MEASURES AND SCALES The metrics of the music business
Published Apr 23, 2010Success is a matter of perspective. Some rock star wannabes wouldn't consider themselves successful until they'd become gazillion-sellers with clothing lines and whole wings of rehab centres named after them. For others, success is being able to make rent. And for many musicians, success means still loving what you do even though you never get paid. The reality is that objective means of measuring success in the music business have all been designed by and for the benefit of pretty much everyone except musicians. Musicians who don't learn how to count the same way the industry does, end up contributing to their own oppression by an industry that likes to keep the numbers mysterious.
To give an example: a standard major label record contract. When you get to the "how much do we get paid?" sections, invariably this thing will state that the artist will receive, say, 18 percent of the amount the label sells to dealers. Super! Oh, but wait. The contract will also state that said 18 percent is a so-called headline rate for one territory only, and it's subject to a heap of deductions for "packaging" (even though the label is already paying for manufacturing!), reserves and holdbacks, reduced rates on digital sales, dealer reductions, advertising and marketing surcharges, free goods, and so on. Royalty rates in other territories are expressed as a percentage of the headline rate. So, secondary territories come in at 85 percent of the headline rate, and less important territories at 75 percent and so on. And these are all, in turn, subject to the same deductions as the headline rate.
Now, let's say that the headline rate under this particular contract applies to Canada. Lightning strikes and you happen to get a minor hit record in the UK. When you get your statement from the record company (if you get one), you'll see that the label sold 10,000 copies in the UK at various dealer prices, but for argument's sake let's average them out to $8 per unit. You quickly do the math ― that's $80,000 in revenue! You scan the envelope for your cheque of $14,400 ― 18 percent of $80,000, right? Somehow, no cheque. You get out your fine-toothed comb and discover that what you actually earned in the UK was 75 percent of the headline rate calculated on the dealer price less a 25 percent packaging deduction, less your 50 percent share of $10,000 in radio and TV marketing costs, less a 25 percent reserve, less allowable expenses, less previously recoupable amounts and then what the ?!?! ― you find out you owe them more money than when you first signed your deal.
I am not saying it's all crooked, but I am saying that record company accounting is fiendishly complex. That's why many indie labels have eschewed this kind of royalty percentage mumbo jumbo in favour of so-called "net deals." In a net deal, the artist should get paid an agreed upon share of net receipts, usually 50 percent. Simple, right? But what does "net" mean? As Robbie Burns might say, the best-laid deals of artists and labels gang horribly agley if "net receipts" isn't properly defined. To begin, you need to agree on what "all" or "gross" revenue means. Usually it will mean all revenue actually received by the label, as opposed to what the album actually generated in sales. Next, what can the label deduct before you get to "net"? Standard items include actual manufacturing costs, a percentage of marketing and publicity, and sales-related third-party expenses. Some labels will try to get away with deducting a share of operating costs and overhead. You must strenuously say no to this.
Even supposing you end up with a relatively comprehensible deal, you're always at the mercy of whoever is doing the counting. And in this, you have to have faith that whoever you're doing business with is an honest dealer. Make sure all your contracts have audit provisions, just in case. An audit provision is a standard clause that states that you have the right to inspect the books and records of the business, and lays out how often you can do this, and under what terms. Most audit provisions contain a time-out, though: they will state that if after X number of accounting periods or years you have not objected to a particular account, then it must be taken as accurate. Ask the label to provide SoundScan reports (see Meet & Greet) from time to time.
If you're a touring artist, do yourself a big favour by learning how promoters count. As you're starting out, you'll be offered (nothing, then) a flat fee to play shows. But as you gain ground, you'll be able to command a share of profit from ticket sales. Once again, defining "net" is crucial: your contract should include a list of allowable expenses that the promoter can deduct from ticket sales, often including a "promoter profit" calculated as a percentage of total expenses. What's left over is "net" and your share is calculated on that.
However you measure it, unless you are truly struck by lightning, success could take many, many years of hard work to achieve. More than once you may come to moment in your career where you want to know if your sacrifices are worth it. If you have put some effort into keeping decent records of the things that you can control, such as touring costs, merch sales, gig fees, space rent and so on, you'll be better equipped to face this dark night of the soul and either pack it in once and for all, or choose, god love ya, to rock on.
Frequently Asked Questions
I have a record deal for an album that did pretty well. I just signed my publishing with the same company and got a publishing advance. On my statements, I noticed that they were applying record revenue toward recouping the publishing advance. Is that right?
This is called "cross-collateralizing." It should be clearly laid out in your publishing deal whether the label can use publishing money to pay off an album debt and vice versa. Generally it's a no-no. If it's not clear, or if the deal says "no cross-collateralizing," you should talk to your label and get them to fix it... keeping in mind that you might ultimately have to bring in a lawyer.
We're applying for a FACTOR grant that's based on sales. Our label royalties aren't great, but we've sold tons of CDs off stage. Is there any way we can prove it?
See the Meet & Greet with SoundScan MD Vanessa Thomas in this issue. SoundScan does collect data on offstage sales, but you have to report them from the get-go.