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The End of the Biz as We Know It (And I Feel Fine) |
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Saturday, 12 June 2004 |
I teach the Introduction to the Music Business Course at Baruch College in New York, and these days I consider myself irresponsible if I don’t scare the shit out of my students about the state of the music business.
I teach the Introduction to the Music Business Course at Baruch College in New York, and these days I consider myself irresponsible if I don’t scare the shit out of my students about the state of the music business.
See, this course is full of aspiring Master Ps and Puffys (along with a few aspiring artists who don’t want to get burned). Most of these people want to figure out how to buy into the music business fairy tale of wealth, drugs and sex.
Now, anyone who has actually toiled in this particular field knows that this has always been a myth and it’s more likely that you’ll win the lottery. In fact, entering the music business for these reasons is a lot like playing the lottery.
These students buy into a lot of myths about the music business, and I’d imagine a lot of other people do as well. One of the biggest canards involves the major labels as the Holy Grail for performers. The "just let me get signed to a major label and I’ll have it made" attitude. The truth of this is especially painful.
The conventional industry wisdom is only 5-10% of all albums released ever "earn out" or recoup their advance. This does not necessarily mean that the record companies don’t make money off of them. Artists on majors recoup at a rate that generally falls between 10 and 20% (their gross royalty rate) of 90% (the breakage allowance that goes back to when records were made of glass and lacquer played with steel needles at 78 RPM), minus everything the record company can possibly write off against the artist’s account. As Hank Shocklee once noted, "These kids ride around in limos, forgetting that they are paying for it. Even after they sell a half a million records, they wonder why their checks are bouncing."
Despite anything artists can do, in this environment the deck is stacked against them. During my brief tenure as a major label recording artist (Ze, through PolyGram at the time), I took a very small advance (enough to cover studio costs) in order to do a nice back end. It was only a singles deal, but I discovered that by doing the deal this way, I became less of a priority than the acts to whom the company paid large advances. The single never came out, I lost money and came out of the experience older, wiser and determined to find another way in the music business.
The big, bad biz is not solely responsible for the artists’ woes, however. Much of this grief the artists’ bring on themselves with a wrong attitude – not a bad attitude, just an erroneous one based on a major misconception. To most young artists, the recording contract is the be all and end all, the brass ring, the Holy Grail.
I like to think of it more in terms of Karate. Depending on the style, you take years to rise through the colors. Then, your sensei comes up to you with that black belt, removes your brown belt, ties the new one on tight. Just as you begin to feel the culmination of all your hard work, and your sensei says, "Okay, now you can start to learn Karate."
If a major label is your aspiration as an artist, think of the days of clubbing, finding management, writing, woodshedding and demoing as your rise through the colors. As an aspiring music business person, consider the internships, all the time fetching coffee and answering the phone as yours. The contract or the title mean your work has really just begun.
Of course, as an artist, doing the math might keep you from considering the major label route at all. These are new days with new opportunities, and with those new opportunities come new rules. As b’rer Shocklee further points out, stating the conventional wisdom of the music business today, the best way to attract attention from a major label is to SoundScan 20,000 records on your own. But if you are doing that well at SoundScan, why would you want to deal with a major label in the first place? Consider:
Let’s
imagine a generous 90% of 17% royalty
(practically no first time signees get this
rate)
- For
this, the record company owns your masters
in perpetuity and generally administers
your publishing company for 50% of your
publishing royalties.
- You
get a $150,000 advance
- All
but $20,000 goes to making the record,
paying legal costs, your manager, etc.
- You
sell 250,000 records at a gross wholesale
price of $7.00 each
- 250,000
x $7 = 1,750,000
- Your
royalty from this is 267,500
- Minus
your 150,000 advance = 117,500
- Minus
whatever charges the record company puts
against your account and it’s a good
thing you saved those $20,000 from your
advance.
Which
is not bad, but consider this:
- You
own your record company in conjunction with
your manager, a 50-50 split.
- You
record and press up the 20,000 CDs you need
to attract the attention of the record
companies, via SoundScan.
- You
sell those 20,000 records at an average of
$12 each.
- Each
CD costs a dollar to manufacture.
- You
spend 20,000 on studio costs
- That
comes to $100,000 profit.
- And
you own all your intellectual property –
masters, publishing, all of it.
This is a very simplified version of what goes on. For a more in depth view of the upper part of this – where the money goes with a record contract – find Steve Albini’s eye-opening essay "The Trouble With Music." It appears on many web sites.
So, what does all this mean for the music business. Is it the "end of days" like so many people predict? Well, everything changes every minute of every day.
We know the mainstream music business (with the possible exception of music publishing) is in trouble. Big trouble. The Vivendi board, for example, just staged a purge because there was not enough return on investment and the stock took a dive.
Understand, since the mid 70s, most of the majors have had to answer to stockholders every three months. This means that they have to show some growth every three months or the stockholders are going to wanna know why. So artists that make major label albums that sell under half a million copies, artists that don’t hit a homer first time up from the minors don’t get a chance to develop. Consider: this means that Bruce Springsteen would have been cut off just after The Wild, The Innocent and the E-Street Shuffle, which sold maybe 100,000 copies in the years before Born to Run was released. Artist development has become the manager’s job and financial responsibility. This has made management a job only for those with deep pockets or OPM.
Dave Seitz, Owner of Prime CD a small record company that has taken to signing bands like Poppa Chubby, who sold 125,000 copies of his Sony album, and releasing them independently, has an interesting metaphor. He says that the majors are like elephants and indies are like rabbits. Elephants are very large, very willful and difficult to turn once they’re headed in a particular direction. Rabbits can respond quickly to change and run circles around elephants. Of course, they also have to take care that they stay away from the elephant’s feet.
This is an idea Richard Branson of Virgin (and now V2) subscribes to. When any company he develops gets too large, he breaks it into smaller companies. This has been his MO for decades.
What does it mean in real world terms? It means that Seitz’ artists often make four times as much as they made with a major while selling fewer records.
I see this as a model for the new, emerging music business. More people will make a living, but less will make a killing. The opportunities are out there to those who keep their eyes and options open.
 Check out "Bad Moon Rising - The unauthorized History of Creedence Clearwater Revival".
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Last Updated ( Saturday, 12 June 2004 )
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