

RIAA Accounting: How To Sell 1 Million Albums And Still Owe $500,000 - vabole
http://www.techdirt.com/articles/20110707/03264014993/riaa-accounting-how-to-sell-1-million-albums-still-owe-500000.shtml

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Produce
And I'm supposed to be against piracy? I have no problem giving money to
people who deserve it but these people do not deserve a single penny from me.
The other issue is that by paying for CD's, I'm directly funding the unethical
legal bullying that these companies are undertaking.

Really, it's the same issue with the government. I, for one, do not want to
fund operations which kill people in foreign countries. I don't care if it's a
'democracy', I don't care if there's a hierarchy and that I'm supposed to vote
to make myself heard. I simply want to cut funds to things I don't agree with
but the issue is that doing so results in an entity orders of magnitude bigger
than me bullying me into submission.

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mdasen
So, the question I have is: how many of those bands/artists make it?

The article mentions an advance of $1M. I think the $20 per CD rate claimed in
this album (1M CDs sold is claimed to be $20M in sales) is a bit high (then
again, I haven't bought a CD in a while). Suffice it to say, I'd lower that to
$10-12M gross and maybe $7-8.4M when costs are accounted for. Even with
digital distribution, I think the iTMS/Amazon are taking 30% which would lower
$12M gross to $8.4M after Apple takes its cut. Correct me if I'm wrong, but
from what I've heard/seen an album costs around $10-12 on iTunes and Apple
takes 30% of that. I can't imagine physical stores (who have the overhead of
real-estate and employees) taking less. I mean, 20% breakage fees are
outrageous, but arguing that selling 1M albums equates to $20M gross is also
outrageous since CDs don't cost $20 a piece.

So, how many of these bands succeed? If I gave a $1M advance to ten bands,
would nine of them sell a million albums or only one of them? Thinking of it
like an investment, that's an important question. If only one of them sold a
million albums (and the rest failed), it would mean that I've put out $10M
while the CDs sold grossed $12M (and probably $8.5M after the selling store
takes its cut, before any other costs). In this case, there isn't a lot of
money for the successful band to be well rewarded. Even though they brought in
8x what was invested, there was only a 1 in 10 chance of them succeeding and a
lot of that money is going to subsidizing the investment in the failed bands.
However, if 9 out of 10 sell a million records, around $75M is being brought
in (after the selling store's cut) while $10M was invested and so there should
be plenty of money for the bands/artists to be well-rewarded for their
success.

I'm not saying that there aren't dirty tricks being used. I simply don't know
how often bands that get these advances do well. If the risk is that most
ventures are very unprofitable, it means that the ventures that do become
profitable don't get well-rewarded because of the risk involved.

There's also the issue of the amount of money. In this case, it's $1M. That
isn't a sum that most people can come up with and, as such, commands a
premium. A lot of the larger VC investment comes after a team has shown that
it can get a bit of traction. Places like YC invest early, but it's small
amounts.

In the end, if you believe in yourself and think there is little risk, it's
always best to invest in one's self. However, it can be hard to stomach the
risk if the costs are high and the industry failure rate is also high. I'm
sure that the record companies are making off with loads of money unfairly,
but what's absent from the article is a sense of how many bands that get the
advance make it and how many fail. That's a critical piece of information that
could turn their whole argument on its head. And without that information,
it's impossible to realistically evaluate fairness. I'm no fan of record
labels. I think they're an antiquated system in an age where digital
recording, editing, and distribution can allow people to create high-quality
media. However, if the article wants to convince me of its merits, it needs to
offer some statistics about the success/failure rate of the bands/artists
getting the advances. If the success rate is 90%, they have a good point. If
the success rate is abysmal, it casts some doubt. I'd say it casts more doubt
on the system of offering advances (than offering a defense of record labels)
and argues for a more efficient initial production, but that's the hacker
ethic in me.

~~~
krig
The key issue is that the advance from the label is neither a gift nor an
investment; it's a straight up loan (most likely with interest) that is
expected to be paid back, but the loan terms are horrendous. I get the feeling
you think that the band receives a $1M investment that the label will recover
at a certain rate from the generated profit, but that's not the case. After
selling for $1M, the artists are still at $0, and they still owe the record
company $1M. If the record company brings in $1M in profit from an album, they
have covered their expenses. That $1M wouldn't even begin to repay the loan
the artist have, though, so now the label is UP $1M - the artist still owes
them most of the advance.

At least, that's how I understood the situation, correct me if I'm wrong.

