I read this remarkable post on a public mailing list I subscribe to. I thought it was such a great insight into running a music label, that I just had to post it here. It discusses issues facing modern music, such as DRM, DMCA, and other ways of making (or losing) money. Fascinating.
Here it is:
I work for a (fairly small) indie label – from witnessing this model in action I feel I have to stick up for the label given that I see the model working (or sometimes not so well) on a daily basis! Where we’ve done deals with artists in the past, they’ve almost always been a 50/50 arrangement – the artist receives 50% of net royalties. Where a label fronts recording costs, these can easily become £6-10,000 for an album session. Even an EP session can be upwards of £1,500 although these figures are a little pessimistic (though not unrealistic). (We actually designed, built and owned studios for ten years until 2001 but the project haemorrhaged money.)
With regards to CD pressing, a 1,000 run will cost around £800 including full colour print in a basic jewel case. The AP1/AP2a MCPS licence costs another amount on top. When getting your CDs pressed, add in other things (Super Jewel cases, slip / O-cards, digipaks or gatefolds with high quality card / fancy posters) and you can easily top the 1k mark, not even counting the artwork design costs. Of course, discount comes with with bulk, but almost nobody except the Big Four do >1k discs in a pressing. (To put things in perspective: when SyCo have done the X Factor Finalists CDs, they press up >10,000 of EACH finalist’s recording of the song – and shred the losers’ copies when the winner is announced!)
To put stuff into distro with someone like Universal, you have your line costs simply to have the title listed on their system – monthly recurring, per title – then handling costs, despatch costs, “salesforce” costs (even though really the only people they sell into are HMV now, and from last year they’ve stopped guaranteeing racking in all but the top 6 or so stores in the UK, it’s a joke). You can’t sell your discs through at full retail, you have your wholesale (Dealer) price. We’ve sold albums through at £6.65 and I’ve later seen them in a London HMV for £12.99. Oh, and did I mention that supermarkets and stores like HMV *DEMAND* what they call a “file discount” of up to 40% just to take stock? (which is on a non-negotiable sale or return basis with up to a six month returns period.)
If you end up in a position where you don’t sell stock through into shops, it usually costs less for your distro to SHRED your discs than it does to send it back to you! Ridiculous. The costs are stacked against the labels at all points – incredibly frustrating. And that’s even before you begin to contemplate any plugging, promo, advertising, miscellaneous online, merch, booking agent / gig costs… Or even an advance for the artist! But it gets better…
So, this figure of 63% which the old techdirt article might quote as truth where valid for major labels (who might also own distribution, management, publishing and studios under the same roof), the model quickly falls apart as soon as focus on a smaller label. I used to think the whole model was bullshit and the artists got shafted, but if anything it’s level pegging – smaller labels have just as tough a time as artists as the risk to them to fund any new release is proportionally WAY larger. Also, the techdirt article works on the basis of the artist receiving a 20% royalty – this is dismal, and the artist should be smacked for agreeing to such a pitiful rate like the chumps they probably (hypothetically) are.
Take one of our real world iTunes scenarios – from a 79p purchase, iTunes immediately keeps about 32p. For UK and most worldwide sales, this also includes the royalties which the label’s obliged to pay (in the UK, to the MCPS-PRS Alliance). However, the USA requires the selling party to pay the mechanical on each sale (an arse-about-tit form which has arisen from the disconnected Collection Agencies – Harry Fox Agency being the incumbent on Mechanicals and ASCAP, BMI and SESAC on the Performance royalties – which adds yet another level of complication.
From what’s left (47p), you halve the resulting amount on a 50/50 deal. Neither the label nor the artist gets much for their work. On some artists whom we’ve purely done digital distribution for (on a rolling licence agreement), we give the artist 80% of net. As you can imagine, we get virtually nothing – and our income’s directly tied to their success, so we have an interest in seeing them do well. It’s a tough environment to be in.
For receiving US/Canadian/Mexico/European/Australasian payments, we first have to receive the currency and have the bank convert it to GBP. Of course, we can’t get the Interbank rates, nobody but the banks get those – so more money’s immediately lost in conversion. The larger labels will have sweetheart deals with their banks (or almost certainly have accounts in each relevant territory) so this isn’t so much of a big deal, but the amount of administration just scales inordinately. If you deal with managing your artists’ Publishing rights, you can quickly become LITERALLY swamped in paperwork. The amount of time sucked up by adminning the release of music is extraordinary.
So please nobody think all music labels have it easy… I have no doubt that the Big Four have royally shafted artists in the past but they can largely lumber along based on a few artists doing exceptionally well for the rest of their current roster (with their back catalogue from very famous artists helping too). The problem they’re going to have is that almost none of the artists whose catalogue’s been released in the past two decades *really* has the staying power of the classic artists – Dire Straits, Genesis, Pink Floyd, The Who or Fleetwood Mac, just to name five off the top of my head. Don’t even get me started on the epic fail that is streaming revenues from Spotify, mFlow, We7 etc.
Now even with all of this, I still regard sites like YouTube as a promotional tool. Some of our most famous catalogue I’ve held off on issuing DMCA takedowns for, because it’s a genuinely beneficial promotional tool – it’s the pragmatic response. Where do people go first if they want to quickly listen to a track? YouTube! What happens if they only ever wanted to hear it once and never again? You’ve not lost that sale because it almost certainly would never have happened. What happens if they still want to have a copy of that track? They’ll go buy it from one of the easily accessible venues, it’s not expensive to do. The label’s job is to make the catalogue ubiquitous on all of the major (and some of the trendier niche stores) where at all possible. The digital distribution costs are another thing the label has to absorb – monthly, per track, per store usually, if not on an aggregation deal where it’s a percentage on each sale but the label usually ends up worse off. It’s a tough position because the label almost always feels the need to protect their ‘content’ (shudder – hate that word) but issuing takedowns for every instance of a track is more often than not a kneejerk reaction which harms longterm sales. I’m personally torn between leaving them, taking them down or even putting up better mashup/promo mix versions on the label’s official account!
Treat your customers like adults and I think you earn their respect a bit more. This applies to all forms of digital media, including tellybox shows. (thesis: DRM = genuinely unhelpful towards nurturing that unique supportive viewer-provider relationship. Trust your customers, they’ll not disrespect you.) In music, nobody wants to buy a track if they can never audition it, and 30sec samples aren’t really a good enough.