RIAA Accounting: How To Sell 1 Million Albums And Still Owe $500,000
techdirt.com
techdirt.com
Really, it's the same issue with the government. I, for one, do not want to fund operations which kill people in foreign countries. I don't care if it's a 'democracy', I don't care if there's a hierarchy and that I'm supposed to vote to make myself heard. I simply want to cut funds to things I don't agree with but the issue is that doing so results in an entity orders of magnitude bigger than me bullying me into submission.
The article mentions an advance of $1M. I think the $20 per CD rate claimed in this album (1M CDs sold is claimed to be $20M in sales) is a bit high (then again, I haven't bought a CD in a while). Suffice it to say, I'd lower that to $10-12M gross and maybe $7-8.4M when costs are accounted for. Even with digital distribution, I think the iTMS/Amazon are taking 30% which would lower $12M gross to $8.4M after Apple takes its cut. Correct me if I'm wrong, but from what I've heard/seen an album costs around $10-12 on iTunes and Apple takes 30% of that. I can't imagine physical stores (who have the overhead of real-estate and employees) taking less. I mean, 20% breakage fees are outrageous, but arguing that selling 1M albums equates to $20M gross is also outrageous since CDs don't cost $20 a piece.
So, how many of these bands succeed? If I gave a $1M advance to ten bands, would nine of them sell a million albums or only one of them? Thinking of it like an investment, that's an important question. If only one of them sold a million albums (and the rest failed), it would mean that I've put out $10M while the CDs sold grossed $12M (and probably $8.5M after the selling store takes its cut, before any other costs). In this case, there isn't a lot of money for the successful band to be well rewarded. Even though they brought in 8x what was invested, there was only a 1 in 10 chance of them succeeding and a lot of that money is going to subsidizing the investment in the failed bands. However, if 9 out of 10 sell a million records, around $75M is being brought in (after the selling store's cut) while $10M was invested and so there should be plenty of money for the bands/artists to be well-rewarded for their success.
I'm not saying that there aren't dirty tricks being used. I simply don't know how often bands that get these advances do well. If the risk is that most ventures are very unprofitable, it means that the ventures that do become profitable don't get well-rewarded because of the risk involved.
There's also the issue of the amount of money. In this case, it's $1M. That isn't a sum that most people can come up with and, as such, commands a premium. A lot of the larger VC investment comes after a team has shown that it can get a bit of traction. Places like YC invest early, but it's small amounts.
In the end, if you believe in yourself and think there is little risk, it's always best to invest in one's self. However, it can be hard to stomach the risk if the costs are high and the industry failure rate is also high. I'm sure that the record companies are making off with loads of money unfairly, but what's absent from the article is a sense of how many bands that get the advance make it and how many fail. That's a critical piece of information that could turn their whole argument on its head. And without that information, it's impossible to realistically evaluate fairness. I'm no fan of record labels. I think they're an antiquated system in an age where digital recording, editing, and distribution can allow people to create high-quality media. However, if the article wants to convince me of its merits, it needs to offer some statistics about the success/failure rate of the bands/artists getting the advances. If the success rate is 90%, they have a good point. If the success rate is abysmal, it casts some doubt. I'd say it casts more doubt on the system of offering advances (than offering a defense of record labels) and argues for a more efficient initial production, but that's the hacker ethic in me.
At least, that's how I understood the situation, correct me if I'm wrong.
Although recoupment provisions make it technically a loan, just like a VC, the label won't come after you forever if you don't recoup. At a certain point, they'll write it off and let it go; they won't be after you forever like a collection agency.
As to how bands can earn a living, the answer is of course touring, merch (t-shirts, etc.) and for those with music with mass appeal, licensing to films, tv, and commercials. If you can self-produce, you can also do a licensing deal (P&D - pressing and distribution) for the record as well.
The way to stay in control, of course, is to bootstrap it and form your own record company.
Anyone curious about how these deals work in more detail should check out "Confessions of a Record Producer" by Moses Avalon (a pseudonym).
In many smaller scenes, a successful tour is one that breaks even. They sleep on promoters floors, eat shitty food, and play in bars. I hear a lot of "fans" that download all of their music and think that they support the artist by going to their show. This is not the case.
The one way to really make money as I understand it - which is noted in the book you mention (though it is kind of dated now) - is royalties. If you are fortunate enough to have your song featured in ads and get into heavy rotation on the radio, you get paid outside of your recoupment costs (which they pull from record sales).
