How Music Works

by David Byrne

  Here’s the traditional breakdown of what record companies used to do:

  • Fund recording sessions

  • Manufacture product

  • Distribute product

  • Market product

  • Advance money for expenses (concert tours, videos, promotional events, hair and makeup)

  • Advise and guide artists on their careers and recordings (managers are supposed to do this, but record companies do as well)

  • Handle the accounting of all of the above and eventually funnel some of the leftover cash to the artist

  This was the system that evolved in the twentieth century to market the product, which is to say the container—vinyl, tape, or disc—that carried the music. Can you imagine a business in which most of its investments prove to be bad? That was the record business before the collapse—the few massively successful acts were supporting the many who weren’t exactly failures. So, in effect, Robert Palmer’s sales funded the Pogues, and Madonna’s income funded Randy Newman’s idiosyncratic records. This system of corporate arts funding, however wacky, held up until the foundations began to crumble. Since 2000, many forces have conspired to reduce the value of the services those record companies offer to artists. The deals offered are no longer supported by the same a priori assumptions regarding what a label will do for an artist. Here are some of the things that have changed:

  CHANGE 1: RECORDING COSTS BEGAN TO APPROACH ZERO

  Years ago, most artists simply didn’t have the $15,000 (minimum) to pay for studio time, engineering fees, and mixing and mastering costs—the base investment needed for making a record. But now an album can be made on the same laptop you use to check email.

  I still utilize proper studios fairly often, but I have come to realize that it isn’t an absolute necessity anymore. The cost of a laptop and the gear that went into recording my vocals on “Lazy” (my collaboration with X-Press 2) might have come to a few thousand dollars, and though the laptop has been retired, it was also used for other recordings (as well as email and lots of other functions). Microphones, speakers, and other gear used for that project are still in use. So that “startup” cost gets amortized rapidly over a few years.

  But what if you want to record a large band and not just yourself singing on a laptop? A company called ArtistShare, run by Brian Camelio, offers a new approach to funding recordings that require capital investment. I heard about them when an ArtistShare record by jazz composer Maria Schneider won a Grammy. (That put the lie to the argument that semi-self-funded recordings should be looked down on as vanity projects.) Schneider works with modest-size orchestras, a bit like Gil Evans did some decades ago. The cost of rehearsing with these ensembles and recording them is considerable—way beyond what would normally be available to jazz artists whose record companies anticipate fairly modest sales and adjust their funding accordingly. Camelio tried to solve this problem by initiating fan-funded recordings. Fans of Schneider’s give money to ArtistShare before the record is made—an act of faith that won’t necessarily work for everyone. The fans who can give just a little get a CD when it’s done, and those who give a lot can get thanked on the CD, given free concert tickets, backstage passes, and all the rest. Kickstarter campaigns work in a similar way. Neither is a conventional investment, because the fans don’t get a percentage of sales, but they are an investment in keeping artists working and recording at a high level. One might say these models facilitate investment in the continuation of our own culture. So one way or another it is sometimes feasible for a musician to find a way to record without going into serious debt—if they are careful.

  CHANGE 2: MANUFACTURING AND DISTRIBUTION COSTS ARE APPROACHING ZERO

  There used to be a break-even sales point below which it was impractical to distribute a recording. With LPs and CDs, there were base manufacturing costs, printing costs, shipping, warehousing of stock, and so on. It was essential to sell in volume, because that’s how those costs got amortized. The costs per record came down the more records were pressed and potentially sold. If you sold less than a few thousand LPs or CDs, the initial costs of not only the recording, but of pressing the vinyl (or CDs) and making the covers and shipping to warehouses and record stores couldn’t get paid back, so the record company would inevitably lose money. This meant that marginal music tended to remain marginal because of economics and technology, rather than the quality of the music. This also meant that for a record that only sold a few thousand copies, the percentage of each record sale that went back to the artist was lower than for those that sold millions, for which the percentage of the recording cost that is paid back by each record sold approaches zero. Records that sold well not only brought in more profit per copy sold, but a larger percentage of those profits per copy went to the record companies and the artists. Popular records could therefore be sold at a discount, which would undercut the little guys while still bringing in more money than the records the little guys put out. The music business was like Walmart that way.

  No more: digital distribution is pretty close to being free. Digitally, it’s no more expensive to distribute a million copies than a hundred. Well, one needs to use the services of a heftier server if larger quantities of music files are being downloaded at once and more credit-card payments are processed, but there are no more warehouses, trucks, damaged goods being returned, and pressing plants that consume natural resources. The big “stores” where digital downloads are available are few (iTunes, Amazon, and eMusic in the United States), and they do take a percentage of the digital sales—around 30 percent—which some people, including me, regard as unreasonable. So, to be fair, the distribution isn’t really free. That percentage is often less than what oldschool record stores took in as their percentage of the the retail price, though sometimes—surprise!—it works out the same for the artist in the end.

