Why become independent?
Major labels sign artists to contracts that redirect control and ownership of publishing, copyrights, and promotionallicensing away from artists.
Major labels loan artists upwards of $500,000 for recording, tour support, and video production that must be repaid from up-front record sales. This money is called an “advance.”
Artists are compensated, on average, $0.75 per unit sold in retail for a new/breaking artist and upwards of $1.25 per unit sold in retail for established artists.
Example:
Let’s say as an example that major label X signs New Band Y to a three-album recording contract and extends a $300,000 cash advance to Band Y as a promotion/production budget for the first release.
Band Y signs away all music rights into perpetuity and agrees to receive $0.75 per unit sold in retail for the first release.
From the start, Band Y must sell 400,000 copies in order to recoup the initial $300,000 label investment. (400,000 x $0.75 per unit = $300,000.)
Label X extends 5,000 ‘promotional copies’ that are charged back to the artist. In this case, let’s just say that the label decides to invoice the artist for those promotional giveaways at wholesale cost, which is the price retail stores pay for the product they resell to consumers in stores. For this example we’ll value the promotional pieces at a wholesale cost of $10. 5,000 promotional giveaways x $10 = $50,000. Band Y must now sell an additional 66,666 units at the rate of $0.75 to recoup the 5,000 units given to retail for promotion. At this point, Band Y must now sell a total of466,666 copies to break even.
The two most common additions to any successful project are the band manager and some sort of legal counsel. Normally, a manager will take a certain percentage of whatever advance has been extended to the band on top of a 10% share of all band revenues generated from product sales, performances, and in some cases, publishing. Though Band Y generates no tangible profit from the 466,666 units sold to repay the label, both the manager and attorney qualify those sales as band revenue. So, if 466,666 units are sold at $0.75 per unit, 10% of the $350,000 or $35,000(466,666 x $0.75) generated belongs to the manager. And let’s say an additional 10% ($35,000) is reserved for legal fees. In addition to those units sold to repay the label, Band Y must now sell another 93,333 units to pay off management and attorneys before any band member can receive compensation from product sales. In total, Band Y must sell the equivalent of 559,999 to fulfill contractual obligations before they make any money for themselves. After reaching the break-even point, all units sold will pay out like this: Band Y makes $0.75 per unit; manager’s cut = $.075; lawyer’s cut = $.075. This means that, for every unit sold, Band Y can expect to receive — at best — $.60 cents per unit after first selling 559,999 units. Meanwhile, the label receives credit for a gold album and achieves a gross profit of $5,179,991($10 wholesale rate – $0.75 = $9.25 x 559,999 = $5,179,991). The manager for Band Y and legal team made $42,000 respectively from album sales.
