24 February, 2003

Record Contract

read a link from chris' blog regarding a music industry case study. i decided to bring my comments back here, where i could pontificate a bit more.

interesting, but as far as i can tell, somewhat inaccurate. yes, ultimately, the band is getting screwed. however, the author for some reason feels the need to start with the retail sales of $8M. well, that's great...if you're the retailer. that $16.98 per album is of consequence to companies like tower or virgin, who are selling the album for that much. and considering that they bought the album for $9.99, they're really only concerned with the remaining $6.98.

so, starting from $9.99, which is what the record company sells at, you get:

gross = 500,000 * $9.99
gross = $4,995,000

still a nice chunk of change. however, as anyone who has taken even the most basic class in accounting can tell you, that's not the whole story! there are still...production costs! yes, these are all the costs incurred by the manufacturer (in this case, the record company) making a product. going by what's listed in the article, we have:

packaging = $2.4975 per unit (@25%) * 500,000
packaging = $1,248,750

free goods = $1.4985 per unit (@15%) * 500,000
free goods = $749,250

front money = $300,000
video shoot = $100,000

i've also include the advance money, becase it just comes out of gross sales in the long run, since the band has to pay it back. so all-in-all, production costs come out to:

production costs = $1,248,750 + $749,250 + $300,000 + $100,000
production costs = $2,398,000

making the net return:

net = gross - production costs
net = $4,995,000 - $2,398,000
net = $2,597,000

now comes the fun part of paying everybody! remember that $4M from before? well, fuggaboudit, because it's gone. everyone else gets crumbs. first, let's figure out what the band's share is:

band gross = royalty * net
band gross = 15% * $2,597,000
band gross = $389,550

hoo-wee! where did all their money go?! if only i could stop. next comes the producer. he's a smart guy, and gets his royalties from net. so:

producer = net * royalty - advance
producer = $2,597,000 * 4% - $50,000
producer = $53,880

$103,880, for producing one album. nice money if you can make it.

but it's time to pay the manager (15%) and the lawyer (2%) (yeah, as if the band was smart enough to hire a lawyer), who are paid according to what the band earn.

manager = band gross * royalty
manager = $389,550 * 15%
manager = $58,432.50

lawyer = band gross * fee
lawyer = $389,550 * 2%
lawyer = $7,791

which also explains why managers and lawyers have more than one client.

so, what does the band take home?

take home = band gross - (producer + manager + lawyer)
take home = $389,550 - ($53,880 + $58,432.50 + $7,791)
take home = $389,550 - $120,103.5
take home = $269,446.50

or roughly $67,361.63 per band member.

so yeah, they still get screwed. and the record company? well, they get the other 85% of the net: $4,245,750

and yes, i'm sure this isn't quite right, but at least i started with the correct assumption. this is highly simplified, but probably a reasonable portrayal of what it's like to be a new band signing your first big-label contract.

1 comment:

  1. I believe the lawyer gets paid on the "whole deal," not the net amount. So that 2% would come from a larger chunk of change. $8k would get you about oh, NOTHING, with a lawyer.