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Record Deal Vs DIY
In response to the recent information floating around the blogosphere that the old record model and the new DIY model are more beneficial to the artist, I thought I’d share some things I hadn’t considered.
There are 4 pieces to this puzzle that must be weighed before any formal conclusions can be drawn.
- Record company business
- A written contract, and finally a personal contract
- Ownership of master recordings and mechanical rights
- Cost Comparison Label vs DIY
1. Record Label Business
Let’s start with the concept of the business of being a label. Most labels focus on building a core record catalog and owning the publishing rights to original music. You might think they’re in the business of developing artists, and that plays a role, but at the end of the day, they’re building their own catalog of music. A company’s value is taken from its catalog when it is acquired or absorbed by a larger company. Labels seek out artists who are potential sellers, which intentionally increases the value of their catalogs.
It’s important to look at it from this angle to understand what a down payment is buying, whether it’s big or small. They are buying your master recording. Whether you own your own publishing house or another publisher owns the rights to your music, every label wants to be published. If you or your publisher don’t share copyright ownership of the original material, most deals won’t happen. For a songwriter, this is huge and should be taken into account when comparing and contrasting the value of any deal.
2. Registration Agreement and Transactions
When you consider all the perks of working with a label, you’d think they’d pay for artwork, production, radio spots, media promotions, and even tour support. way to promote new records. And I hope you and your attorney have read this recording agreement. In the contract, in any standard recording contract, you’ll find a Packaging Clause that says artwork and photography are compensable items. The production clause also specifies that the production of the CD is reimbursable along with the advertising budget. recoverable.
Reimbursable costs are costs that are written on the label, but paid back before royalties are paid when the CD is finally sold. Almost everything they paid up front is refundable when you leave on this contract; Touring support and even great progress on CD burning.
One of my favorite clauses in any recording contract is the collateral clause. Say you sign a 2 or 3 record deal and make your first record. It’s your first CD and you’re just growing your fan base, so you’re selling some, but not enough to cover all of these reimbursements. But it’s time for a second CD, and the label feels good enough about how the first one is going that they give you another recording advance and start producing, promoting, and selling the second CD. BUT, since the first CD has not yet recouped all of its costs, the sales of the second CD and the first CD will all cover the cost of the first CD. Result-You don’t get any royalties from the first CD because the contract states that the label can take any money from the second CD to cover the costs from the first. This will continue after the CD for the duration of the contract.
So when will you make money? You can earn money by selling your CDs on stage or on your website while on tour. Sometimes you may not do this because it will reduce the sales of the label at the distribution points. Oh, and did I mention that you have to buy CDs from the label to sell them for a bit more than the distributor, but not much. If you want to count your record in royalty units (sales are counted as royalties), the artist price will increase by several dollars.
When we talk about royalties, it’s generally based on the wholesale price of the recording. Let’s use $15 as the retail price. The wholesale price will be $9.25, which is where your royalties start. But now we’re down to $8.25 because of the distributor price, which is usually 55% off retail. Now what did you or your attorney agree on the royalty rate? If you’re already a hot artist, the rate might be 10% or a little higher, but most often you’ll find royalties at 7%, 8% or 9%, $9.25, or a distribution percentage, $8.25. It will vary, but it is very small.
When can you get paid if there is actually something to be paid? A contract is signed to pay twice a year. Thirty, sixty, sometimes ninety days after the end of the accounting period, you will receive your royalty statement. Then, when you open your statement, you will be shocked to see what salary you may have received. Where is all this money? And what is the 20 percent that is deducted to cover the return?
Ah, yes, the return clause is that even if they send 1,000 CDs to a distributor, if they don’t sell, the distributor can send them back even after a year. So your label doesn’t want to pay you for something they might not pay you, so they deduct a percentage to cover this possibility. You only get paid for what’s actually sold, not shipped.
3. Ownership of Master Recordings and Mechanical Rights
As mentioned above, in most label deals, the label also owns some of the copyright or mechanical rights to your master recording. To keep it simple, let’s say you burn a ten-song CD. Nine of these songs are your own and one is a cover by another artist. The label must pay the other artist or artist’s publisher for the mechanical rights. Somewhere in your contract is a Mechanical Rights clause that specifies exactly how many songs the label will pay for royalties, usually around 70% rather than 100% of the songs on the CD. If one of these songs is a cover; This means you will receive mechanical royalties from six songs instead of seven. You won’t get paid for your two songs at all.
This is not the most important aspect of the ownership section. The bottom line is that depending on how the contract is written, the label owns a portion of those masters and the copyright if your contract is terminated or if they cancel or try to cancel the contract. sometimes “eternal” (eternal). When an artist is offered a deal, they start recording the music that the label is paying for, and then there’s a change in label management and the new president doesn’t like some of the acts. signed. They can occasionally shuffle the deck, as happened with RCA a few years ago. New management came in and canceled 30 share contracts. But what happened to the new recordings in the studio, the music? They went into the label’s warehouse. Artists’ work is now unavailable to them because the contract states that the label owns the rights to the song regardless of whether it is released or not.
4. Cost Comparison Labels and DIY
I like to introduce these comparisons to get a loan because it is a loan that covers the cost of recording. Now that you have some of the above royalty figures, you can say that with a very generous 10% royalty rate and 100% risk of the potential pie, your loan is yielding 90% interest.
Compare that to most loans you can get in your life, be it a car loan or a home loan, now the interest rate is 3.99% – 4.35%. A 35% maximum interest rate on a credit card is even better. At least you will own your car and house once you have paid for it. For label contracts, you don’t.
Continuing with the loan analogy, you might borrow money from your folks or your Uncle Joe or a really good friend or even an investor and let them charge you 10 percent interest. This means you keep 90% of the retail and wholesale commission on every CD you sell. Once the 10% loan is paid off, or to use a similar term as a label, once the investor recoups the initial investment plus interest, you own everything to publish on your master and source material. Now you save 100% on every sale.
Yes, the CD recording, production, promotion and touring costs are yours. Now with a Kickstarter campaign and loans available, your CD will be yours along with the rights to your music.
Now there are distribution costs. Most distribution companies charge 55%. Some actually get your music out there and sell it, but others store your product in a warehouse, waiting for enough demand for the music. Just because your label has a distribution agreement and delivery to a distributor does not mean a sale. In general, why You there is a distribution agreement, it does not mean that it will also be sold.
In today’s online world, the companies that distribute your music get paid what can seem like a lot for doing very little. But even if they get 30%, they only get that percentage from actual sales and you get paid regularly every month. And depending on which online service you have access to, your music is available worldwide. If you’re using a company like CDBABY to distribute your music to various online outlets like iTunes and others like Orchard or TuneCore, you’ll incur a membership fee, but it’s relatively small. and they pay you monthly.
You might think that these online companies are doing very little to take your cake. Again, they make your music available to the vast online world. Their cost is to innovate their technology and stay ahead of the technology wave. This will allow you to reach a much wider audience than you ever thought possible. Now with a little smart marketing and focusing on a specific audience, you can have great sales without touring. But put together a great CD release concert, a well-organized tour, and the ability to sell at every gig, and you’ll recoup any costs and pay off the loan in no time. This way, you’ll own your master, own your post, and earn money to save your next post for months.
Weigh the business case for this record and the actual cost of doing it yourself or a record deal. Take the emotion out of the equation and deal with the actual numbers involved. Only after considering all of this can you make an informed decision about which one is right for you. As long as you understand what you stand to gain and lose in each scenario, you will be comfortable with either. A script may work well for one artist and not for another. By starting this process with a full understanding of what’s at stake, you’ll simply make better decisions.
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