Company Stores – Sausage and music

Wouldn’t it be great if you were a rock star? We have visions of fame and riches, women throwing themselves at you, luxuries and prima donnas. While the women throwing themselves at you part might be a perk, the music industry is a business, and it is not always a pretty one.

Fred Allen said about Hollywood, “You can take all the sincerity in Hollywood, place it in the navel of a fruit fly and still have room enough for three caraway seeds and a producer’s heart.” While he was referring to the movie side of Hollywood, it seems to apply to the music side as well, nation wide. Many people really, really don’t like the record labels, and if you want to know why then read on. But I warn you making music is like making sausage; it’s much better if you don’t know what goes into it.

Imagine you’re an artist in a band, and you cut a great album, and you get signed to a record label, and your first album goes platinum (1,000,000 records sold at $13.99-17.99), what do you think you would get out of it? Now you know you’re not going to get the full $18 Million, as there’s distribution, wholesale costs, promotion, and so on, but how much would you say goes to the artists? Think lower. If you guessed $0.00 you’d be about right. Everyone makes money off the album (CD) but the artists themselves.

Now that isn’t to say that the artists don’t get money. Artists make money off air rights (when the song is played), royalties for writing the song if they are original works, for signing the record deal, and most of all from touring. But the music pressing scam, er, business, is not where the artists make most of their money. Those discs are just promotional materials so that the band can get exposure and make money playing, showing up, or selling promotional materials.

Here’s how the ponzi-scam works.

The record companies sign a deal with artists, under the auspices that they will promote the band, and own the distribution rights to the discs and the music itself. They cut a deal that looks like big money to a band (say $250,000 signing). To a few starving artists that $60,000 apiece, assuming 4 members, looks like big money, but that’s not a lot of money to live on with all the expenses and time it takes to write and produce the music and other issues. I know I wouldn’t want to work that hard for $60K every other year; and most don’t get deals at all, let alone very often.

Then let’s assume the band sells a million copies and cuts a deal to get 13 points (13%) of sales. This amount changes a little, but that’s roughly the norm. The band only created, produced and have to play the music while the record labels have to sell it, so of course the record label gets the hogs share. Even so, at roughly $20/disc and a million copies sold, 13 points sounds like the band is getting roughly $2.5 Million. But you’re still not thinking like a record label.

First, bands do not get credit for every copy sold; they get credit for like 85% of copies sold. Remember when record labels sold records, not CD’s but things that were made of vinyl and had a tendency to break? Most of the music listeners don’t remember that far back, or weren’t even alive back then. But the record labels claim they need to write a fixed 15% off to breakage (because Vinyl is fragile). Of course now days CD’s never really just break, but that’s the breaks for the band. The band gets their cut of only 85% of the discs sold, and their first taste of the business.

To keep things on a roll, often there’s a “distribution” counting; again for every 12 discs sold, the band gets credit for 10. This is so the distributors can get their cut of about 17%. Now the distributor is often the record label in disguise; either a division of the label, or partly owned by the label, and the band gets another piece of the shell game and the label gets a bigger piece of the pie.

For the million copies sold, the band gets credit for about 700,000 copies at best. Again, it changes by contract, and all this information is disclosed in the 80 page contract, full of fine print that the band had to sign, right there in section 4, paragraph 6, between the Latin and legal jargon. And during the process the band is under the pressure that if they don’t like it, they can go somewhere else that will probably give them a worse deal or they might get labeled as “difficult” and get no deal at all. So most bands sign, and there really isn’t much of a choice.

Now don’t forget that while discs sell for like $17.99, that’s retail. Bands don’t get a cut of gross, they get a cut of net sales. Distribution takes their cut already, but there may be distribution at more than one level. Stores get their cut; wholesale can easily be $8.00 – $10.00 a disc. Which is a great markup for something that costs a few cents to press, and well under a $1.00 to press, print and package. So the label is getting about $8.00 per disc in profit, and the band, is getting less than a buck off of only 70% of the discs they sell; but that’s best case, not yet near real world.

The record label isn’t near done with the creative counting; they usually get to take out their “packaging” fees for having the discs pressed. They usually bill the band at a rate of about $2.50 (or 25% of wholesale), being that it costs them well under half that. Sometimes this comes out before calculations, sometimes this fee is taken out of what the band owes to the record label; but either way the band is paying for it. So the record label isn’t even providing the service of producing the discs because they’re back-billing the band for it, or taking that off the top instead of out of their cut.

