How Music Works
Page 26
In the end, how did I end up doing on that record? I asked my business manager, who had this to say:
With Grown Backwards, you have, as of 2010, sold approx. 127,000 physical albums, 53,000 digital singles, and 8,000 digital albums, for total revenues to you of approximately $276,000 (which does include some licensing money). This was a straight-up master deal. Total revenues of $276,000, less the cost of making the record, which was $218,000, means you have made $58,000 on the record deal. However, this amount doesn’t include your publishing income (mechanicals and performance royalties).
Now, $58,000 doesn’t sound too bad. That’s what an elementary school teacher makes in New Jersey. But you also have to factor in the time it takes to write the songs, the time it takes to record them, and the lag before any of that money comes in. What’s more, those figures my business folks provided are for six years worth of sales—six years! It would be pretty tough to live on $58,000 for six years; I would be out of house and home and looking for other employment if I was hoping to rely on record sales to live. And that record sold okay. Luckily I work on more than one project or record sequentially, so while I’m waiting for possible income from one project, I’m already working on the next one. I might spend, on a record I have high hopes for, a couple of years on writing, recording, and performing. That’s not six years, but it’s a long time to hang on before the check comes in.
Of course, if I’d sold millions of records, I would have made more money—my income per record sold would have increased. My debt to the record company would have been easily paid back early on, and then I could have pocketed nearly all the royalty income rather than having to pay back the advance and other costs. Note that Nonesuch didn’t make a whole pile on this record either—though they did go into profit. (I don’t know their overhead costs, so I can’t factor those in.) I am happy to be able to make the records I want to make, and I realize that those records don’t always sell in the millions. Though sometimes we are pleasantly surprised: that “Lazy” single I co-wrote and sang sold a lot!
REVENUE BREAKDOWN FROM WHOLESALE EARNINGS ON GROWN BACKWARDS (140,000 UNITS SOLD)
RZO Music Ltd.
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 copies 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 satisfied 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 savings 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.
iTUNES’ ALBUM REVENUE BREAKDOWN ($10 RETAIL PRICE)
Wired Magazine
I smell another revolution in the works.
Not coincidentally, these issues regarding the royalty rates for downloads are similar to those raised in the Hollywood writers’ strike of 2007–2008. Would recording artists ever band together and go on strike like the writers who provide the content for films and TV shows did? 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 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 program 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 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 profitsharing deal often comes in the form of a 50/50 shared ownership 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.
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 covered 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 profitsharing 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 promotional 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 production 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.
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 manager, 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 profitsharing 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.
And in the back of my mind, I knew getting it into some real retail [outlets] was the key… and also in the back of my mind were conversations we had with the director Paul Thomas Anderson, who was putting a bunch of her songs in the movie Magnolia, and I suspected that was gonna be kind of a big deal. We had some stuff going on, but [the movie deal] gave us the confidence to do it ourselves… I think we sold about twenty thousand copies just off of the website ourselves before we got the record into traditional retail.
To do that we hired a traditional distributor and paid them a percentage in order to get the CDs into regular retail outlets. Tower Records, Best Buy, etc. We also did a deal with Artist Direct to fulfill the orders from Aimee’s website instead of us continuing to do it ourselves. This also enabled fans to purchase the CDs with a credit card. We didn’t have that function at the beginning, believe it or not. Paypal was either not invented or not in common use at the time.
My manager, David Whitehead, on P&D deals:
Mac touches on it, but the P&D model really fails when you aim to put records into not just Target, but also [into the] remaining chains, [like] Barnes &Noble, Best Buy, Transworld, Walmart. The costs of buying into these stores for a CD that may sell anything between two and ten thousand CDs can be very prohibitive, between $1 and $2.50 per CD. So you never reach the tipping point where your costs are recouped and you start to earn back at the full margin level, between $4 and $5 per CD—which is what they would hope to get on one of these kinds of deals. And while digital sales help offset this disadvantag
e to some degree, physical is still the high-volume format.
This sounds like one of the ways to go if you don’t hope or expect to sell too much of a given record. But you will see much more income from those units sold than you would from larger-scale distribution deals. Sometimes, then, this is the most practical and profitable choice.
6. SELF-DISTRIBUTION
Finally, at the far end of the scale, is the self-distribution model, where the music is self-written, self-played, self-produced, and self-marketed. Do it yourself, all the way. Well, you don’t necessarily have to play every instrument yourself and design the cover graphics, but everything after that stays under the artist’s control. In its humblest form, self-distribution means CDs are pressed in limited numbers, and then sold at gigs and often through a website. Promotion in this model is sometimes a MySpace or Bandcamp page, and the band buys or leases a server to handle download sales. Within the limits of what can be afforded, the artists have complete and absolute creative control—not just of their music, but of how it is sold.
For emerging artists, this can mean freedom (nice!) but without much in the way of resources, so it’s a pretty abstract sort of independence. What good is freedom, many argue, if no one gets to hear your music because you can’t afford to market it? For those who plan to take their material on the road and play it live, the financial constraints involved in DIY cut even deeper, depending on how elaborate the show is. Backup singers, musical gear, vans—it all costs money. Obviously, though, of all the models we’ve discussed, the profit percentage in self-distribution is the most favorable to the artist.