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Traditional, Indie, 360 Versus DIY Artists, Labels and Contracts.

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Presentation on theme: "Traditional, Indie, 360 Versus DIY Artists, Labels and Contracts."— Presentation transcript:

1 Traditional, Indie, 360 Versus DIY Artists, Labels and Contracts

2 Traditional Contract Artist receives an advance from Label Label arranges production of an album Artist receives a royalty of 5-20% on album sales AFTER production costs and advance are recouped from artist’s royalties Album sales may top 500,000 before artist receives any royalties from album sales Songwriters usually receive “mechanical” publishing royalties on all album sales Label earns gross profit on album sales, but may not earn net profit unless up-front costs are recouped

3 How Do Recordings Make Money?

4 Costs

5 Indie Contract – Profit Sharing Independent Labels often share profits from album sales 50/50 with artists Profits are defined as gross receipts less expenses Gross receipts include album sales as well as licensing income (TV shows, movies, video games, ads, etc.) Expenses include production and distribution costs as well as advertising and promotion But NOT general overhead expenses of the Label Other options include sharing of T-shirt profits, publishing royalties, touring and merchandising profits Note that artists may not receive an advance and only share profits after costs are covered

6 Multiple Rights/Multiple Services or “360” Contracts “Cross collateralization of all or part of an artist’s non- recording revenue as part of the record deal….The non- recording revenue areas covered could include a share of merchandising, sponsorships, live performance fees, tours, songwriting and music publishing royalties, brand associations, media rights, and book projects, among others. The size of the record company advances, non-recoupable payments, and the revenue split between the artist and the company would be among the factors determining the feasibility or desirability of these types of deals.” Brabec & Brabec, Music, Money and Success, 5 th ed., p. 159

7 Multiple Rights/Multiple Services or “360” Contracts Madonna’s deal with Live Nation included General advance of $17.5 million $50-$60 million advance for 3 record albums $50 million in cash/stock for tour promotion rights On tour, major artists typically get 90% of gross receipts Jay-Z got a $150 million deal with Live Nation Up-front payment of $25 million and general advance of $25 million Other payments are provided in exchange for publishing, licensing and other rights Paramore’s deal with Atlantic/Fueled by Ramen Larger upfront payment from Label in return for 30% share of net income from touring, merchandising, endorsements and fan club fees Band receives 30% of album profits, if any, after recoupment Push for radio play was foregone for websites for exploring new music and touring Allowed time for band to develop without pressure for album sales May have rejuvenated label interest in “jam bands” and other artists with loyal fans and good touring revenue, but lacking album sales and radio play

8 The RIAA Says A label’s role is discovering, developing, producing and promoting talent. A music label is a performer’s close partner and collaborator, providing a level of financial and business support in production, marketing and touring that most individual artists would never be able to afford on their own. That investment is usually the difference between giving away songs online to a few devoted friends, and having a Platinum album. The investment associated with developing new talent is substantial. In fact, music companies exceed most industries in investing in the future. Songwriters, recording artists, producers, music publishers, performance rights organizations and many others are among the enormous cast of industry players working behind the scenes to bring music to your ears today. EXAMPLE OF TYPICAL LABEL INVESTMENT IN A NEW POP ACT Advance $200,000 Recording $200,000 3 videos $200,000 Tour support $100,000 Promotion and marketing $300,000 TOTAL $1,000,000

9 Do-It-Yourself Artist incurs all costs, but keeps all profits Costs are lower, but so is income Recording costs A computer, software, and a few good microphones for as little as $2,000 Distribution of downloadable files on the Internet is nearly free Touring costs Travel expenses plus share of ticket sales with promoter Marketing and Promotional Expenses Potentially substantial on a large scale Can be a substantial barrier to mass market success Nevertheless, many artists survive on a small scale for years

10 Moral Hazard All contract types susceptible to moral hazard Contracts often include audit provisions to prevent labels cheating artists Other provisions may include penalties if artists do not fulfill their obligations DIY artists may be more or less susceptible touring arrangements are more informal No formal audit opportunities BUT arrangements are less complex, making cheating more difficult In all cases, repeated transactions among the same parties tends to foster honesty in order to benefit from repeat business

11 What’s Best for the Artist? AdvantagesDisadvantages Traditional ContractAdvance; Recording income opportunity; May raise touring income Recording income unlikely as artist must recoup costs; Moral hazard Indie ContractRecording income opportunity; better profit split; may raise tour $ No advance; costs recouped with label before any profit realized; M.H. 360 ContractLarger advance; Recording income opportunity; tour and merchandise support Share all income with label; Tied to label for long term; Moral hazard DIYArtistic freedom; Keep 100% of profit; less likely moral hazard; chance at better label deal with proven appeal No outside financing or support for touring; artist responsible for all marketing & promotion

12 What’s Best for the Label? AdvantagesDisadvantages Traditional ContractRecording income opportunity; artist royalties recoup costs; gross profit on sales from start; may benefit from touring Artists rarely recoup all costs; marketing may promote artist but no share in other revenues; Moral hazard Indie ContractNo advance to artist; lower costs recouped with artist; record sales may benefit from touring Costs recouped before profit earned; profit must cover overheads; moral hazard 360 ContractShare in all revenues generated by artist; opportunity for higher income; artist may recoup costs; Higher advance; costs to promote tour and merchandising; share at higher rate with artist after recoupment. DIYNo costs; no income; no funds at risk; may sign artist after appeal is proven; no moral hazard. Opportunity cost of lost profit from failure to sign popular artist

13 What’s Best for Society? Which arrangement yields more output? Lower price? Better “quality”? More variety? Traditional Indie 360 DIY Some combination of all of the above?

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