Either way, the band starts calculating their 13 points on $7.00 to $8.00 per disc; meaning if they are getting a dollar a disc, on 70% of discs sold, then they’re doing good. That would mean take home of about $700,000 for a platinum album. While that is a surprisingly small amount when you divide it up amongst four people, you’re still being hasty and overly fair to the band.

Think about this little gem. If they band sells their own discs, at their own concerts or online, they have to buy the discs at full wholesale price from the record label (at about $8.00 each). The label is doing nothing to promote, distribute or sell, yet they’re still making their full cut of the discs and getting their money. Even if the band presses their own live disc, that the label will do nothing to promote or produce, the band has to pay the record label for the intellectual property that the band had to give up rights to in order to get signed. Ouch, that’s gotta sting.

Remember that $250,000 advance the band got for signing? You don’t think that was a “signing bonus” do you? The signing bonus is usually for the movies; most signing bonuses are loans against royalties that the band has to pay back. So the $700,000 the band got, less their signing “bonus” leaves them with less than $450,000. And we’re just getting started.

The bands percentage does not include all the other things that they have to pay for. Studio time, the producer (who can eat a couple percent by himself), marketing, promos, those almost all come out of the bands cut. An album today won’t sell unless it has a video, right? Expect to blow $100,000 to $300,000 off the top (easy), and that can easily go over a million for some special effects. The record label will arrange everything for you in the company store – but the band pays for it all.

The record labels are also very generous with money; wining and dining, galas, parties and events. They house themselves and the bands in the nicest hotels, and invite lots of people to come to everything. Do you know why they’re so generous? If you guessed that they’re expensing all that back to the band (out of the bands cut), then you’d be right.

Remember the discs sold many copies, but what about all the discs not sold? A lot of the record stores have arrangements with the labels to sell on consignment. That means that if they don’t sell something, they just throw it back and get full credit. Guess who pays for the extras? If you guessed the band, then you’re getting the idea. And since record labels and record stores have little or no penalties for over-pressing, they love to order many more copies than they need. Who cares, it is the band that eats the waste.


Now we get to the fun stuff. You don’t think that radio stations play music out of the goodness of their heart do you? Hah! What do you think this is, the 50’s? Radio stations play what they are paid to play through a form of graft. Now technically, that’s illegal or the labels would have to disclose the spiffs; so the record companies setup satellite “promotion” companies called “indies” (independent radio promoters). The labels give the indies money to give to the radio stations to play the music. The more successful you want the song, i.e. the more you want it played, the more you pay. Expect a few hundred thousand dollars to make a song successful enough to sell a million copies. Once again, the labels aren’t spending their own money on that graft, they take it out of the bands cut. But wait, there’s more. Much more.

Now the record labels are paid for promotion, right? That’s what they do, they promote bands? Unless they don’t.

Bands get all excited to get signed, but they may be signed not to promote them, but just to eliminate them as competition, or to prevent other labels from getting them. Labels can, and do, sit on the contracts (and artists) figuring that they’re making more money by protecting their other assets from the competition, than they would by promoting the new act. Congratulations “new band” you were good enough to be paid dirt to get silenced for a few years, or more, while your label turns out to be the enemy that is just trying to stifle you. And they’ll have the full force of the law behind them.

It isn’t really in a labels best interest for there to be too much diversity. Diversity is competition, and they’d have to promote them all, and differentiate them all, and people would have more choices. They’d much rather fewer choices because it costs less to promote when there’s less noise, and they don’t have to think as hard.

Now this dark little secret is far darker than you think; it isn’t just the record labels in on it, it is the entire industry.

Let’s talk about Clear Channel for a minute. They own over 1,200 radio stations, which they are turning into clones of one another and a giant money making promotion machine. They pick a format; say classic rock, and they all play the same song at the same time, and may even go so far as to synchronize commercials (so that you can’t channel surf). If a band fits the format, then they might get played, if they don’t then they are out of luck.

That sounds like reasonable business; that a company should be able to pick who they play and what their audience likes. But think about that more. The problem is that a lot of good music doesn’t fit the format of a narrow-minded corporate goon type person who has little knowledge or interest in what the public really wants.

