MUC110.LEC6 Record Deals and Economics

Record Deals and Economics
© 2007 musicbizclasses.com

I.
I Royalty Payments

A Music Royalty Refresher
y y

• A Royalty is $$ payment based on a
percentage of sales

• A Royalty is NOT a guaranteed dollar
amount

• Royalties to Songwriters are different from
royalties to Recording artists


A Copyright Refresher
• Why are Royalties to Songwriters different from
royalties to Recording artists? Ownership of
underylying musical work/song

• A recorded song h t
d d has two separate sets of
t t f
copyrights
•One set for the underlying “Musical Work” /Song
One Musical Work
•One set for the “Sound Recording”

• Each set can (and, often,) does have a different
set of copyright owners


Copyright Ownership
Owners of music copyrights (typically)
are:

For th “M i l W k”
F the “Musical Work”
•Author/Songwriter
•Music Publisher

For the “Sound Recording”
•Record Label
•Producer; Producer/Engineer

Payments to Songwriters
Songwriters gets paid via

• Mechanical Royalties from album sales
(
(via Harry Fox/Record Labels)
y )

• Synch fees from placements in movies/TV/video
(via Film/Video Production Companies)
( i Fil /Vid P d i C i )

• Performing Rights royalties when songs are
“performed”/played in public (via PROs)


Mechanical Royalties

•Mechanical Royalties are monies paid to
Songwriters/Music Publishers for the use of
a song in a recorded music product

•Paid by the record company to the
songwriter/ publisher - no recording
charges deducted!

•Songwriter/Publisher split the revenue
(50/50;
(50/50 75/25)

Mechanical Royalties

• Mechanical Royalties are based on a "statutory
rate
rate" set by the U S Congress This rate is
U.S. Congress.
currently 9.1 cents per unit.

• Record companies will often negotiate to pay
less. Usually 75% of the statutory rate (6.85
cents); when th songwriter i also th recording
t ) h the it is l the di
artist. (aka "Controlled Composition Clause")

• No Mechanical Royalties are paid to Recording
Artists


The Problem for Recording Artists
If, copyright owners are:
• Songwriters/ Publishers
• R
Record L b l / /Producers
d Labels/ /P d
Where are the R
Wh th Recording di
Artists (who don’t write songs) in the
don t
copyright ownership mix?

How Recording Artists get Paid
Recording Artists (performing other artists’
work) g paid via
) get

• Union scale wages for time spent in studio

• Recording Artist royalties from sale of
albums; paid AFTER deductions of various
recording costs


Recording Artist Royalties
Recording Artists (performing other artists’
work) get paid via

• Master use royalties from placement of
previously performed recordings in Film/TV/Video;
split 50/50 with Record Label and paid AFTER
record label takes deductions

• Digital Audio Transmission public performing
royalties via S
li i SoundExchange-Paid di
dE h P id directly to
l
Artist; Artist may choose to split with producers
who contributed substantially to creative product

Recording Artist Royalties from
Music Sales
• Negotiated with Record Labels; no standard or mandatory
rate

• A percentage of recorded music sales

• Generally between 13%-20% of the PPD – Published
13% 20%
Price to Dealers or MSRP; wholesale

• “All In Recording Fund”- given to recording artist; artist
All Fund
must pay producer from this fund- typically, 3%


Recording Artist Royalties from
Music Sales

•Various deductions will be taken
out BEFORE the artist is credited with
royalties from the record label

•Deductions include royalties due to
producer and songwriter(s)


II.
II Record Label Deals

Recorded Music Deals Overview

There are various deal types for with respect
to making recorded music:

• Major Label Recording Deal
• Demo or Development deal with a
Producer or Record Label
• Di ib i d l with a L b l
Distribution deal i h Label
• Production deal with a Producer
•SSpec deal with a P d
d l i h Producer
• Others: 360 Deal; Joint Venture


Major Label Recording Artist Deal

–Label signs artist to an exclusive recording deal
–Label provides marketing, promotion, and
distribution resources
–Label provides an advance and recording fund to
Label
artist to make recording
–Option is usually for 5 to 7 years
–Average artist royalty percentage for the artist is
12% or 13%
–Label retains 100% ownership of sound
Label
recordings

Less common today

Demo Deal
AKA “Development" deal: To test brand new artists &
p
help build their overall package

– Record Label agrees to take new artists on for career
development and to record 1-5 demo tracks
– Record Label pays artists little or no money upfront
– Artists may have to pay for recording session costs or
label may provide nominal recording budget
– Label may try to specify recording studio and producer
for demo recordings
– Labels will decide whether or not to “option” the artists
for a recording contract after demo is done
– Record Label generally owns the demo masters in
masters,
either case


P& D Deal
Pressing & Distribution Deal also called a
P&D deal:
– Artist/independent label owns copyright to the
recorded masters (sound recordings)
– Label provides access to pressing & distribution
– Label charges a “distribution fee”
– Label provides little or no financial or marketing
support
– Artist/Independent label p y for manufacturing,
p pays g,
mechanicals, artist royalties, marketing,
promotion, overhead, salaries, etc.


