[LINK] Music Industry: Case Study

Timothy Michael O'Leary oleary@alphalink.com.au
Mon, 24 Feb 2003 14:39:52 +1100


A music industry case study

A look at a mythical rock band's earnings, with actual figures compiled 
from industry sources:

New York City's hottest new band is Grunthead, a four-piece hard rock group 
from Maspeth. Because they've got buzz, the band gets a 15% royalty rate, a 
few points above the usual amount for a new artist.

Its debut, "Gruntastic," goes gold  only 128 of more than 30,000 records 
reached that level in 2002.

The Gold Record Gross: 500,000 albums sell at $16.98 = $8,490,000 The 
Grunts' royalty is 15% of retail. That's $1,273,500.

But the Contract calls for "packaging deductions" of 25%, so the gross 
drops to $6,367,500. Then there's promotional albums and giveaways the 
labels give to wholesalers, retailers, radio and the press. That's a "free 
goods" charge of 15%, so the gross drops another to $5,094,000. So, the 
band's royalty is actually: $764,100. The record company keeps the 
packaging and "free goods" funds. After collecting a $9.99 wholesale price, 
it also reaps an additional $829,900. The $3,500,000 balance goes to 
retailers, assuming they sell the record for list price.

Because the band was hot, they got an advance from the record company of 
$300,000. They spent $200,000 of that recording the album, which included a 
$50,000 advance to the producer. They pocketed the remaining $100,000. 
Additionally, the label spent $100,000 making the band's first video, which 
got them played on MTV2. The band owes all of this money back to the label.

So the royalty drops to $364,100.

But the band's producer also earned a 4% royalty of $203,760, of which he 
already received $50,000. So the band has to pay him an additional 
$153,760, reducing their royalty to $210,340.

After pocketing $310,340 (which includes the remaining $100,000 of the 
advance), the band has to pay their manager 15%, or $46,551, and give 2% of 
the total deal, or $101,880, to the power lawyer who got them the deal in 
the first place. That takes the band down to $161,909.

That's not bad money, but it's split four ways, or $40,477.25 each, about 
the same as a city sanitation worker with two years' experience, without 
health benefits, vacation and retirement fund. But with, of course, groupies.

Originally published on February 19, 2003

http://www.nydailynews.com/entertainment/story/60991p-57008c.html


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
TIM O'LEARY
oleary@strategos.com.au
www.strategos.com.au