Well, it's not like their ticket purchases are for naught - it still offsets the cost of touring for the artist. The artists would be worse off doing the same tour with less fans attending.
What better choice do the fans have anyway? Buying the records supports the record label, not the artist.
Why people don't go the route of Jonathan Coulton or Pomplamoose, and just scratch it out on their own talents, is beyond me. Hell, I think even those "hide your kids, hide your wife" news parody musicians apparently make more money than major label star. The math just doesn't seem to be adding up anywhere being on a label, is what I'm trying to say.
I guess you have to be a blindingly white-hot ultra-mega-super-duperstar to make a penny from labels and touring, and everyone else should just pack it in or go indie?
Seems like it sucks worse to be a musician than to be a struggling actor or indie mobile app developer.
Being signed, though, indentures you to a label. If I'm going to be playing music for love, and not for money, than I'm certainly not gonna put on shackles and let somebody else make money off of my music.
Are you sure that 30% cut is true for music as well? I know it is for apps and books (the "new" things in iTMS), but I've never really found the take on music and videos. Do you have any source?
The only way artists make a good living off album sales alone with the traditional system is if they are hugely popular, selling millions of records. But obviously only a few bands are in that boat. Also, such bands would still make yet even more by going on tour.
But this system is already past its prime. If you want to make a living off of being a musical artist your best bet is to self-publish online and go on tour, you'll keep a much, much larger portion of the total revenues to yourself and you'll be able to live off of your music even if you only attain a moderate degree of success.
This is completely unrealistic. 4 shows a week @ 40 weeks a year means you are touring. Touring costs will eat the vast portion of revenue. Also, at a 200 person venue, there is little chance the band will see $10 / head, regardless of the cover charge.
That 2009 music industry revenue would pay for, what, 70,000 programmers? And there are a whole lot more programmers than that earning good money.
(Note: I'm only looking at RIAA figures, and ignoring independent artists, so it's understated to a certain extent. However, I believe RIAA revenue still makes up the majority, probably the vast majority, of total music revenue.)
But I sure am glad that the music industry CAN "bully" an industry far greater in the same way that I am glad that I can (if I had time and money) to do it because of the freedom of litigation.
Is it at all reasonable they get to force ISPs to enforce their rules without litigation? Is it reasonable to be legally able to charge me $250,000 in the US to circumvent the CSS "encryption" on a DVD?
Counter argument: what has more utility than bringing people happiness?
If a programmer is able to decipher so called business requirements and find holes there, why shouldn't he check contract for himself?
The band sells the right to its music, in exchange for the advance. If the band's income exceeds 1000% of the advance, it will get 10% of the income as an extra bonus. And when the contract ends, the label returns the rights back to the band.
What does the band get? An advance, possibly a bonus, marketing and promotion for the brand, and usually the rights to some other forms of income (concerts, merchandise etc).
Isn't this paying the advance back?
The good artists retain most of their rights, negotiate a buy out of master recording rights, retain all fanclub/merch rights, etc.
The labels try to gun for 360 rights, but the fact is while there was a brief moment when they could deliver on the promise of the 360, that moment has long passed.
If you are a band, and you want to be a multi-platinum act selling world wide: get a really really good lawyer and sign with QPrime, Frontline, Red Light/ATO, etc.
Let me repeat: GET A GOOD LAWYER.
The lawyer is helpful in actually understanding the deal but he can't guarantee the deal you want.
With all the other options out there, the record labels should not be the first choice for any aspiring musician.
That stuff is hard work and you have to be a jack of all trades. Each band is like a little startup looking for a technical cofounder.
So, VC ~= Record labels ~= Film distributers
"work for hire" is what programmers do in the employ of a company, who then assumes ownership of the copyright on the code. The RIAA has always resented the fact that musicians retain ownership of their copyrights, and it defended the legislation vigorously. It was repealed in 2000 under pressure from a coalition of musicians.
The most offensive thing about the episode to me is the way it was done. A congressional staffer named Mitch Glazier snuck the change in at the last minute. Three months later, Mitch was hired by the RIAA. Afterwards, the RIAA coyly refused to admit anything had changed, but were plainly committed to enforcing the work-for-hire language.
Especially if the venue is owned by Clearchannel (most are).
The original article is in Dutch, so I translated it into English a while ago: http://site.jteeuwen.nl/misc/copy_is_my_right.html
What bothers me most about this situation is that musicians would exist without labels, where as labels would not exist without musicians, the balance of power is all wrong.