New technology (ie digital downloads, I-pod, cell phones…) has made it easier for people to listen to music, and subsequently they have changed their buying and listening habits. People are not going to pay $16 for a CD when they can access the exact music they want, in the format they want , immediately, for .99 cents. And obviously this makes it tuff for any Industry when their per unit revenue goes from $10 to $.70.
There are opportunities for us in this new world order, but I thought it would be worthwhile to discuss a little about how the existing business model works.
I tried to search the Internet for a good article describing this, however unfortunately I couldn’t find one (probably because no one understands the current system).
Basically there’s 6 parties: The Record Label, The Distributor (digital & physical), The Artist/Group, The Writer/s, The Producer, and the publisher. But for today, we’ll keep it simple and just concentrate on The Artist and The Label.
Here’s how things work. Basically the Label engages The Artist to produce recorded music for them. For this, the Artist generally receives an advance and a royalty on future sales. The advance is non-refundable but recoupable. What this means is, that if the project tanks, the artist doesn’t have to give the money back. However, the recoupable part means that the Label has to “recoup” its’ investment before royalties will be paid.
Now when The Artist finishes the project they give it to The Label. The Label in turn is responsible for the manufacturing and the promotion of the project. The manufacturing these days is not a big expense (with downloads being so prevalent and the relative low cost of cd’s). However, the promotion is everything! Typically, promotion is going to be the costs associated with “promoting” the project. Sounds simple, but really it’s not.
Much of our Label’s promotion expense comes from paying Independent Promoters. These are people hired to get your music on the charts and on the radio. Typically, for a mid-sized Label like Act 2, we engage 3 different promoters to work a new song. We have a Billboard promoter, a radio promoter, and a mix show promoter. With out going into too much detail, this is a very costly process, and there’s no guarantee that your investment will achieve the desired result.
Other promotion expenses may include, but are not limited to:
- Remix Expenses (see previous Blog)
- Advertising Expenses (TV, radio, print, internet…)
- Tour Supprt (for a new group or artist)
- PR
- Entertainment Expenses (no comment)
Record Labels make these investments in an environment where 90% of the projects lose money, and they’re absorbing 100% of the financial risk.
An analogy might be to ask. Would you go to a Casino and gamble if you only had a 10% chance of winning? I think the answer’s pretty obvious.
So us Record Executives, are not the brightest, (cuz we answered yes to the above question). But you have to give us a little credit for trying to create quality music in a very difficult business environment.
Hope you found this informative. If you did, please help support Independent Music at our Label’s website, Act2records.com. And check out our Mp3 Music Store. There’s a lot of great music and free downloads too!
All the best,
RAH
