MUM 2700

"Ball of Weirdness" by Jonathan Jesion	www.ProfessorCalle.com MUM 2700 Music Business 1

MUM 2700

Professor Calle

www.ProfessorCalle.com

ecalle@mdc.edu

WebCT (MUM 2700)

Record Contracts - Real life numbers

On page 98, the Passman book gives an excellent breakdown of how the money flows in a record contract. As usual, numbers don’t always tell the entire story. I would like to breakdown those numbers and ask you to determine if they are as good or bad as they look.

Passman’s example looks like this:

1. SRLP	$18.98
2. Packaging deduction (25%)	-4.74
3. Royalty base	$14.24
4. All in royalty rate	14 points
5. Producers royalty rate	3 points
6. Net or artist rate	11 points (11% of Royalty base)
7. Real point rate is 85% of the net or artist rate (85% of 11)	9.35%
8. Per CD royalty amount	$1.33
9. Assume you have sold 500,000 units. Your royalty amount would then total:	500,000 * $1.33 = $ 665,000 Not a bad days workJ
Here come the minus signs
10. 15% free goods deduction	- $99,750 $665,000 - $99,750 = *$565,250* Hey, those DJs need the CDs. We all know Clear Channel can’t afford to buy them. Seriously, if you want publicity, you must send out free goods.
11. Recording costs	-$300,000
Balance	$565,250 – $300,000 = *$265,250*
12. 50% of independent promotion. Note that the record company pays for 50% and you are responsible for 50% of the independent promotion costs. Independent promoters try to get you airplay.	-$100,00 $265,250 - $100,000 = *$165,250*
13. 50% of video costs. Once again, the video costs are split 50-50 with the record company. The artist’ share of the video costs is always advanced to the artist by the record company. This deduction is being recouped here and now.	- $75,000 (i.e., the video cost $150k) $165,250 - $75,000 = *$90,250*
14. Tour support (100%)	$90,250 - $50,000 = *$40,250* Right folks, you are taking home a whopping $40,250. Based on 500,000 records sold, this means you are actually earning 40,250/500,000 = 0.0805 cents. About 8 cents per CD.

So, you want to be a rock starJ Well, it’s not as bad as it looks and here is why:

1. You have a record out and it is selling. This means that soon enough you will be touring, even as an opening act, but earning money and creating even more exposure for yourself.

2. The record company put up all of the money and took a huge risk. You are reaping the benefits of their risk even though you are working for pennies on the dollar. Truth is that most people can’t afford to make a record, make a video, promote and distribute the material and additionally pay for a promotional tour.

3. The $300,000 recording advance hopefully included money for you. In other words, I hope you don’t blow $300,000 recording a CD. Instead, you should have taken 25 to 30% of the money off the top and used it for investments and living expenses.

4. We are not including publishing income. If you wrote the songs, even at the controlled composition rate of 0.06375 cents, you could have earned mechanical royalties in the amount of 500,000 * 0.06375 * 10 songs = $318,750.

5. The recording costs are now recouped. This means that future royalties will be much higher since the recoupment is complete. If in the above example we left all other numbers the same but omitted the $300,000 recording cost, the artist royalty would total $340,250. That is a much better number. Note that on a per CD basis, in this case the artist royalty is $340,250/500000 = $0.6805 or 68 cents per CD. Note that your royalty always ends up computed at less than $1. I believe this is a target amount and record companies simply create variables in order to accomplish this breakdown.

6. If you have sold this many CDs, you will certainly record a 2^nd CD. This time you will once again keep some advance money, earn publishing royalties, make more money from tours and merchandising and be well on your way to financial freedom. Not bad at all.

7. If you haven’t sold a lot of CDs, you will be back playing with your garage band and starting over or you will find another line of work. Either way, it’s going to require hard work and will probably be a whole lot of fun.

Note:

This example reinforces the Calle theory of why some folks gravitate towards controlling 100% of publishing while maintaining a manager and producer interest.

Let us observe facts:

1. Provisions set forth in copyright law guarantee profits from publishing mechanical royalties to the party controlling the copyright.

2. Publishers and composers earn equal amounts for performance royalties.

3. Mechanical royalties are free and clear because, unlike in the case of an artist, recoupment does not apply.

4. Publishers, if they are not artists, do not have to agree to a controlled composition rate and therefore currently earn 8.5 cents per song, per CD. Those rates, as we have studied, will increase to 9.1 cents on January 1^st, 2006.

5. Publishers will earn mechanical royalties for all re-makes or re-records of the song. If the publisher owns 100% of the publishing, the writer and/or artist will earn 0% of the publishing and then tell everyone who they were ripped off. Should have taken this class DUDE!

6. In addition, many of these mega-music business entrepreneurs also have controlling interests in managing and production. Imagine 100% of publishing and a 20% manager’s commission from the artist’s advance, touring profits, merchandising and performances. Oh yeah, as a producer, you would also earn 0 to 5% royalties and earn a producer advance. And before I forget, since these music moguls often own the studios, they can force the artist to record everything at the producer’s facilities and in effect confiscate 100% of the recording budget. To add to the misery, the producer/manager/publisher could also place their own songs and cut into the artist’s profits even more significantly.

7. As a producer/manager/publisher/mogul, one can repeat the procedure 2 to 12 times per year for 2 to 12 different artists.

I hope that this document helps to clear up the positives and negatives inherent in record contracts and publishing deals. As you can see, all aspects of the music business are intertwined and no one sector is an island unto itself.

It is my sincerest hope that all of you take the steps necessary to prepare your minds, fuel your desire and feed your creative souls so that you may create original music and sell it to many fans around the world.

In order to accomplish this lofty goal, you must begin by creating a tangible copy of your work. Subsequently, you must protect your property and promote your talent and your product. Believe in your self, never loose your humility or your sense of humor, harness your talent, develop a healthy work ethic and approach your goals with tenacity.

Sir Isaac Newton once stated: “genius is 10% inspiration and 90% perspiration.” As evidenced by Newton’s accomplishments, that is a proven formula for success.