The Problem With Royalty Base Record Deals

May 16, 2024 | blog, Uncategorized

MBW Views is a sequence of unique op/eds from eminent music business folks… with one thing to say.  The following op/ed comes from UK-based Hunter Giles (pictured inset), who co-founded and leads Infinite Catalog, a royalty accounting software program + service firm.

Whenever I speak to artists who need to signal a revenue share file deal, the 50/50 variety, I all the time consider them in a specific context. Imagine a pond, about twenty ft huge and ten ft deep, perhaps sixty yards lengthy. I think about the artists at one finish of the pond and the folks from the indie label on the different, waving howdy and, with sheepish grins, holding a revenue share deal ready to be signed.

The indie label individuals are gesturing, saying get in, it’s superb! Maybe not probably the most pristine pond of all time, and there’s all the time some danger in swimming, however it’s completely secure and also you’re welcome to swim so long as you want. All the artists soar in, and even if most aren’t sturdy swimmers but, all of them paddle round, check out some strokes, and splash one another with playful camaraderie.

Two artists get to the label finish first. To one, the label says, “You’re obviously great, but we don’t think signing you would be the right move for either of us. The pond is a great place to keep developing, and we’ll be rooting for you from here.”

To the opposite, they are saying, “We’d love to work with you, even though the odds of success are long and the road is hard. We don’t care. We believe in you.” And they do.

Next to this pond is a trench of decaying shit. This is the place you swim if you wish to signal a royalty-base file deal.

Steve Albini and The Problem With Music

We misplaced Steve Albini final week, and I believed I’d pay tribute by revisiting his The Problem With Music, a seminal textual content of the DIY and indie scene that’s nonetheless related in the present day.

From the colourful opening to the spine-shivering ultimate line, it pulled again the veil on the darkish underbelly of the music business circa 1993. Names are named. The center part is a rant about recording. The complete shell sport of a significant label “royalty base” file deal is unmasked with the parable of 1 band’s seemingly-positive journey ($250,000 advance, $3 million in file gross sales, a bus tour) that however leaves them -$14k within the royalty gap.

Albini might need scoffed at my intro above, an inversion of his intro to The Problem With Music, the place sadistic main label A&R flacks demand artists swim backstroke by way of a trench of decaying shit. I wouldn’t argue with him if he did. The challenges and pitfalls of mixing artwork and commerce don’t simply dissolve as a result of folks name themselves DIY or indie, use one sort of deal vs. one other, or say they care extra about artists than cash.

In truth let’s state it for the file: loads of indies get uncovered for shady offers, defective royalty accounting, and never paying artists. I began my firm Infinite Catalog to assist folks keep away from and deal with this not-uncommon destiny.

Attention-grabbing pond-vs.-trench intro apart, simply because a label is impartial or does revenue share offers doesn’t imply they or the deal is inherently “good,” nor are the majors or all royalty base offers inherently “bad.”

But they are totally different, these offers.

The Problem With Music made the explanations for the music business’s horrible repute crystal clear. That’s what made it such a strong piece, and Albini, unafraid to talk reality to energy and one eloquent motherfucker, was the proper messenger. His influence on music as an engineer and artist was profound and is rightly getting a lot of the consideration, however it was The Problem With Music that modified my life.

Because once I learn it, I’d additionally lately realized concerning the different sort of file deal – the revenue share (50/50) ones that had been utilized by indies for many years, which higher align the label with the artists. He’d completely described “the problem” and revenue share offers appeared like the plain resolution to me, particularly given I didn’t and don’t suppose the folks handing out royalty base offers are grasping psychos.

If extra folks knew how the deal sorts differed, perhaps artists would cease signing up for the shit trench, or the folks concerned would cease forcing artists to swim backstroke by way of it, as a result of there’s a wonderfully good pond everybody can use as an alternative.

That’s what I believed then, and it’s what I believe now. With all due respect to Steve Albini, he didn’t point out revenue share offers in The Problem With Music, or suppose to check the 2 for a similar situation.

Nor did I till he died final week. That’s what that is.

The Two Types of Record Deals

Net revenue file offers work like this: the label pays for a lot of the bills and any advance up entrance, collects all of the revenue, and in the event that they break even, splits the income (normally 50/50) with the artist. If the label doesn’t recoup the bills and advance, the artist doesn’t must pay them again.

In royalty base offers, the artist will get a “royalty rate” that’s sometimes round 15-20%, and bodily gross sales are accounted at a “PPD” fee (“Published Price to Dealer”) set within the contract which can or (more likely) will not be the identical quantity of revenue the label really collects from the gross sales (since in the true world there’s a lot of totally different costs, reductions, and so forth).