  So, although distribution costs have dropped precipitously, there are still corporate gatekeepers who charge hefty tolls. The savings aren’t passed on as fairly as one might hope in most cases, although, as we’ll see, there are workarounds.

  CHANGE 3: ARTISTS NO LONGER GET BIG ADVANCES

  Due to the large percentage of each record sale kept, the record companies often broke even way before the artists began to see their own shares trickle in. Many bands lived off the money given them in advance of the estimated sales of their upcoming records, and these amounts were often based on an A&R person listening to rough demos or seeing a live show featuring new material. Most artists, however, never saw a cent from record sales after they got their advances. Their percentage of each record was still being used to pay off the recording and marketing costs and advances loaned to them by the record companies. The artists would then be obliged to write more songs in order to get an advance for another record—they’d be living record to record, advance to advance. The artists essentially went into debt—willingly, following the carrot of fame dangled before them. Making music and performing it is hugely enjoyable, so a reward was built in that the record companies didn’t have to pay for. Artists would be having a pretty good time writing and playing music, making a name for themselves, but they’d be quietly getting deeper and deeper in debt. Most artists accumulated a debt that was hard to dig out of unless they managed to have record sales that stayed consistently high. The list of successful artists who at some point in their career went completely broke is astounding—TLC, the Ramones, Terence Trent D’arby, Seal, Ron Wood, Meatloaf, MC Hammer, Michael Jackson, Sly Stone, and Toni Braxton, just to name a few. Some of these artists simply didn’t manage their finances well and spent their money on drugs or limos, but some did nothing “wrong.” They were just part of a business that wasn’t designed to sustain them over the long term.

  In 2011, the New York Times ran a story about the economic realities facing the musician Teddy Thompson:

  Mr. Thompson, who has been struggling to succeed for more than a decade (he turns 35 on Feb. 19), has enjoyed only marginal success in the
United States—his average record sales are 21,000—and is acutely aware of his dwindling shelf life in a business with a rapid turnover of talent. If his fifth album, Bella, to be released Tuesday on Verve/Forecast, doesn’t break through, how many more chances will he get?

  “My goal when I started out was to get to the point where I could tour a lot and make a living, which means getting paid enough to hire my own band, travel and end up with a bit of money, but I’m still nowhere near that point,” he said. “Because I didn’t have a band and fan base when I started, I did everything backward. I’ve ended up making five reasonably expensive records and not having a commensurate fan base.”1

  In another Times article, about singer-songwriter Nicole Atkins, Ben Sisario writes,

  She was signed by Columbia Records and got the full star-in-the-making treatment, with a spread in Rolling Stone and even an American Express commercial in anticipation of her debut album, Neptune City. Critics began to fall for her darkly laced, almost surrealistic songs and her soaring, dramatically powerful voice. Shortly before its release, however, the album was delayed—to be remixed by the label’s new co-chairman, Rick Rubin—and when it came out, months later, its promotional momentum had evaporated. Neptune City sold a disappointing 32,000 copies, according to Nielsen SoundScan, and by 2009 Ms. Atkins and her label had “divorced,” as she once put it.1a

  It is important to keep in mind that the sales numbers described here as disappointing might have actually been okay if these artists could have held on to a larger percentage of that income. I know both these artists. Their records are good and they are plugging away, gigging around town and elsewhere, and I feel optimistic that the changes in the music-distribution landscape will help them find a way to make a life in music.

  In the last decade things have changed. The big record companies have cut back, and they rarely offer generous advances to artists anymore. I have been paid sizable advances by Nonesuch, and though I could have tried to make a cheaper recording on my last record with them, and thereby pocketed the change, almost all of the money I received went into production costs. That was my choice. I did okay, but I don’t recommend that to everyone.

  As the advances and marketing expenditures that record companies commit to projects continue to shrink, artists have naturally begun to seek other ways of funding their recordings, paying the rent, and marketing their music.

  CHANGE 4: PERFORMING IS NOW VIEWED AS A SOURCE OF INCOME

  Live performances by artists were traditionally seen by record companies as a way to publicize their new releases—as a means to an end and not an end in itself. Bands would therefore ask for and often receive advances from record companies (called tour support) specifically to cover their touring losses: the cost of hiring musicians, hotel rooms, van rental, gas, and meals in strange cities. Bands would anticipate that they’d recover that advance from the record company, which they’d have to pay back later, through a subsequent increase in record sales. Sometimes the record sales would indeed increase as the result of a tour, and after a long time those loans could be paid off, but often they would not.

  This, to be blunt, is all wrong. It’s backward. First off, performing is a distinct skill, different from writing songs, singing, or making recordings. And for those who can do it, performing can be a good way to make a living. There are acts out there who don’t sell all that many records, but whose excellent live performances can fill sizable halls. They don’t need a record label’s help to do that either.