Production Company Deals

Production deal with Record Label
– Producer takes record label talent
talent,
develops sound, produces and records
finished masters

– Producer delivers completed master(s)
( )
to the record company

– Producer receives a royalty on units sold
and a negotiated fee for production costs



Production deal with Recording Artist:

– Producer helps artist develop overall sound

– Producer produces and records demos for artist
to shop to labels

– Producer receives a fee for services and, may,
takes a percentage of future record sales
p g
royalties and publishing (songwriting royalties)



Production Company Spec Deal:
– Producer takes on a new artist on speculation
p

– Producer develops artist from ground up; works to
create overall sound and branding package of artist

– Producer puts own money up to develop artist and
create viable, marketable master recordings
viable

– Sells or “rents” master recordings to record label for
finished sound recording projects Owns sound
projects.
recordings

– Garners fees and royalties from Artists and Labels

Other Deal Types
– 360 Deal: Record Label or Media Conglomerate takes a
percentage of all of the artists’ revenue streams
including live p
g performance, p publishing, merchandising,
g g
etc. in exchange for more in-depth marketing and
development

– Joint Venture or Partnership Deal: Artist and Label
share in both the total expenses and the total revenue
streams. Profits and losses are often split 50/50.


Anatomy of a Major Label Record Deal

•Record label deals are generally structured
as a number of albums over a set period of
p
time with “option periods” for renewal

•Recording Artists are given an all-inclusive
“Recording Fund” to cover all recording
costs for a recording

•Recording Artists must create and manage
total budget from “Recording Fund.”


Recording Artists are “paid” in several ways by the record
labels:

The Advance- lump sum of cash used to cover recording
Advance
costs and living expenses for artists during record
production

Artist Royalties from Record Sales- for your
performance on the record; % of the money that results
from sales of recorded music

Mechanical Royalties from Record Sales if you wrote
Sales-
the songs you are recording; songwriting (mechanical
royalites: % of the money that results from sales of
recorded music
m sic

• A “Recording Fund” is considered an advance
g
against future income

• This sum is a LOAN only and is considered the
property of the record label

• This sum is 100% “recoupable”- The artist must
pay back the sum from earnings from record
sales (royalties)

• Typical advances range from $50,000-$350,000


Major Label Deal Economics

$300,000 (Total Recording Fund)
-200,000 (Actual cost to complete recording)
200,000
=100,000(Advance for artists)

-30,000 (taxes 30%)

=70,000 (final artist share of advance)
($17,5000
($17 5000 advance split four ways)


Major Label Deal Economics: Royalties

• After the album is produced and sold, the
record label owes the recording artist
their
th i recording artist royalties
di ti t lti

• Recording artist royalties are, generally,
managed via an account at the record
label
l b l

• Before a recording artist receives any
payments, the record label calculates
typical deductions aka recoupables
t i l d d ti k bl

Net Artist Royalty Rate
• Recording Artist royalties are not applied
to recoupables at a 100% rate

• They are paid back at the “Net Artist
Royalty Rate”
Rate

• Artist Royalty Rate 12% ( f wholesale/PPD)
(of h l l /PPD)
LESS 3% Producer Royalty
LESS 10% Free (Promotional) Goods
LESS other charges, i.e. Return Reserve Account
Foreign royalties,etc. = “Net Artist Royalty Rate”


Major Label Deal Payment Scenario

14% Royalty- 3% royalty for Producer (all-in
royalty)
= 11% royalty paid to artist

X 12.05 (PPD/wholesale price)
=$1.32 per unit sold

-10% (free goods)

=$1.19 to Recording Artist per CD sold
( pp
(approx. 9% of total CD price)
p )


Additional Recoupables
Record Labels may provide funding which is
funding…
RECOUPABLE

Tour Support 100% recoupable

Independent
Radio Promotion 50-100% recoupable
50 100%

Video production 50% recoupable


More Money= More Recoupables

What it looks like:

$300,000 (Total Recording Fund)
+100,000
+100 000 (50% of Video production cost)
+50,000 (100%Tour support)
+100,000
+100 000 (50% Independent Radio Promotion)

= $550,000 total recoupables owed to the
$550 000
Record Label


If Your Record Goes “Gold”
Record Label Math:
$ 12.05 (PPD)
X11% Artist Royalty Rate/all-in
=$1.32 (
$1 32 (per unit sold)
it ld)
X500,000 (units sold)
=$660,000(Artist earnings for CDs sold)
-10% Free Goods
=600,000
-$550 000 (total recoupable amount Artist owes to Record
$550,000
Label)
= $50,000 due to the Artist
vs. $6 Million Gross d e to Label
s due

Note: If there is a deficit after sales, the balance due may be charged
against future records made (aka “cross collateralization”)
cross


Major Label Deal Realities
• It can cost a Major Record Label $500,000-$2MM to
“develop” a new artist

• Average # of records sold by a new major label
band=12,000 units

• It generally takes sales of 500 000 copies (Gold) to pay
500,000
back recoupables, depending on the initial recording
fund

• 1 out 100 records go “gold”

• Major record labels sign about 4-5 new deals per year

• Major record labels now sign primarily “demo deals” with
demo deals
new artists

D-I-Y Label Economics
What it looks like when you produce and market
your own CD.

15.99 suggested retail price
-1.99 (production cost per unit)
=14 99 (gross revenue per unit)
14.99

- 3.99 (cost of sales and promotions per unit)
=11.00
11 00

-25%(Attorney, Manager, Business Manager fees)
=$8.25 per CD sold (56% of total CD price)
-30% (retail distribution)
=approx $6 per CD sold Plus,
Plus NO recoupables

MUC110.LEC6 Record Deals and Economics

Recomendados

Recomendados

Más contenido relacionado

La actualidad más candente

La actualidad más candente (20)

Destacado

Destacado (20)

Similar a MUC110.LEC6 Record Deals and Economics

Similar a MUC110.LEC6 Record Deals and Economics (20)

Último

Último (20)

MUC110.LEC6 Record Deals and Economics