

Not coincidentally, these issues

regarding the royalty rates for down-

loads are similar to those raised in

14% Artist

the Hollywood writers’ strike of

$1.40

2007–2008. Would recording artists

ever band together and go on strike

like the writers who provide the con-

30% iTunes

56% Label

tent for films and TV shows did?

$3.00

$5.60

Will book authors do the same when

the majority of books are purchased

via ebook downloads and publishers

can no longer claim many of their

costs as deductions? As these factors

converge, things are going to get very

interesting.

3. LICENSE DEAL

The license deal is similar to the standard deal, except that in this case the artist retains the copyright and ownership of the master recording. The

right to exploit the recording is licensed to the label for a limited period of time—usually seven years. After that, the rights (and income) from licensing those masters to TV shows, commercials, and the like revert to the artist.

During the period of the license, income from those sources is split between the artist and record company. If the members of Talking Heads held the

master rights to our catalog today, we’d be earning twice as much from licensing songs to movies and TV shows as we do now. I’m doing fine as it is, but

for emerging artists this can make a huge difference.

If artists can make a record by themselves and don’t need creative or financial help doing so, then this model is worth looking at. A band that has a licensing deal is expected to pay their own recording costs. They’re expected to deliver a finished product, more or less. Not being in debt to the record company right off the bat allows for a little more creative freedom, since you get less interference DAV I D BY R N E | 233

from the guys in the suits when the music is being created—they might not

even be around. The advance from the record company is necessarily lower,

because the company won’t end up with the rights to the master recording in

perpetuity. The income from this model is more or less structured the same as the royalty deal discussed previously, but the artist may see significantly more income down the line because they will retain ownership of their masters.

The downside to this model is that the label may have less incentive to

spend money to ensure that the record is a success. They’re being asked to

take a risk without having as many guaranteed sources of income, so they

have to feel quite strongly about the recording to go this route or they will temper their offer accordingly. If the artistic freedom that the artist gains here results in a more “difficult” record, then the odds of it being licensed by a film for a hefty chunk of change might be lower, too. Basically, you can be radical, you can be wild and free, but it will probably cost you.

With the right label, the license deal can be a great way to go. Arcade Fire has a license deal with Merge Records, an indie label that’s done great for

its bands by avoiding the big-spending, big-label approach. Mac McCaughan

explained this approach to me:

Part of it is just being realistic and not putting yourself in the hole. The bands we work with, we never recommend that they make videos. I like videos, but they don’t sell a lot of records. A company like ADA [Alternative Distribution Alliance] really changed the landscape [for indie labels]. It meant that we can get our records anywhere that Warner Brothers can get their records. That’s huge. It presents its own issues, though. If you’re gonna want your record in a Target, they’re gonna want $25,000 from you.

What Mac is referring to is a kind of legalized bribery that the big chains—

Target, Walmart, Best Buy—all participate in. They require a record label

to pony up a flat fee in order to be “featured” in a given “program.” A pro-

gram might imply that the record will be included in an in-store display, or it might mean the record will be placed at the end of a rack (yes, those CDs are not there by accident; every position is paid for), listed in their flyers, or included in their print ads. But the fact is they charge the labels even if the records aren’t going to be included in one of these programs. This flat fee is not refundable; even if the record isn’t successful, you still have to pay to get 234 | HOW MUSIC WORKS

your record into their store in order to find out if they will sell serious numbers or not. Not only that, but those stores have price ceilings. They force the label to sell records to them for less than they would to the record store on Main Street. Hence the mom and pop stores go out of business, and the

record labels get squeezed even harder. Big labels can afford this shakedown, because a hit record—one that sells in massive numbers and basically starts

promoting itself—cancels out the losses incurred by the ones that don’t sell.

