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ARTISTS DON'T
MAKE MONEY FROM RECORD DEALS
By, Wendy Day from Rap Coalition
Who is the incredible bonehead who said rappers make mad loot? Wrong,
wrong, wrong, wrong, wrong!! Because the fans expect their favorite
artists to be crazy paid and livin' large, this puts an incredible
amount of pressure on the artists to appear wealthy. And it's not just
the fans; I can't tell you how many times I've been out with rappers
along with people in the industry, and the industry slobs have expected
the artists to pick up the dinner check. I've even seen people cop an
attitude if the artist doesn't pay for everything. This is small minded
and ignorant because the artist is ALWAYS the last to get paid. Everyone
gets their cut first: the label, the manager (15%- 20% of all of the
artist's entertainment income), the lawyer (by the hour or 5%-10% of the
deal), the accountant (by the hour or 5% of all income), and, of course,
the IRS (28% to 50% depending on the tax bracket).
Once an artist releases a record, the pressure is on to portray a
successful image to fans, friends, families, and people around the way.
People expect the artists to be well dressed, drive an expensive car,
etc. Think about it. Don't you expect artists "to look like
artists?" Would you admire Jay-Z as much if he drove a busted old
1990 Grand Am instead of that beautiful, brand new, top of the line
Bentley?
Sadly, when an artist gets signed to a label deal, especially a rap
artist, he or she receives somewhere between 8 and 13 points. What that
means is 8% to 13% of the retail sales price, after the record label
recoups the money it puts out (the advance, the sample clearances, the
producer advances, usually half the cost of any videos, any cash outlays
for the artists, etc.). The artist has to sell hella units to make any
money back. Here's an example of a relatively fair record deal for a new
rap artist with some clout in the industry and a terrific negotiating
attorney:
ROYALTY RATE: 12%
We're going to assume that there are 3 artists in the group, and that
they split everything equally. We're also going to assume that they
produce their own tracks themselves.
Suggested retail list price (cassettes) $10.98
less 15% packaging deduction (usually 20%) =$ 9.33
gets paid on 85% of records sold ("free goods") =$7.93
So the artists' 12% is equal to about 96 cents per record sold. In most
deals, the producer's 3% comes out of that 12%, but for the sake of
brevity, in this example the group produced the whole album, buying no
tracks from outside producers, which is rare.
Let's assume that they are a hit and their record goes Gold (although it
is rare that a first record blows up like this). Let's also assume they
were a priority at their record label and that their label understood
exactly how to market them. So they went Gold, selling 500,000 units
according to SoundScan (and due to the inaccuracies in SoundScan
tracking at the rap retail level, 500,000 scanned probably means more
like 600,000 actually sold).
GOLD RECORD = 500,000 units sold x $ .96 = $480,000. Looks like a nice
chunk of loot, huh? Watch this. Now the label recoups what they've
spent: independent promotion, 1/2 the video cost, some tour support, all
those limo rides, all those out of town trips for the artist and their
friends, etc.
$480,000
-$100,000 recoupable stuff (NOT advance)
--------
$380,000
-$ 70,000 advance (recording costs)
--------
$310,000
Still sounds OK? Watch... Now, half of the $380,000 stays "in
reserve" (accounting for returned items from retail stores) for 2
to 4 years depending on the length specified in the recording contract.
So the $70,000 advance is actually subtracted from $190,000 (the other
$190,000 is in reserves for 2 years). Now, there's also the artist's
manager, who is entitled to 20% of all of the entertainment income which
would be 20% of $310,000, or $62,000. Remember, the artist is the last
to get paid, so even the manager gets paid before the artist.
So the artists actually receive $19,333 each for their gold album, and
in two years when the reserves are liquidated, IF they've recouped, they
will each receive another $63,000. IF they've recouped. Guess who keeps
track of all of this accounting? The label. Most contracts are
"cross-collateralized," which means if the artist does not
recoup on the first album, the money will be paid back out of the second
album. Also, if the money is not recouped on the second album, repayment
can come out of the "in reserve" funds from the first album,
if the funds have not already been liquidated.