  Not everyone agrees with me. I spoke with Mac McCaughan, who co-runs the independent label Merge. He sees a continued value in bands touring to “support” their records. As he put it:

  The most old-fashioned way of doing things is still the best, which is touring. That really sells records more than anything else. It really does work. Most of what Merge puts out only gets played on college radio, non-commercial radio, KCRW, places like that. And that’s great, but by the time you get to a record store two days later, you’ve kind of maybe forgotten what you heard. But if you see a band live, that stays with you. It’s so memorable and it’s so immediate. That, more than anything else, is gonna stay in your mind. And you can actually make money touring if you keep your budgets down.

  So given all these changes, what is the purpose of record labels? Do they still have a place in this new world? Can we redefine what it is? Some will survive. Nonesuch, which has distributed several of my albums, has thrived under Warner Music Group ownership by operating with a relatively lean staff of twelve and staying focused on talent. “Artists like Wilco, Philip Glass, k.d. lang, and others have sold more here than when they were at so-called major labels, even during a time of decline,” Bob Hurwitz, president of Nonesuch, told me. The label has had some unexpected successes recently, like Buena Vista Social Club and the Black Keys. Such successes, Hurwitz says, happen about 5 percent of the time. He says that things do a little better than hoped for about 10 percent of the time, exactly as expected about 60 percent of the time, and not as well as was hoped about 25 percent of the time. Without knowing how much each record costs to make and market, it becomes a little hard to know just how devastating the “not as well as hoped” records would be financially for that company. Similarly, a successful record is only a financial success if it didn’t cost an arm and leg in recording and marketing to make it happen. Hurwitz claims that Nonesuch, though prestigious, is not a vanity label for Warner Brothers.

  DISTRIBUTION MODELS

  Do people need labels? Some bands don’t, but some bands do just because they don’t want to worry about what we do. They don’t want to do what we do. They just want to make music and play shows and make records and write songs. They don’t want to have to worry about finding a distributor and calling record stores and making sure they’re stocking the record when they’re coming through town.

  —Mac McCaughan

  Some big labels have disappeared, as these roles that Mac mentions get chopped up and delivered by more thrifty independent vendors. Brian Eno (who now produces Coldplay and is co-writing songs with U2) recently told me he was enthusiastic about ithinkmusic—an online network of indie bands, fans, and stores—and pessimistic about the future of traditional labels. “Structurally, they’re much too large,” he said. “And they’re entirely on the defensive now. The only idea they have is that they can give you a big advance, which is still attractive to a lot of young bands just starting out. But that’s all they represent now: capital.”

  So where do artists fit into this changing landscape?

  Where there used to be one model, now I see six, ranging from the artists who puts themselves entirely in the hands of the label, to the artists who do nearly everything themselves. There could be more delineation along this spectrum, but the following will suffice for now. Not surprisingly, the more involved the artist is, the more likely it is that he or she will retain a bigger slice of the pie per unit sold. The totally DIY model is certainly not for everyone, but the point is that there are options.

  SIX DISTRIBUTION MODELS WITH DIFFERENT LEVELS OF ARTIST CONTROL

  Wired Magazine

  1. THE 360° DEAL

  At one end of the spectrum is the 360°, or equity, deal, where every aspect of an artist’s career is handled by producers, promoters, marketing people, lawyers, accountants, and managers. Whew. The idea behind this model is that the artist can achieve wide saturation and massive sales because you are being boosted by a powerful machine working every angle—and they stand to profit from everything you do. That means, in some cases, they keep a major piece of every T-shirt, every bottle of perfume, every concert ticket, and of course every record sold. The artist in this model becomes a brand, owned and operated by the corporation, and in theory this encourages the company to adopt the long view because of enlightened self-interest. The company should have a strong incentive to nurture that artist’s career because every aspect of it that makes money benefits them, too.

  Pussycat Dol
ls, Korn, and Robbie Williams have made arrangements like this, selling equity in everything they touch. Jay-Z did a 360° deal as well, and one would assume that an astute, street-smart man like him would not get ripped off. It does vary, though. U2 did a deal with Live Nation in 2008 that lumped a percentage of their merchandise sales in with the concert income, but their CD (and download) sales were not included.3 The artist often gets a lot of money up front in these deals. A lot. However, there’s a trade-off. I doubt that every significant creative decision is left in the artist’s hands. Too much is at stake. For an artist, kicking back and not promoting your product would not be an option. Making arty experimental records will be discouraged. As a general rule, as the cash comes in, creative control goes out.

  Madonna just made a 360° deal with Live Nation. For a reported $120 million, the company—which until now has mainly produced and promoted concerts—will get a piece of both her concert revenue and her music sales. The following details were reported:4

  • $17.5 million: A general advance—money Madonna gets just for being Madonna.