Think of a group like Cheap Trick. They made great music, and they still make music today. Why don’t you hear it on the radio? Well Cheap Tricks new songs aren’t the same as other new songs; they are a classic rock group, so you can’t play them on an alternative or new music format station, because they aren’t that genre. On the classic rock station, they don’t want new songs by a group, they want all the classic songs; so they won’t play them there either. The results are that you get to hear the top few old songs from old groups, and that’s it. They are chewed up like yesterday’s news, not because they aren’t doing good stuff that people would want to hear, it is because some program director gets to decide (nation wide) what qualifies as being music worthy. Consumers don’t even know that the band is making new music.

I caught Blessid Union of Souls in concert the other evening. They had some really fun stuff. They did a remake of their “I believe” single that was all punked out and hard rock, and they covered a Led Zeppelin and Queen songs that were a bit retro and classic rock but also a bit modernized and alternative, and they had some new material. Really fun stuff, but what format does that fit in? Who would play it? They’re falling outside the niche that music distribution monopoly wants them to fit into.

Good bands fall off the charts because the record companies and promoters have no interest in them because they just don’t fit the format. On top of that, the older groups are more established and wiser to the games of the industry; thus they would demand too much or be too smart. The labels and promoters figure, “screw that, bring in the fresh meat that will line up to get molested”. There’s a very select few bands that are big enough to get “fair deals”, or that can become their own label, and thus buyback and keep their own intellectual property. But while those few can get around the record labels’ molestation, they’re still going to be victims of clear channel.

And this game is just getting started. Clear Channel doesn’t think they have near enough market share yet. And not just in Radio. They’ve bought up near a million billboards and signage nation wide. They’ve also bought or own the rights to hundreds of venues that bands would play at. And they’re looking at becoming their own record label. Imagine the monopoly this represents; a band that you could only get played on clear channel stations and on clear channel billboards and play in clear channel venues if you signed on clear channel label. But don’t worry, they’ll treat you fair and look out for your best interest just like the other labels do; right?


The record labels and radio stations are really just a distribution monopoly with accounting practices that would make the scummiest of lawyers blush. They are the gatekeeper, suffocating the industry, but leaking out enough material to stay rich. Consumers don’t really get the choices that they want, they get what the labels are willing to give them. All the labels are whining about piracy, but most bands aren’t, because except for a very elite few, most aren’t making much money off that anyways. If you want to see real piracy, look at the rape and pillage the labels are suffering on the bands.

Most bands or albums don’t hit platinum; they sell about 8,000 copies. The reason for the low success rate of bands is because labels don’t do a good job in the first place; they either aren’t picking the right bands, or more often, they aren’t promoting them enough to reach critical mass. The labels use the low success rate as an excuse for why things work the way they do, and rationalize forcing the big bands to subsidize all the failures with outragous fees and terms. The truth should be obvious, at least some of the failure rate is testimony to the incompetence of the labels at doing the one job that they are hired for in the first place; but there’s no incentive for them to change. The 5 top labels own 85% of the market, and are suffocating the industry with their incompetence. All the independents combined make up the remaining 15%. So no matter how bad the labels are, there really aren’t enough alternatives.

Remember that successful platinum album? The record label probably makes about $10 – $15 Million on it. The artists? They probably owe money. The gracious label will just ignore the debt, or credit the debt to the next album. Until the band finally gives up and goes somewhere else. If you think about why there’s such a high turn-over in the industry, it may not be just because the publics tastes are fickle, but also because artists can take only so much before they decide to do something else. So when you hear stories of bands going bankrupt, or spending all their money, and you think, “wow, what bad businessmen they are”, you might want to think a little about the industry they are in, and the company they keep.

To end on a good note; not everything is doom and gloom. The times are a changin’. The Internet has taken the middleman out of retail – and it won’t be long before it does the same to the record labels and their distribution monopoly. Already MP3’s are making a difference. So it isn’t a matter of “if” the bands will start being able to go direct to consumers, just a matter of when or how much.

* HIT MEN by Fredric Dannen
* LIFE AND DEF by Russell Simmons with Nelson George
* OFF THE CHARTS by Bruce Haring
* LAST NIGHT A DJ SAVED MY LIFE by Bill Brewster and Frank Broughton
* LOSING MY VIRGINITY by Richard Branson
* BAD BOY by Ronin Ro

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