Even after the reserves are paid, each artist only actually made 50
cents per unit based on this example. The label made about $2.68 per
unit. This example also doesn't include any additional production costs
for an outside producer to come in and do a re-mix, and you know how
often that happens.
So each artist in this group has received a total of about $82,000.
After legal expenses and costs of new clothing to wear on stage while
touring, etc, each artist has probably made a total of $75,000 before
paying taxes (which the artist is responsible for-- remember Kool Moe
Dee?). Let's look at the time line now. Let's assume the artists had no
jobs when they started this. They spent 4 months putting their demo tape
together and getting the tracks just right. They spent another 6 months
to a year getting to know who all of the players are in the rap music
industry and shopping their demo tape. After signing to a label, it took
another 8 months to make an album and to get through all of the label's
bureaucracy. When the first single dropped, the group went into
promotion mode and traveled all over promoting the single at radio,
retail, concerts, and publications. This was another six months. The
record label decided to push three singles off the album so it was
another year before they got back into the studio to make album number
two. This scenario has been a total of 36 months. Each member of the
group made $75,000 for a three year investment of time, which averages
out to $25,000 per year. In corporate America, that works out to be $12
per hour (before taxes).
OK, so it's not totally hopeless. Since we're using the fantasy of a
relatively fair deal, let's look at publishing from a relatively fair
perspective. There are mechanical royalties and performance royalties to
figure in. Mechanical royalties are the payments that Congress
stipulates labels must pay based on copy right ownership and publishing
ownership. These payments have nothing to do with recouping, but
everything to do with who owns the publishing. Publishing is where the
money is in the music business. Suge Knight claims to have started Death
Row Records with the money he made from owning Vanilla Ice's publishing
for one song: Ice Ice Baby. It may not be true, but it could be. Avatar
Records (home of Black Xuede) is financed through the publishing that
the CEO has purchased over the years. Although publishing can be quite
cumbersome to understand (just when I think I get it, I read something
else that makes me realize how little I know about the subject), but the
most basic principle is that when an artist puts pen to paper, or makes
a beat, the artist owns the publishing. It's that simple. Whoever
creates the words or music owns those words or music. Where it gets
confusing is all the different ways to get paid on publishing, all the
ways to split publishing with other folks, and all the ways artists get
screwed out of their publishing. In the 8 years I've been doing this, I
have heard so many times, artists say that they don't care about losing
a song or two because they can always make a ton more. That's stupidity.
It's undervaluing one's ability. That's like saying it's OK to rob me of
my cash, I can go to the ATM machine and get more money. Wrong!! It's
never right to rob someone. The "I can make more" defense
immediately goes out the window when the creator sees someone else make
hundreds of thousands of dollars off a song. Every time!! So why not
protect yourself in the door?
Bill Brown at ASCAP breaks it down more simply than anyone I've ever
heard. He compares publishing with real estate. When you make a song,
you are the owner of that property: the landlord. Sometimes you sell off
a piece of the land for money (but you NEVER give away your land,
right??) and if someone else wants to use your property, or rent it,
they have to pay you rent to use it. I love that analogy. It's so
crystal clear!
A copyright is proof of ownership of a song, both lyrics and music. If
there is a sample in the music, you are automatically giving up part of
the song, at the whim of the person who owns the rights to the original
song (not necessarily the original artist). In order to "clear the
sample," you send your version of the song to the owner of the
original composition or whomever owns the publishing (and to the owner
of the master, meaning original record label or whomever now owns the
master). Then you negotiate the price with those two owners. Some are
set in stone and you get to either agree to their price or to remove the
sample. On DJ DMD's last album (22: PA Worldwide on Elektra) he spent
close to $100,000 in advances and fees due to the sampling on his album.
It came out of his upfront monies (advance) and he bears the burden of
paying for it all, even though Elektra released and owns the record.
