[LINK] Music Industry: Case Study
Timothy Michael O'Leary
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