~~~
gallerytungsten
The general outlook I hear from people who are signed to deals that pay
advances is this: get as large an advance as you can, because you won't be
getting anything else. Sure, if you go double platinum it might be worthwhile
to audit the label and squeeze some more money out.

Although recoupment provisions make it technically a loan, just like a VC, the
label won't come after you forever if you don't recoup. At a certain point,
they'll write it off and let it go; they won't be after you forever like a
collection agency.

As to how bands can earn a living, the answer is of course touring, merch
(t-shirts, etc.) and for those with music with mass appeal, licensing to
films, tv, and commercials. If you can self-produce, you can also do a
licensing deal (P&D - pressing and distribution) for the record as well.

The way to stay in control, of course, is to bootstrap it and form your own
record company.

Anyone curious about how these deals work in more detail should check out
"Confessions of a Record Producer" by Moses Avalon (a pseudonym).

~~~
lawnchair_larry
Worth noting - non-RIAA bands actually _lose_ money touring. Smaller bands
signed to RIAA labels still do not do very well with touring.

In many smaller scenes, a successful tour is one that breaks even. They sleep
on promoters floors, eat shitty food, and play in bars. I hear a lot of "fans"
that download all of their music and think that they support the artist by
going to their show. This is _not_ the case.

The one way to really make money as I understand it - which is noted in the
book you mention (though it is kind of dated now) - is royalties. If you are
fortunate enough to have your song featured in ads and get into heavy rotation
on the radio, you get paid outside of your recoupment costs (which they pull
from record sales).

~~~
brown9-2
_I hear a lot of "fans" that download all of their music and think that they
support the artist by going to their show. This is not the case._

Well, it's not like their ticket purchases are for naught - it still offsets
the cost of touring for the artist. The artists would be worse off doing the
same tour with less fans attending.

What better choice do the fans have anyway? Buying the records supports the
record label, not the artist.

~~~
klbarry
And the record label supports the artist, or else why would artist's join
them?

~~~
muhfuhkuh
Larger exposure for the inevitable tour that, if GP is accurate, doesn't make
money.

Why people don't go the route of Jonathan Coulton or Pomplamoose, and just
scratch it out on their own talents, is beyond me. Hell, I think even those
"hide your kids, hide your wife" news parody musicians apparently make more
money than major label star. The math just doesn't seem to be adding up
anywhere being on a label, is what I'm trying to say.

I guess you have to be a blindingly white-hot ultra-mega-super-duperstar to
make a penny from labels and touring, and everyone else should just pack it in
or go indie?

Seems like it sucks worse to be a musician than to be a struggling actor or
indie mobile app developer.

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seanalltogether
The crazy thing to me is that the deal is structured more like a loan then an
investment, and yet they are still only entitled to 10% of _net_ income. Could
you imagine a tech entrepreneur accepting that kind of a deal from a VC?

~~~
klbarry
Programming ability has a great deal more economic value than entertainment
ability.

~~~
StavrosK
How so, given how much money top singers/bands make?

~~~
mikeash
The total revenue of RIAA members in 2009 was about $7.7 billion. At their
peak around the turn of the century, they were doing a bit under $15 billion.
And that is revenue, not profit. The entertainment industry is _tiny_. Top
artists make a lot of money for an individual, but it's only millions, and
there aren't a whole lot of them.

That 2009 music industry revenue would pay for, what, 70,000 programmers? And
there are a _whole_ lot more programmers than that earning good money.

(Note: I'm only looking at RIAA figures, and ignoring independent artists, so
it's understated to a certain extent. However, I believe RIAA revenue still
makes up the majority, probably the vast majority, of total music revenue.)

~~~
chadgeidel
The mind-boggling this is that a billion-dollar industry is bullying a (many?)
trillion-dollar industry around. Say what you want about DRM, it's strange to
me that software and hardware manufacturers actually put up with it.

~~~
tertius
Not that I'm saying laws are applied correctly.

But I sure am glad that the music industry CAN "bully" an industry far greater
in the same way that I am glad that I can (if I had time and money) to do it
because of the freedom of litigation.

