Week 8 Class 1

This week we look at what exactly constitutes a royalty, and what the bottom line is with artist profits.

Royalty and Wholesale

• Royalty: A percentage of the wholesale price that the artist receives for each album or download sold.

• Wholesale Price: The market value of any individual good, service, or product. This can be determined based on an analysis of similar products and their relative worth in the marketplace at any given time.

What are “points”?

• Point: The royalty percentage. For example, if a producer negotiates “points” on their contract, they’ll receive three to five cents on every dollar for every item sold.

• If the artist’s label contract stipulates a 12-15% royalty rate that may very well be decreased by 3-5% if a producer is involved. As such, the artist now receives 9-12%.

Profit Margins?

There are a number of factors and/or “hidden fees” that historically have been

taken out of an artist’s profit margin.

Promo Giveaways

• Free promotional copies given away by the label, media, and distributors in exchange for advertising, promotion and so on.

• Remember, an artist only collects royalties on the albums that are actually sold. Promos don’t count towards that bottom line, but some feel they’re a necessary part of the marketing plan.

100% Return Clause

• If a store doesn’t sell a certain number of albums, they can ship those unsold copies back to the label/distributor and get a refund for what they paid for them. This is called a return clause.

• Retail stores have buyers who purchase a certain number of copies of an album from a distributor in an effort to anticipate turning a profit.

• Remember the supply chain?

Packaging (Really?!)

• Packaging: An artist can be charged for the amount of money and effort it takes for a distributor to put shrink wrap on the physical product. Not as common any more with digital distribution, but still out there.

• So, if the artist was making $10 for every CD, the packaging charge might be 20%, which is now $8 for every CD sold.

Delayed Shipments

• Delayed Shipments: Sometimes labels won’t ship out an entire inventory of an artist’s new album unless they’re sure the albums will move. As such, an artist may not collect on 100% of the royalties, but rather 65 or 70%.

• If those albums sell, then the artist will collect on the remainder, some two years later.

Advance

• Advance: The sum of money a label or publisher pays to the artist in exchange for royalties. In essence, the label withholds any royalty payments to the artist until that advance is paid off.

• Think of it as a loan.

Recoupment

• Recoupment: The process of withholding a profit until an advance is paid off.

• If an artist doesn’t sell enough albums for the royalties to cover the advance, they are considered in a deficit.

Professional Organizations

• AFM: American Federation of Musicians; professional musicians union representing session players, Broadway Musicians and touring musicians.

• NARAS: National Academy of Recording Arts and Sciences; members of this organization vote for the Grammy Awards every year.

• AFTRA: American Federation of Television and Radio Actors; union that represents television actors, voiceover artists, and so on.