Playback and payback series; (part 23) How the Indies are eating the majors’ lunch (II)

This also does not cover the other costs that might get written off against the artists’ royalties according to the contract while the company “works” the record: in many cases promotional items and publicity junkets, not to mention the artist’s limousine, all need to be recouped before the artist sees that first dollar of royalties.

Chances are, even the net income attributed to the artist in this exercise is high, and many other figures cited are low – many albums, especially major label albums, cost a lot more than that to produce, though as the budgets have shrunk so have the costs (with devastating effect on the recording industry). Needless to say, very few make their money back, and even fewer generate royalties for the artist.

Now, by selling 125 000 copies of the CD, the record company grossed $1 125 000. Which means after paying the advance, taking care of the extra $7 250 in production expenses, and even putting the additional $19 625 in the reserve account, the record company grossed $973 125. Out of this, all the front office expenses, salaries, warehousing, back office expenses, record pressing, production, etc., etc., need to get paid.

A little bit down the line, we’ll find out that to mount a successful promotional campaign to radio stations can cost between $250 000 and $1 million per song. Remember, only about 1 000 albums of the 60 000 released actually sell as many copies as this one during the course of any given year. This might have been one of the few CDs that almost pulled its weight, at least as far as the record company is concerned.

Now let’s look at the model that some of the indie labels espouse. The artist does not get an advance, or gets a fairly small one. The recording is done at the label’s own studio, and is billed nominally to the artist against royalties – figure a cost of $14 000 to pay for the engineer, the rent, the wear and tear on the equipment and the cost of the media used in the recording.

So, between these recording fees, legal fees in the contract negotiations (since these negotiations tend to be much simpler than the major label kind, figure about half the price, or $5 000), and the cost of actually pressing the CD (figure another $7 500 for an initial run of 10 000 CDs), the artist would seem to be down about $26 500 from the get-go. But now things start to get interesting – the indie label sells the CDs to retail. If it goes through the first run of CDs, the numbers look something like this:

• 10 000 CDs at $9 each = $90 000

• $90 000 minus $26 500 production costs = $43 500 profit

• Split that $43 500 50/50 (e.g., a 50 percent royalty) and the record company and the band both come away with $21 750

• $21 750 minus management’s 15 percent cut, $3 262.50, leaves the artist with $18 487.50

And that’s only from the first run of records. With an artist that has already had the major label development, the indie president estimates he can sell, conservatively, 60 000 CDs. So on the next 50 000, artist and record company still split the manufacturing costs of $37 500:

• 50 000 CDs at $9 each = $450 000

• $450 000 minus $37 500 to press up 50 000 CDs = $412 500

• Split that $412 500 50/50 and each party comes out with $206 250

• $206 250 minus the manager’s 15 percent, $30 937.50, and the artist realises $175 312.50!

That’s over 10 times what the artist made at the major. Of course, the major already did the heavy lifting, giving the artist the exposure needed to build a fan base that could support sales of 60 000 independent CDs. But, as Todd Rundgren put it:

Record companies still have a function. They have to underwrite artists until they build a core audience. That’s what record companies used to be. They used to be artist development. It was not a hits machine all the time, everybody in the company oriented toward that one blockbuster that makes the bottom line. It used to be that you were trying to get artists to a point that they would generate a dependable level of income in sales of what they did. That’s what record companies can still do in this environment, underwrite and promote artists until they do have a core audience… . Branding is a very powerful thing. You will buy a shitty product with a good brand name on it. The record business is driven a lot by that.