~~~
mikeash
The weird thing is that most of the bullying has nothing to do with
litigation. DRM pops up all over the place in standards like HDMI, willingly
put there by the electronics companies. If they wanted to, they could all go
to the entertainment industry and say, "You guys want DRM, but tough luck,
we're not building it. If you want to sell your stuff on the next generation
of devices, you'll have to work with what we want to build." But they don't,
even though in theory they should be able to.

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rndholesqpeg
Steve Albini's explanation is much more colorful and now almost 15 years old,
<http://www.negativland.com/albini.html>

~~~
hluska
Good work linking to that - I was just going to comment that I liked this
article a whole lot more when Steve Albini wrote it...in the 90s.

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ethank
I hate this headline. This is not RIAA accounting: its having a bad lawyer and
not negotiating a good deal. I've been in plenty of deal meetings and seen the
good and the bad.

The good artists retain most of their rights, negotiate a buy out of master
recording rights, retain all fanclub/merch rights, etc.

The labels try to gun for 360 rights, but the fact is while there was a brief
moment when they could deliver on the promise of the 360, that moment has long
passed.

If you are a band, and you want to be a multi-platinum act selling world wide:
get a really really good lawyer and sign with QPrime, Frontline, Red
Light/ATO, etc.

Let me repeat: GET A GOOD LAWYER.

~~~
zaphar
If you get a good lawyer and he drives a hard bargain that doesn't mean you
get the record label deal though. What's more important is determining how
much you are willing to give up for a record label deal. The label is
perfectly capable of telling you no deal if they don't want to give you all
your demands. There are a lot of other artists out there who will drive an
easier bargain.

The lawyer is helpful in actually understanding the deal but he can't
guarantee the deal you want.

~~~
ethank
Very true. You also need to be willing to walk away and hold the line. I've
seen contract negotiations go for YEARS.

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vermontdevil
I still don't understand why musicians continue to sign up with record labels?

With all the other options out there, the record labels should not be the
first choice for any aspiring musician.

~~~
MichaelApproved
Those other options aren't always as easy to execute for everyone as you might
think. Marketing, web site building, video editing, tour scheduling, public
relations, accounting, etc.

That stuff is hard work and you have to be a jack of all trades. Each band is
like a little startup looking for a technical cofounder.

~~~
mashmac2
This. Is exactly how it works. A first-time startup gets worse terms then an
established entrepreneur, right? A first-time band is the same way. You do
well with your first venture, you get better terms the next time. The indie
film industry is very much the same way with distribution rights.

So, VC ~= Record labels ~= Film distributers

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exch
A guy named 'merethan' posted a great essay on the subject in 2010. It gives a
good explanation of what the music industry is about and why it still operates
the way it does, without going too much into the financial details.

The original article is in Dutch, so I translated it into English a while ago:
<http://site.jteeuwen.nl/misc/copy_is_my_right.html>

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sanswork
Does anyone know why he left out the $300,000 advance from the final
calculation on how much the artists make? I'm not sure if that was just an
oversight or if there was a valid reason for it.

~~~
MattBearman
Even so, for a 5 member band, assuming they took the whole advance, (no
manager fees, etc) they've earned $60,000. Which considering there's usually
2-4 years between albums, and they still owe the label money, that's a pretty
shitty wage of $15k - $30k P/A.

~~~
tjansen
Sure, but in the meantime the label made the band famous, which is worth a lot
of money. They have a much larger audience at concerts, can sell merchandise
and possibly have other sources of income. And, when the record contract
expires, they can negotiate better terms.

~~~
MattBearman
No question, any band will tell you that record sales is their least
significant income source, for most merch is the big earner.

What bothers me most about this situation is that musicians would exist
without labels, where as labels would not exist without musicians, the balance
of power is all wrong.

~~~
protomyth
Some musicians would exist without the labels, others need the push / image
machine.

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hluska
Honestly, I can't imagine how any band could be stupid enough to sign a
contract with a big label and expect to make money off of album sales. The
money is in touring and selling merch - bands should learn to look at selling
albums as a promotional expense that helps them line up tours and sell
overpriced t-shirts. Or, there is always the indie fortune 500...

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Confusion
Similar: Courtney Love does the Math:
<http://news.ycombinator.com/item?id=1714338>

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hezekiah
Really good article. Mentions the different fees, how they are calculated,
their amounts for a typical successful album. This kind of info you normally
don't come across.

