This course provides an engaging and methodical insight into the past and present cultural and commercial music industry developments, directions, and trends. It will equip the students with the knowledge and skills necessary to appreciate, understand and more productively participate in today’s music industry field.
Methods and Practices Part 2: Standard Recording Agreements (Part 2)
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來自 West Virginia University 的課程
新世界：当代音乐产业导航
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從本節課中
Recording Industry
與講師見面
Darko VelichkovskiMusic Industry Program Director
Music Industry
OK but the artist will make pretty good money from the sales of the album. All of that recoupable
stuff is not a major issue, is it? Well, it is, considering the artist’s cut from the
sales, or the artist royalty, as it is referred to in the contract. How much is the artist
royalty anyway? Again remember we are talking about majors and their standards here. Indies
and micro indies are a whole other story. Standard artist royalty of course varies,
but is generally 10 to 15 percent of the retail price of the recording. Stars and superstars
get more than that, but let’s stay with mortals here. So 10 to 15 percent of the retail
is the norm. So if an album is 10 dollars, the artist who has 15 percent royalty gets
1 point 5 dollars for every album. Right? Hate to disappoint you, but surely you are
used to it by now. No. OK so how is 1 point 5 dollars not 15 percent of 10 dollars. The
same way as a one year term is not 12 months, remember? Or, if we are to learn from politics,
depending on what your definition of IS is. Those of you who are not old enough to remember
that infamous brilliant question, and the circumstances around it, believe me you are
blessed beyond measure. Any way, just like in that sad reference, it all depends on what
the definition of the royalty base is. If the base really is 10 dollars then 15 percent
would be 1 point 5 dollars. But there are a clauses in the recording contract referred
to as the deduction clauses that modify and redefine the royalty base. Meaning, of course,
they diminish it. Predictable, right?
So how do they do that? How do they make a 10-dollar album, which is the original royalty
base, not ten dollars, but less, so the artist royalty becomes smaller because of it? Well,
first, the royalty base gets reduced for the so called free goods. OK, so if they give
some albums away as a promotion or something, they count how many they gave away, and those
don’t count as sales, so no artist’s royalty for those. That sounds OK. Except that’s
not how the math goes. The standard contract stipulates that the number of the units sold
will be diminished by 15 percent in the royalty calculations, on the account of the free goods.
There is no counting how many units are actually given away. 15 percent is deducted from the
sales, and that’s it. So now, 100 units sold count only as 85. The royalty base is
thus down to 85 percent. Then, the royalty base is further diminished by additional 25
percent for the so-called container charge, or the packaging cost. So now the artist’s
royalty base is 10 dollars time 85 percent times 75 percent, which comes out to 6 point
375 dollars. 15 percent artist royalty on that royalty base is 96 cents. So the artist’s
1 point 5 dollars is now down to 96 cents. Plus remember what we said about the controlled
composition clause? How the artist owes the difference in the mechanical licensing fees
if the publisher insists on the full mechanicals? That came to 22 point 75 cents per 10 song
album, remember? So the artist’s 96 cents gets further diminished by those 22 point
75 cents, and that’s how the artist’s royalty, through the sheer magic of a standard
recording contract, goes from 1 point 5 dollars, to 73 point 25 cents; or it get’s cut in
half, from 15 percent, to 7 and a half percent, faster than you can say recoupables.
By the way, you remember those recoupable expenses we spoke about? All those expenses
that the contract stipulates are recoupable by the company from the artist’s royalties?
Well, the royalties clauses also stipulate that the artist will start receiving royalties
when the company has recouped all its recoupable expenses. Other words, the artist does not
receive his, by now, cut in half royalty rate of 7 and a half percent of retail, until the
company recoups. OK so when is that? Well, since the contract defines recoupment as accumulating
from the artist’s royalties, when the sum of the royalties exceeds all the recoupable
expenses, then the artist starts receiving the royalties. Do you realize the implication
of that? No? Well, think. Let’s say the cost of the recording production for the album,
which is a recoupable cost as we said, was 50,000 dollars. And let’s say that the artist
received a 20,000 dollars advance, which is also recoupable. And that the video production
for one of the singles from the album costs 100,000 dollars, half of which is recoupable.
Plus the company will kick in 50,000 for the tour support, and 50,000 for independent promotion,
both of which are fully recoupable expenses. So, we’ll stay with our artist’s royalty
example of 15 percent, the album unit price of 10 dollars, and all the contractual royalty
base deductions we outlined earlier. Our artist’s royalty per unit thus came down to 73 point
25 cents, remember? So how many units of the album need to be sold before the artist receives
his first royalty check from this album?
Let’s see. The total amount that the company is recouping is 50,000 dollars for the recording
production, plus 20,000 for the artist’s advance, plus 50,000 for the video (half of
the 100,000 dollars cost), plus 50,000 for the tour support, and plus 50,000 for the
independent promotion. Which comes to 220,000 dollars. So you would perhaps guess that 22,000
units need to be sold in order for the company to recoup and for the artist to start receiving
royalties. Meaning, each unit is 10 dollars, time 22,000 units is 220,000 which is how
much the expenses were. Right? Wrong. The recoupable expenses are collected from the
artist’s royalties, not from the price of the album. That’s the real rub. And since
the artist’s royalty is 73 point 25 cents per unit sold, that means that - 220,000 divided
by point 7325 - 330,341 albums have to be sold before the company is officially recouped,
and the artist starts receiving his royalties. Over 330 thousand units, not 22,000. How likely
is that to happen? Not very. And we used a middle of the road recoupment numbers here,
nothing really extraordinary. Those can be much, much larger than that of course, the
higher you go in the industry ranks. Or they can be somewhat smaller, lower on the ranks,
but we generally stayed within the lines in our example.
