Record companies & royalties

Found an interesting bit of trivia on the web just a few days ago while researching another article for this web log. On a web site called “How it works”, a brief article in the side bar claims that country super star, Merle Haggard, had never received a recording royalty cheque throughout his long career in country music, until he recently recorded an album for the indie punk-rock label Epitaph.

I know what you’re thinking. You’re thinking, “The guy is a country music legend. He’s had thirty-seven top ten country singles, with twenty-three of them number one hits. There’s no way any artist can be that successful and never cash a royalty cheque.” But, you’re wrong. To fully understand how such a thing might happen, you’d have to read several lengthy articles on how recording contracts actually work. I’ll try and give the short lecture in this post.

Let’s say you’re an up and coming young country singer who has just signed his/her first recording contract with a major record label. You sign the standard industry contract stating your cut will be 10% of total album sales. The record company gives you an advance of $100,000.00 or so to tide you over until your album is released, and you’re happily drifting along on cloud nine. The dollar signs are dancing in your head, rendering the brain next to useless.

So let’s see if we can’t work this out together. If you sell a million records at $15.00 apiece, that’s 15 million dollars; and your take would be a cool 1.5 million, right? Well, no, not exactly. You royalties will be based on the wholesale price, not the retail price. But that’s fair. If your record wholesales for nine dollars, you still make $900,000.00. Unless your album is sold through a record or CD club, or some discount retail outlet like Costco who usually pay a lower wholesale price. But, it’s still a pretty good deal, right?

Well, maybe. But there are a few expenses to be deducted from your royalties. Many record companies charge an up front “packaging fee” of up to 25% of the artist’s royalties. Then, there’s the cost of recording the songs. These costs alone can easily run up to several hundreds of thousands of dollars. You might do your recording in a studio owned by the record company, but you won’t get the studio time for free. They’ll charge you for it, usually with a considerable mark up.

There’s production costs, costs for graphic design, royalties to the writers, advertising and promotion of the album and don’t forget your advance. Then there’s the free CDs distributed for promotional purposes and to radio stations. And, don’t forget the hold back for CDs and tapes that might be returned later by retailers.

And, few records are released these days without at least one video for television; no one wants to look at a picture of Toby Keith for three and a half minutes while listening to one of his songs on CMT. So add on a few more hundreds of thousands of dollars.

Once it’s all added up, you’ll be down on your knees praying for a gold or platinum album. Otherwise you could end up owing the record company. And consider this, the music industry publishes tens of thousands of new albums every year, and only a small percentage of them are going to go gold (500,000 records sold) or platinum (1,000,000 records sold). You have about a 1-in-20 chance of producing an album that's a major hit.

Singer Courtney Love had this to say in an open letter to recording artists: “How do record companies get away with a 95% failure rate that would be totally unacceptable in any other business? Record companies keep almost all the profits. Recording artists get paid a tiny fraction of the money earned by their music. That allows record executives to be incredibly sloppy in running their companies and still create enormous amounts of cash for the corporations that own them.”

“The royalty rates granted in every recording contract are very low to start with and then companies charge back every conceivable cost to an artist's royalty account. Artists pay for recording costs, video production costs, tour support, radio promotion, sales and marketing costs, packaging costs and any other cost the record company can subtract from their royalties. Record companies also reduce royalties by "forgetting" to report sales figures, miscalculating royalties and by preventing artists from auditing record company books.”

And this item, from her blog: Courtney Love wants to follow the example of rock band Radiohead, who has allowed fans to download their new album "In Rainbows" and pay whatever they wanted. She too will release her music, for free, online.

Go ahead. Ask me why I don’t feel at all guilty about visiting “Torrent Portal” or “Pirate Bay” from time to time.