ADA, which Mac says is leveling the playing field, is an indie distribution

network. It and others like it (Red is another) won’t, one hopes, go bankrupt like some of the other small distribution services have in the past. When

those businesses go bankrupt, they don’t return your stock—your records

are stuck in their warehouses. In a weird arrangement that only the record

business could get used to, though, ADA is owned by Warner Brothers and

Red is owned by Sony. How indie can they really be? Says Mac:

If we’d done
Funeral
[Arcade Fire’s first record] fifteen years ago, I don’t know that we could have handled the next record. But we’ve grown. When Merge started out it was just Laura and me in her bedroom. There are twelve people who work here now, but that growth happened over a long period of time. We’ve always been

super conservative about the way we spend money. We work with artists who are living in the real world. We do deals and advances and marketing budgets based on reality, not based on “I wish.” It would be great if your next record sold five times as many as your last, but if it doesn’t, we try to do things so that no one is in the poor house. We try to operate so that if someone does sell five thousand copies, they do make a little money off that.

4. PROFIT-SHARE DEAL

The profit-sharing deal often comes in the form of a 50/50 shared own-

ership of the master recording. Unlike the licensing deal,
everything
is shared—all the costs and expenses of producing an album are divided between

the artist and the label. The mechanical royalties are considered part of the artist’s “profit” under this deal, so they aren’t paid off the top. One advantage of this deal is that when the profits do come in, they are shared 50/50 as well, which may be higher than the standard percentage in the previous deals.

DAV I D BY R N E | 235

I did something like this with my soundtrack album
Lead Us Not Into

Temptation
,
which was the score for the 2003 film
Young Adam
. I got a minimal advance from the label, Thrill Jockey. This modest amount made sense

partly because of the kind of record it was (it had only two vocal tracks), partly because the label was small, and partly because we were evenly dividing the

income. I retained ownership of the masters. The recording costs were cov-

ered by the soundtrack budget (part of the deal with the movie’s producers

was that I got to walk away with the music in return for taking a low fee),

and Thrill Jockey and I shared the profits from day one. In a profit-sharing deal, the mechanicals come out of the artist’s share, which makes some sense because the artist owns the master recordings and will stand to see additional income from possible licensing fees down the line.

The artist retains ownership of the master in a license deal too, but profits from co-ownership with the label flow from day one. Thrill Jockey does do some marketing, promo, and press, and they have a staff to handle the day-to-day eventualities around a release. Because they are a small company, I may not have sold as many records as I would have through a larger company with more marketing muscle, but in the end I took home a greater share of each unit sold, and besides, I didn’t think it was the kind of record that Walmart customers would be drawn to.

I didn’t expect that particular recording to sell massively, so having a sensitive company like Thrill Jockey (which could target the folks who might

actually like that record) handle it was appropriate. An expensive promo-

tional push from a larger company probably wouldn’t have resulted in a huge

increase in sales anyway.

5. P&D (OR M&D) DEAL

In the manufacturing and distribution (M&D) deal (also known as a pro-

duction and distribution deal, or P&D), the artist does everything except, well, manufacture and distribute the product. The artist pays for the recording, ads, marketing, and promotion—the record label or distribution entity

isn’t expected to pay for any of that. The companies that do these kinds of

deals often offer other services, like marketing, but given the numbers, they don’t stand to make as much, so their incentive to do a lot of extra work is limited. Big record labels traditionally don’t make P&D deals.

236 | HOW MUSIC WORKS

In this scenario, the artist gets absolute creative control, but it’s a bigger gamble. Getting the public to know about your record is almost entirely up

to you. Aimee Mann does this, and it works really well for her. Mann’s man-

ager, Michael Hausman, told me “A lot of artists don’t realize how much

more money they could make by retaining ownership and licensing directly.

If it’s done properly, you get paid quickly, and you get paid again and again.

That’s a great source of income.” This arrangement is different than a profit-sharing deal because the label is essentially relegated to being a vendor, and the artist either pays them a flat fee or offers them a fixed, modest percentage of the income—a commission—in exchange for what will be more

limited services.

Hausman and Mann started off trying to do it all by themselves (a final

option that I’ll discuss next), but they found they needed help with physical distribution. As Hausman explains:

We can sell [the album] online through the website and send an email to everybody letting them know that it’s out and we’ll do the fulfillment [getting physical records to buyers] somehow. [Aimee told] me, “If I can just have one place where my fans can get it, they’ll go there.” And I said, “That’s not really gonna sell a lot of records, but it’s certainly a start.” So we put it up on the website and we sent around an email and we started selling records.