These offers typically embrace a extra beneficiant “license rate” that’s sometimes 50% for issues like syncs and different non-sale revenue, and also you’d suppose this is able to be the speed they apply to revenue from streaming and social (since there’s clearly no strategy to set a regular fee for that), however final I checked they largely nonetheless use the bodily gross sales fee (except you sue them).

Manufacturing and distribution prices do get shouldered by the label solely in these offers (in revenue share all prices find yourself “shared” between the label and artist if it recoups), however there’s sometimes a ten% “packaging deduction” from the royalty fee to cowl the previous, and in the event that they’re a significant, they personal the distribution firm too, in order that “cost” goes in as revenue in a separate a part of their enterprise.

This implies that within the morass of the royalty base shit-trench, it’s tough and infrequently inconceivable for the artist – and even the label itself – to ever actually know what a file really earned or how a lot the label profited in comparison with the artist. At the label, the true revenue is dealt with on the accounting aspect, whereas the “calculated” revenue is dealt with on the royalties aspect, and infrequently the twain shall meet.

The misalignment between label and artist brought on by these royalty base offers is, in my view, the longest operating downside within the historical past of well-liked music, harming not simply artists, however actually each music fan that missed out on untold information that had been by no means made, as a result of the careers of nice bands they by no means received an opportunity to listen to had been doomed as soon as the ink on their royalty base deal was dry.

It’s additionally an issue we will repair. To paraphrase an artist who broke away from a significant and began their very own label the primary probability they received, this struggle may be over tomorrow (if you’d like it).

There’s These Bands

There’s these two bands. They’re each actually fucking good, have attracted followings, and are getting some critical warmth from some critical business gamers. They’ve each been self-releasing by way of an aggregator that solely prices them $20/month with no lower of royalties, so that they’ve already began incomes actual money on their very own.

But they’re each bold, and so they know that basically breaking by way of means doing a take care of the satan that’s the music business. Originally they needed to be like Chance the Rapper and keep completely DIY, however look what occurred to him, proper? No thanks.

So they get seasoned managers and legal professionals, folks THEY pay to look out for them. Besides, since they’re already having success self-releasing, they maintain all of the playing cards! They’re not going to signal napkins in bars or take the higher of two unhealthy choices. If they don’t just like the offers, they’ll simply stroll away.

But wow, not solely are they getting presents, there’s a full blown bidding struggle occurring!

They slim it down to 2 offers every. One’s extra of an “old-school” royalty base deal – greater advance, however a smaller royalty fee. The different is a revenue share deal, with a smaller advance, however a better royalty fee. Both bands get supplied the very same offers, one in all every kind.

One band goes with the revenue share deal. Maybe they’re considering “long term” or perhaps they similar to that label higher.

The different band goes with the royalty base deal. Maybe it was the larger advance, perhaps they only appreciated that different label higher, perhaps they thought ya know, nothing’s for positive. This means if it flops, no less than they received the larger advance, and if it hits, it hits! Can’t lose proper?

Their information drop and their identically priced movies and PR groups get to work, and each are in actual fact hits! The information every make one million and a half from streaming, one other $500,000 in bodily gross sales, and $100,000 in license and different random revenue.

Here is the mathematics that exhibits what an enormous mistake the royalty base deal was:

These bands made the music business round three million {dollars} richer every from these information alone, however the royalty base band is -$14,000 within the royalty gap.

They’ll recoup ultimately, however they’re incomes simply ~ 20% of each $1 in revenue generated. What they’ve received leftover from their advance for themselves at this level is lower than in the event that they’d labored at a 7-11.

The dissonance of their success and their royalty steadiness drives a rift between them and the label, and the connection sours. The label picks up their subsequent possibility anyway however the band doesn’t need to work with them anymore. The stalemate kills their momentum and their profession goes into the proverbial shit-trench.

Meanwhile, the revenue share band has made themselves and their crew far extra money, and their label is doing simply superb. Not solely are they over $250,000 forward of the royalty base band at this level, they and their producer are making a mixed 50% of each $1 that is available in. All sides really feel nice about every little thing, and so they hold swimming collectively for years to return.

Profit share offers are virtually magical for a way truthful, versatile, and clear they’re. Rarely do folks complain about these offers, even when issues don’t work out.

Nobody likes royalty base offers besides the labels that do them.

Not the artists who by no means recoup and see their careers over far too quickly, not the few who do recoup and limp alongside, not even the tiny fraction who by a statistical miracle make it huge on these offers, as a result of the label – an administrative and advertising and marketing equipment they quickly labored with – is making round 80% of the cash ceaselessly.

“Some of your friends are probably already this fucked.” – Steve AlbiniMusic Business Worldwide

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