Where Does All The Money Go?

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Ever see some pop or rock star in an interview complaining that he/she has no money? You’re thinking “yeah, right!”. They sold so many albums that they have to be rich. Let’s see how it works.

I’ll be using Canadian prices and Canadian dollars so that I don’t have to waste too much time on conversions. But don’t bother reaching for your calculator, the meaning of the numbers will be clearer than the numbers themselves.

First, let’s clarify one thing. The average album, on a major label, sells 3,000 (three thousand) copies. Not much, right? You can sell that many without a label and through the Internet. And keep all the money.

Now, when you sign with a label, you’re share of the money is a percentage (called points) of the sales price. These points are usually between 11 and 17 percent. If you’re completely unknown, you won’t be able to negotiate, you’ll get 11. If, however, your name is Madonna or Celine Dion or Michael Jackson, and that you’ve sold millions of copies of your last three albums, you’ll be able to negotiate above 17 points. Don’t ask for the exact figures, no one will tell you.

So let’s say you have a decent following, say 300 people at all your shows (and that you’re playing at least 4 shows a week, not all in the same city). Your Manager goes in and gets you 12 points.

Now let’s say your album has sold 300,000 copies. Canada has a population of 31 million, so that’s a triple platinum album. We’re talking big sales here.

The sales price of a CD in Canada is $23.99. Twelve percent of that is $2.87. Times 300,000 equals $861,000. Nice, right? However, that’s not what you’ll take home…

15% of CDs sold in record stores are freebies. Sony will deliver 100 copies of a Celine Dion album to a HMV record store on St. Catherine street in Montreal, but will bill for 85 copies. The record store cut of the $23.99 is usually less than $2.00, so this is how these stores stay in business.

So, although your album has sold 300,000 copies, you get paid for only 255,000 copies. Meaning, you’re now making only $731,850.

There’s a clause in most record contracts called the “New technology clause”. When the CD originally came out, it was a new technology. You needed a new reader, and a lot of people were in no hurry to make the transition. And CDs were expensive to make back then. So this clause was introduced. It allows the record company to pay only 85% of your cut. CDs have been on the market for 18 years and are no longer a new technology, so this clause is slowly being phased out. But it is still on most contracts at the moment.

85% of $731,850 is $622,072.50. Well, that still interesting. But we’re not finished. With a major label, you’ll have to get someone to produce the album for you. Bands who self-produced their albums in the seventies and sold millions are required to get an outside producer today.

A producer gets a standard cut of 4 points (4% of the sales price). That four percent comes out of the band’s share. So he gets $24,882.90. So you’re now left with $597,189.60.

Now what? When you record an album, you have expenses: studio time, sound engineers, new instruments or accessories to buy, session musicians, etc. You might be spending two months in the studio and have to wait another two to six months before the album is mastered and finally released. Meaning you have to pay rent, food, etc. If you have to work full-time, you can’t spend enough time on your career. You need money. So the record company gives you and advance. Usually, this will be around $150,000. What’s nice with this is that if you don’t sell enough records, you don’t have to pay this back. But with sales like this, you do.

So, after paying back the advance, you’re left with $447,189.60. That’s slightly more than half of what you originally had. But that’s not all folks…

With a major label, you have to record videos. Videos run around $65,000 each to make. This, of course, is an average price only. The expenses for the video will be shared, equally, between the band and the company. On average, you’ll make three videos, for a total cost of $195,000, of which your share will be $97,500. Bringing your income down to$252,189.60.

Then, you have to tour. Touring pays and the money is yours. Except that when your album has just been released, you won’t be selling as many tickets as you will down the road. So you need a loan to get started. Say $40,000. That’s a reasonable amount. Now you have to pay it back. So you’re left with $212,189.60.

Then there are incidentals. These can be things like photo sessions, publicity shoots, interviews, etc. Stuff the record company originally paid for, but that you have to pay back. These incidentals will usually amount to around $100,000. So you’re left with $112,189.60.