Proof of copyright is easy to obtain by registering your song with the
copyright office in Washington DC. You call them (202.707.9100) and ask
for an SR Form (sound recording). You fill out the form, listing all of
the owners, and mail it back to them with a copy of the song (a cassette
is good enough) along with the Copyright fee (around $25 or so). This
way, if someone steals your song, or a piece of your song, you can sue
them for taking it and for your legal fees. With the "poor man's
copyright" (mailing your tape to yourself in a sealed envelope with
your signature across the sealed flap, and then never opening it when it
arrives back to you with a postmark proving the date), you can not sue
for damages and it's more difficult to prove your case. The copy right
fee may seem like a lot of money to some, but it's nothing compared to
what a law suit would cost you.
Performance royalties are money that is paid for the performance of your
song. The money is paid based on the percentage of ownership of the
song. So if you own 100% of the song, you get the whole check. If you
own just the music, which is half the song, then you get half the money.
If you own the music with a sample in it that claims half the song, then
you get a check for 25%. Ya follow? Performance Rights organizations
consist of ASCAP, BMI, and SESAC (which is still quite small). They
police the radio stations, clubs, concerts, etc (any place music is
played or broadcast), all of whom pay a fee to play the music which the
performance rights societies collect and split amongst their members
based on the amount of times a record is played. Although the formulas
change annually based on play, a Top 10 song played on commercial radio
can earn a good chunk of change in the hundreds of thousands of dollars
range.
There is another kind of royalty artists receive when their records
sell: mechanical royalties. These are paid based upon a pre-set limit
placed by Congress which increases automatically every two years. In
1998 and 1999 it was .0715 cents per song, but on January 1, 2000 it
increased to .0765 per song. Record labels put caps on mechanical
royalties (the slugs) at either 10 songs, 11 songs, or 12 songs, no
matter how many songs actually appear on the record, and you get what
you negotiate for. Also, there's a slimey little clause that restricts
payment of mechanicals (because God knows labels don't make enough money
as it is) to anywhere between 75% and 85%. This evil deed is called
percentage of statutory rate. Here's the difference those few pennies
make as it pertains to an artist's royalty check (I refuse to even
consider illustrating the worst bullshit deals such as 10x at 75%)
provided they own 100% of the song:
# songs stat mechanical 100,000 sold 250,000 sold 500,000 (Gold)
1,000,000 (Platinum)
11x 85% .6639 per album $66,390 $165,975 $331,950 $663,900
11x 100% .781 per album $78,100 $195,250 $390,500 $781,000
12x 85% .7242 per album $72,420 $181,050 $362,100 $724,200
12x 100% .852 per album $85,200 $426,000 $852,000 $1,704,000
10x 85% .6035 per album $60,350 $150,875 $301,750 $603,500
I based the above chart on the old 1998-1999 rate of .0715 per song, so
I could use my friend Fiend as an example. His first album came out in
April of 1998 when the stat rate set by Congress was at this rate.
The dollar figure above represents monies due an artist (regardless of
recoupment) per album based on ownership of 100% of publishing. So for
example, Fiend who is signed to No Limit, provided he owns 100% of his
publishing (I can dream can't I?), if his deal gives him 11x rate at 85%
(I hate it but it won't kill me) then on his first album, There's One In
Every Family, which came out 4/28/98 and sold 565,977 SoundScan units,
No Limit would have paid him (hopefully) $378,369.77. If No Limit owns
half of Fiend's publishing, he would receive $189,184.88 provided he
wrote all of his own songs (which he did, except the verses by other
artists who appeared which lowers the ownership percentage and dollar
amount) and provided he made all of his own beats (which he did not; he
features outside producers on this album like Beats By The Pound).
So there you have it, the real deal on how much money an artist makes.
You can subtract out now another 28% to 50% of all income, including
show money, (depending on the artist's tax bracket which is determined
by how much income was made within any given calendar year) for the IRS
who get paid quarterly (hopefully) by the artist's accountant. If the
average artist releases a record every two years, then this income must
last twice as long... I think about this every time I see my favorite
artists flossing in their music videos drinking champagne or every time
I see them drive by in a brand new Benz...
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