Dollar One of Sale One: How Independent Musicians Are Rewriting the Record Industry (part 1)
by MacEwen Patterson, Gauss CBDO
“The music business is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free and good men die like dogs. There’s also a negative side.” — Hunter S Thompson
More elegantly making the point of this article is Rick Rubin when he says,
“People are willing to get short-term gains at the risk of long-term choices.”
It’s not easy to write a story about cultural giants that paints them poorly, mostly because it hurts my soul to do so.
It’s important to note that historically, recording artists have a set of intelligence many of us won’t. AND, that intelligence hasn’t been enough to save them from themselves or from unscrupulous entrepreneurs who made fortunes off their backs. This is a long enough article as it is that I won’t have space or time to defend said individuals or their questionable math. I’m really pointing out how trends evolved and how they MUST change in order that, “Music Always Wins!” (I’m stealing this phrase from my colleague Meredith Chinn because it inspires me.)
There have been several significant examples in music history where artists received advances from record labels, and it took them a long time to recoup those advances due to the terms of their contracts and various financial arrangements. Here are a few notable examples:
1. Prince:
- In the 1990s, Prince signed a highly publicized contract with Warner Bros. Records that was rumored to be worth $100 million. However, much of this money was an advance, and he had to deliver multiple albums to recoup it. Prince’s prolific output led to an abundance of material, and he struggled to fulfill his contract, which resulted in conflicts with the label. Just before he died his masters and publishing finally reverted to him only to be locked up in the trust and estate months later.
2. TLC:
- The popular ’90s girl group TLC signed a contract with LaFace Records that initially gave them a very small percentage of the revenue from their music sales. They received a $50,000 advance but struggled to recoup due to their low royalty rates. Despite their immense success, it reportedly took them years to start earning substantial money from their music.
3. De La Soul:
- The hip-hop group De La Soul signed a contract with Tommy Boy Records in the late ’80s. They received an advance but found themselves in a difficult financial situation due to the sampling costs for their music, which they had to cover themselves. This made it challenging for them to recoup their advance.
4. The Rolling Stones:
- Even legendary artists like The Rolling Stones have had contract issues. In the 1970s, they signed a deal with Atlantic Records that included a substantial advance. However, the band’s extravagant lifestyle and expenses made it a lengthy process to recoup their advance.
Let’s break down the math for an artist who receives a $100,000 advance and has a 5% royalty rate when their album has a wholesale price of $5.99.
Royalty Amount per Album Sold:
- The artist’s royalty rate is 5%, which means they earn 5% of the wholesale price for each album sold.
- 5% of $5.99 is calculated as (5/100) * $5.99 = $0.2995
Albums Sold to Recoup the Advance:
- To recoup the $100,000 advance, the artist needs to earn enough in royalties to cover that amount.
- Divide the advance by the royalty per album: $100,000 / $0.2995 ≈ 333,722 albums.
So, the artist needs to sell approximately 333,722 albums at the wholesale price of $5.99 to recoup the $100,000 advance.
Earnings After Recouping the Advance:
Once the artist has recouped the advance, they start earning royalties on each additional album sold.
- For every album sold beyond the 333,722nd, the artist earns $0.2995 in royalties.
- Let’s say the artist sells 400,000 albums in total:
- For the first 333,722 albums, the earnings go towards recouping the advance.
- For the remaining 66,278 albums (400,000–333,722), the artist earns royalties.
Earnings from royalties on the remaining albums:
- 66,278 albums * $0.2995 = $19,870.32
- So, after selling 400,000 albums at a wholesale price of $5.99 each, the artist would have earned $19,870.32 in royalties on top of recouping their $100,000 advance.
Please note that this is a simplified example and doesn’t take into account other factors such as deductions for shrinkage or units lost (i.e. not sold, possibly given out for promotion or stolen somewhere between manufacturing and retail), breakage (i.e. not sellable, so damaged in some way), recording and marketing costs, which can further impact an artist’s earnings. If the label is fronting costs for touring or merchandise, this too is earned back from the small percentage of each album that the artist earns.
Even today, artists are finding it difficult to earn as much from their albums as they can from other digital outlets. Recording artist Grimes admits she has made more money selling NFTs than she has through her entire music career.
In Part 2 of this piece we’ll look at modern artist agreements and how the digitization and democratization of the music industry has made an impact on artists’ ability to earn as well as what the future may hold for creatives delivering digital and real-life products to the marketplace.
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