note: This is how it worked for years. Now, it is becoming less and less true.
Every singer and band is an entrepreneur. Before they make any big money they have to take a ride on the money-go-round of the music industry.
If you play in a band and your album has just gone platinum, which means it has sold over one million copies, you are in rare company. Less than one percent of the albums released each year reach that mark and only ten percent sell over 100,000 copies.
This means you are rolling in dough- you can buy the big houses and big cars that you always dreamed of, life is non-stop wine, women and song or the rock n roll equivalent, right?
Although, a new band that has just hit it big is now a world-wide business enterprise generating millions of dollars of revenue, the money paid to the band is not going to come as fast as they had always dreamed.
One of rock n roll's biggest myths is that once you hit it big you are showered with money falling from the sky. This may be true for longtime superstars who regularly sell millions of copies of their albums, but more often rock stardom and financial stability are two different things.
There are three main ways for a band to make money- record deals, touring and publishing rights.
RECORD DEALS. Major league recording contracts place the record label's interests ahead of the band's. Labels have in place a staff and system capable of producing, distributing and promoting records. The record labels claim that it costs $2 to make a CD, but marketing costs can run from $3 for a hit and up to $10 for a flop.
Most bands earn a 15 percent royalty, unless you are a superstar that can name your price and can negotiate a little more. The other 85 percent of an album�s suggested retail price goes to the record company for its services and, of course, the retail profit.
Before a band sees any of its 15 percent, it has to pay off its debts to the label. Those debts, known as recoupable expenses, are amassed when the label spends money for what most of us would assume is the cost of doing business--like artwork and packaging, tour support and video production. Generally, when a record company signs a band, they give them an advance to record the album and money to live on until the record comes out.
This, also, becomes part of the recoupable expenses that must be paid back before the band starts collecting royalties. The record companies invest over $1 billion a year in new artists.
If enough albums sell and the debt is fully repaid, the band begins to collect its take. If the album sells poorly and the debt isn�t repaid, it carries over to the next albumif there is one.
TOURING- Whenever a band plays a show, it is paid a fee and/or percentage of the tickets sold by a club owner or promoter.
There are two ways for a band to tour: with the financial support of its label or without it. Almost every new band asks its label for tour support, it helps when some else picks up the tab for expenses like travel, lodging, food and roadies. Road work with a bus and small crew can easily cost $15,000 a week. But, the tour support increases a band�s debt to its label. That's why successful bands begin to tour without the label paying the bills once they can afford to�so they can keep all of the money. If a band is at the point of touring self-sufficiently, it is likely to be making at least enough to cover its expenses on the road. If it's an established act like the Rolling Stones, it could be bringing in as much as $1 million a night though of course, its expenses are going to be much higher than $15,000 a week.
PUBLISHING- Basic United States copyright law protects songwriters by giving them exclusive rights to grant or deny the reproduction, distribution, or performance of their work.
Although, many artists do not write their own songs, many other bands do. For a band than generates its own material, music publishing can be the most profitable part of the business. Songwriters' copyrights and the money generated from them are out of the reach of its label.
The majority of a band�s publishing income comes from its mechanical and performance rights. Mechanical rights cover the reproduction of a song on a record. In the standard contract between a band and a label, the label is required by law to pay the composer a fixed rate per song simply for the right to use the composition on commercially sold recordings. The mechanical licensing rate for the U.S. and Canada is 7.1 cents per song, which translates to 71 cents for every copy of an album sold (7.1 cents multiplied by ten, the average number of songs per album).
With the performance rights, a song's copyright covers every time it appears on radio and television. Songwriters register their songs with one of three major performance societies: ASCAP, BMI or SESAC. These societies issue blanket licenses for the performance rights to songs and make payments directly to the song�s author four times a year, based on how frequently a song is played live, on radio, or on TV. The bigger the hit, the more it is performed, and the more it generates in revenue for the composer or composers.
Publishing rights are like real estate or any other tangible property: They can be held on to, leased, or sold. By law, every band that writes and performs its own material can lay claim to every dollar those copyrights generate. But if the band is anxious to be paid now rather than waiting for the money to come in over time, it can choose to assign its copyright to a music publisher, a company willing to speculate on its current or future output and offer a cash advance in exchange for a portion of the copyright's value.
Usually, bands sign copublishing deals, in which the publisher offers an advance in exchange for half the publishing income until the advance is paid back and a quarter of the income thereafter. If the publishing income is too small to pay back the advance, the publisher is out of luck�but if there is, the publisher gets a piece of the band's success in perpetuity. Looking at it another way, the band gets a big fat check up front, 50 per cent of all income for a time, and then 75 percent after that. Because there are no guarantees that a song will attain popularity or value, many bands like the cash advance which is money they receive immediately regardless of how their song does and is not subject to repaying the debt they owe to their label.
And if they have a hit? It is a gamble. A publishing deal is like a bet against yourself. You give up twenty-five cents on every dollar in exchange for having money in hand, today.
Taking the gamble has netted bands with a hot record between one and three million dollars.
The greatest lure of a publishing advance is that it is the only thing guaranteed in the music industry. Going on tour, for instance, is always risky, because you never know whether anyone will turn out to see you, or whether you can command enough money to make it worth you while to hit the road. But with radio play and exposure from a hit record you can go from making hundreds to multi-thousands a night.
The recording contract portion of the equation is not quite as straight forward.
A new band�'s recording contract after all of the complicated accounting of what percentages are paid on what kind of sales will give them approximately $1.15 per copy. So multiplying that by a million if the band's album goes platinum, their royalties would be $1.15 million.
But, before they collect a dime, they must pay back the labels "recoupable expenses. They must first pay back all the money the record label has spent on its most recent record. Plus, they must also pay back any debt left over from any previous album. If the record company releases a single to radio or filmed a video for a song from the record, they could charge them another $400,000 or so. Record executives say they have to spend money to sell more records. In fact, say a record company promoted two singles to radio, helped support eight months of domestic and international touring, and paid nearly $400,000 to record a pair of videos, it's unlikely that the band can recoup its debt with a record that merely goes platinum. If you are lucky enough to be the 1 out 100 albums to reach this level, you still won't make any money on it. Follow up albums have an even lower success rate and even the most successful performers probably only have about three albums before fickle musical tastes change.
At a million and a half, the money may start rolling in, but it still depends on how many singles and videos it takes to get there.
And unfortunately, more singles and videos are necessary evils, so it may still be years before the band sees profits from the sales of big seller. If the band then hits the road with constant touring in the best-case scenario, that promotion should lead to exposure that drives up album sales and creates radio play, thereby creating mechanical and performance royalties far greater than what would be necessary to repay its advance to the record company. The worst-case scenario is that the next pair of singles fails to maintain the buzz and the band heads into its next record still in debt.
For example, the group, Nelson, had a multi-platinum selling album in the early 90s. Hairbands and power ballads dropped off the musical map almost overnight when Nirvana, Pearl Jam and Grunge took over. Nelson's next album was a flop and left them $2 million in debt to the record company.
With all the risks, and arcane record label accounting methods, a publishing advance could be the only real money a band sees until their hit song resurfaces in a few years on nostalgic compilations, soundtracks and radio programs.