Divide that by four if you’re a four-piece band and you’re each left holding $28,047.40. Or are you? Remember that Manager we mentioned at first? He takes 10%. $100,970.64 is what you’re left with for selling three hundred thousand records. Or $25,242.66 each for a four piece band. Of course, the record company will do everything in its power to cut back even that amount. In most cases, the band ends up with nothing. And when you do get paid, it can take a long time.

That’s the reality of selling records with major labels. Unless you sell millions of copies and have top-notch lawyers and the best manager in the business, there’s no money in it.

I didn’t make up these numbers, you can find similar ones in Mark Makoway’s (the guitarist from Moist) book “The Indie Band Bible”. You can also find similar numbers elsewhere.

One other nasty thing that often surfaces is that only the executives at the record companies know the actual sales figures. I’m not saying that they will all lie on the amount of albums sold, but there are nasty stories out there.

Luckily, there’s a new system out there that’s being implemented. Every time a record store will scan a bar code on a CD, this will be registered in a central, independent computer. This will give total sales, sales by countries, regions, dates of sales, etc. The numbers will be totally accurate. Which will also have the by-product of producing charts (such as Billboard or others) that will reflect reality of sales. It doesn’t mean that if an album is Number one in sales that it actually sold more than the others.

What saves the day is copyrights. If your band is playing other people’s songs, you’ll never make money out of albums, your story stops here. But if you do write your songs, then there’s more money involved. For ten songs on an album, the record company has to pay out $1.80 per album sold. And they cannot cut down this figure or make any deductions, it’s the law. Period.

So that $1.80 per copy amounts to $540,000. Remember that those 15% of albums given to the record stores were sold, so they have to pay.

Technically speaking, this money goes to the publisher. When you’re recording your own material and are not interested in others recording your material, this is the only use of the publisher: receiving a check and making one out to you. The money should, by definition, go to the people who have written the songs in increments of how much they have written or whatever other arrangements have been made.

Except… if you have written all ten songs and get a check like this, what will the other band members say? Think you’ll be making a second album with them? Usually, this money is distributed among everyone in the band. The proportions may vary. With some bands, the songwriters will have a higher percentage than the other members, while in other cases, the check will be split evenly among everyone. This is really a decision that has to be made among the band members from the start. And put it writing too. Just remember that even though you bring in the raw material, the songs, it’s the band that makes them come to life.

So you’re thinking, why go through a publisher at all? You can publish your songs yourself. Just think of a company name, register it and that’s that. However, a publisher is useful. What they will do is buy half the rights to your songs. When you sign this deal, your album has not been released yet. You don’t know how much the album will sell. So the publisher, through experience, will estimate the figures and give you an advance equal to half the amount he expects the copyrights to make.

Again, as this is an advance, if your album does not sell, you keep the money. But that also means that instead of making $540,000 with copyrights in this example, you’ll only make $270,000. This is what most people do.

You see, as a professional in the business, you’ll essentially be living on advances. These make the difference between life and death in this business. On the plus side, you’ll also be getting royalties (divided up with the publisher) for every time your song is played on the radio or used in a film or a commercial or what-not.

When you’re touring, you’ll be selling plenty of T-Shirts and tour books and other paraphernalia. These are the only things you can buy for which the money goes directly in the band’s pockets (often, minus a cut for the venue). Ticket sales usually cover touring expenses and living expenses. Without T-Shirts, a band makes very little money out of a tour. That’s why T-Shirts are sold at $50 to $100 a piece. Think about this the next time you’re at a show and you’re complaining about the high price of a T-Shirt. Do you want this band to keep on recording and touring?

And if you’re in a band and playing a lot of live shows. Do you have any T-Shirts to sell?

1 Comment

  1. Vic McLean says:

    This is why I decided to leave the majors and build a new business model that is designed to do two things: make it popular to be a musician again… which means we have to make musicians popular, and make the finances so that an artist can make a living making music. These numbers are even more obtrusive in the US, and I discuss that in Music Industry lectures I do at colleges and Universities, particularly at the University of Miami. I’d like permission to share this data with those who come in contact with my company, and the students with whom I share the things I’ve learned about the industry.
    Thank you,
    Vic McLean
    CEO Virtuoso Music & Distribution.

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