Artists STILL Don’t Make Money From Record Deals

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Who is the incredible bonehead who said rap artists make a lot of money? Wrong, wrong, wrong, wrong, wrong!! Because the fans expect their favorite artists to be very wealthy, and have an interesting, far above average, glamorous lifestyle, this puts an incredible amount of pressure on the artists to appear wealthy. And it’s not just the fans; I can’t tell you how many times I’ve been out with rappers along with people in the industry, and the industry opportunists have expected the artists to pick up the dinner check. I’ve even seen people have an attitude if the artist doesn’t pay for everything. This is small minded and ignorant because the artist is ALWAYS the last to get paid.

Everyone gets their cut first:

· the label (78% to 92% after they recoup most expenses),

· the manager (15% to 20% of all of the artist’s entertainment income),

· the lawyer (by the hour or 5%-10% of the deal),

· the accountant (by the hour or 5% of all income), and, of course,

· the IRS (25% to 35% depending on the tax bracket).

Add to this the artists’ own payroll responsibilities: fan club, website, security, office and/or studio, etc, and family members he, or she, is expected to support or help financially.

Once an artist releases a record, the pressure is on to portray a successful image to fans, friends, families, and people around the way. People expect the artists to be well dressed, drive an expensive car, live in a very nice house, etc. Think about it. Don’t you expect artists “to look like artists?” Would you admire Jay-Z as much if he drove a broken down old 1994 Grand Am instead of that beautiful, brand new, top of the line Bentley?

Sadly, when an artist gets signed to a record label, especially a rap artist, he or she receives somewhere between 8 and 13 points. What that means is 8% to 13% of the retail sales price (less inane deductions that whittle that small percentage down another few points), after the record label recoups the money it puts out (the advance, the sample clearances, the producer advances, usually half the cost of any videos, any cash outlays for the artists, half of the radio promotion expenses, most of the street promotion expenses, etc.). The artist has to sell an incredible amount of units to make any money back. Here’s an example of a relatively fair record deal for a new rap group with some clout in the industry and a terrific negotiating attorney:

ROYALTY RATE: 12%

We’re going to assume that there are 3 artists in the group, and that they split everything equally. We’re also going to assume that they produce their own tracks themselves, contributing equally, without sampling.

Suggested retail list price (CDs) $12.98

less 15% packaging deduction (usually 20%) =$11.03

gets paid on 85% of records sold (“free goods”) =$9.38

So the artists’ 12% is equal to about $1.13 per record sold. In most deals, the producer’s 3% comes out of that 12%, but for the sake of brevity, in this example the group produced the whole album, buying no tracks from outside producers, which is rare.

Let’s assume that they are a hit and their record goes Gold (although it is rare that a first record blows up like this). Let’s also assume they were a priority at their record label and that their label understood exactly how to market them (which is also rare). So they went Gold, selling 500,000 units according to SoundScan (and due to the inaccuracies in SoundScan tracking at the rap retail level, 500,000 scanned probably means more like 600,000 actually sold–but they’ll only be accounted to for the 500,000 SoundScan verified units instead of what actually has sold).

GOLD RECORD = 500,000 units sold multiplied by $1.13 = $565,000. Looks like a nice chunk of loot, huh? Watch this: Now the label recoups what they’ve spent: the cost to make the record, independent promotion, 1/2 the video costs, some tour support, all those limo rides, all those out of town trips for the artists and their friends, etc.

$565,000

-$300,000 recoupable stuff (recording costs, etc)

——–

$265,000

-$100,000 advance

——–

$165,000

Still sounds OK? Watch… Now, half of the $265,000 stays “in reserve” (accounting for returned items from retail stores) for 2 to 4 years depending on the length specified in the recording contract. So the $100,000 advance is actually subtracted from $132,500 (the other $132,500 is in reserves for 2 years). Now, there’s also the artist’s manager, who is entitled to 20% of all of the entertainment income, which would be 20% of $265,000, or $53,000. Remember, the artist is the last to get paid, so even the manager gets paid before the artist. The attorney is entitled to 10% of the upfront value of the deal, which in this case was $200,000, so the lawyer made $20,000 the day the contract was signed (which the label paid directly), which the artist pays back now out of royalties.

So the artists are in debt to the label yet their album went Gold, and they are experiencing some pretty good fame and perceived success. Unless they are making money in other areas (shows, mostly) they are completely broke. In two years when the reserves are liquidated, IF they’ve recouped, they will each receive another $44,166. IF they’ve recouped. Guess who keeps track of all of this accounting? The label. Most contracts are “cross-collateralized,” which means when the artist does not recoup on the first album, the money will be paid back out of the second album. Also, if the money is not recouped on the second album, repayment can come out of the “in reserve” funds from the first album, if the funds have not already been liquidated.

Even if all the reserves are paid in our example, each artist only actually made 6 cents per unit. The label made and/or recouped about $8 per unit. This example also doesn’t include any additional production costs for an outside producer to come in and/or do a re-mix, and you know how often that happens.

So each artist in this group has received a total of about $26,000 (pretty much just the initial advance, less the manager’s cut). After legal expenses and costs of new clothing to wear on stage while touring, etc, each artist has made so little before paying taxes (which the artist is responsible for– remember Kool Moe Dee?). Let’s look at the time line now. Let’s assume the artists had no jobs when they started this. They spent 4 months putting their demo tape together and getting the tracks just right. They spent another 6 months to a year getting to know who all of the players are in the rap music industry and building a local buzz while shopping their demo. After signing to a label, it took another 8 months to make an album and to get through all of the label’s bureaucracy. When the first single dropped, the group went into promotion mode and traveled all over promoting the single at radio, retail, concerts, and publications for free–unless they had a radio hit as their single, in which case they began getting some show money for about half or a third of the dates they performed. This was another six months. The record label decided to push three singles off the album so it was another year before they got back into the studio to make album Number Two. This scenario has been a total of 36 months. Each member of the group made $70,000 for a three year investment of time, which averages out to a little over $23,000 per year. In corporate America, that works out to be $11 per hour (before taxes).

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