Thursday, August 19, 2010

Slicing The Profit Pie

Here's an interesting pie chart that can be quite disturbing to a new artist or band (can't remember where I found it). It's not entirely accurate, but it's enough to give you the idea that working at McDonalds might be a better career choice than the music business.

Let's break it down:
  • If you're signed to a label, most new acts will have a deal that will give them about 15% of the net sales revenue. Now this isn't as good as it sounds, since the label has a variety of ways to make it seem like they've never made a profit even though your record might've went Gold (500,000 sales), but for now we'll assume they're straight up about everything (which only happens in your dreams).
So your left with 15%, but that figure can be as much as 25% if you financed it and produced it yourself and just licensed it to the label. Whatever the amount you're left with, here's how it's split.
  • In the case of this chart, the band had a deal before and still owes the previous label money. Maybe they can get out of this and maybe they can't. In this chart, it looks like it amounts to about 1 point (percent) of your 15. You're down to 14 points. (I don't know why the agent is on this chart since he only gets paid on gigs, not record sales.)
  • The band didn't have any money, so it made a "spec" deal with a studio that really believed in them. Spec means speculation, which means that they agreed to pay the studio probably another 1 point if the album sold. You're down to 13 points.
  • The normal producer deal is 3 points, although it may be as high as 4 if the project was on spec. You're now down to 9 points.
  • The manager is making 20% of your gross, which means he takes another 3 points, and you're down to 6.
  • You didn't have any money to pay an attorney, so he did a contingency deal with you, meaning that he makes 5% of the gross of any deal that he negotiates. 5% of 15% is another .75 of a point. If you also have a business manager that has the same deal, that's another .75 of a point. That means 1.5 points of your remaining 6 and you're down to 4.5.
  • That means that if there are 5 people in the band, each one gets .9% of the income from the record.
Now if the album went gold with sales of 500,000 copies (which rarely happens these days) at a wholesale of $7.50 each (also high for the times), that means the label brought in a total of $3,750,000. Assuming that there was no hanky-panky with the accounting (in your dreams only), that means that each member of the band made $33,750. This doesn't include any tour expenses and the fact that you probably worked pretty hard for a couple of years before this check came in.

Still feel good about the music business?

Of course, if you were a songwriter, you made money on mechanical and performance royalties, and the band may have made some money on gigs and merch.

But you're not going to get rich even under the best of circumstances, and they hardly ever happen these days.

That's why the only reason to be in this business is because you love the music. You've got to do it because it's what you live for, and you're willing to make the sacrifice in lifestyle that it will take to pursue the dream. If you're worried about the money, go back to school and get your MBA.
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Anonymous said...

German Indie Ass VUT sampled some similar data on revenues through CD sales / downloads

zunot said...

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