This info came to me third hand. I make no claim as to it's accuracy. JW. Record executives, lawyers, promoters, etc...all prey on musicians that are stupid and have no common sense about the record business -DON'T BE THE IDIOT. Here is a slightly "in-depth" article about a few of the pitfalls many musicians should be aware of before entering into any sort of recording agreement. -Also, you as a music consumer should be made aware of this information as to "why am I paying over $15, for a CD that costs less than $1.00 to manufacture?!?" -Know the FACT$...know where your money is REALLY going! This article is lengthy, please feel free to print it out and distribute to anyone you feel might benefit from this information. Music Industry -Victims Of The System Introduction If you ever stopped into your local record shop, have you ever noticed shelves and shelves of music are displayed from artists you had no idea existed? Or you have heard of some artists, but they have vanished nowhere to be found? Where are these artists now? And tons and tons of these records are stocked on the shelves in this one little store alone...could the music from these groups/musicians be bad? If these artists just disappeared…why? In general, most artists that signs contracts with major labels intends on receiving the “fame and fortune” from their music. If the amount of musicians that have succeeded with fame and fortune can literally be counted out (i.e. Michael Jackson, Madonna, Bruce Springsteen, Billy Joel, etc.) Statistically comparing the amount of thousands after thousands of artists signing record deals, to the ones that actually succeeded with fame and fortune from being signed, you could say, the chances of success from music is like the odds of winning from a lottery ticket! The highly demanded recording format is presently compact discs over cassettes and vinyl. Compact discs retail in stores anywhere from $12.99-$19.99. The average manufacturing of raw compact discs only costs 85 cents per unit. The jewel case is the case in which every CD is contained. The tray is the platform on which the CD rests on. And the booklet is the two (or more) page pamphlet that contains artwork and information about the artist and the project. The average price of a jewel case is 21 cents per unit. Price of the tray, booklet, and shrink-wrapping combined comes out to an additional 16 cents per unit. Grand total of the packaged CD costing $1.22 per unit. These prices are for small orders of 2000 units or less. Major record companies usually order a lot more than that amount, which means the price of packaging drops because of such high volume manufacturing. (Kashif 214) Major labels then sell their CDs (in quantity) to distributors at wholesale prices ranging from $6 - $10. The distributors then go ahead and sell to music stores, and so forth, raping you (the consumer) with a steep $13 - $20 CD. How do artists go about getting signed to the record industry? [back to top] It is either one of two ways, labels come to artists or artists go to labels, but it could be a web of different strings between. A strong 80 percent of artists look to get signed. They begin by networking with the people involved, collecting contacts. Most artists shop their demos (sample recordings) out to hopefully get a record label to draw attention to their particular music. When a record label has an interest to a certain artist’s music, suddenly the artist is “bought” into signing a record contract. Instantly riding in fancy automobiles, staying in luxury hotels, and paid airline flights for meetings in eminent corporate offices The artists gets so wound up like it is like the greatest chance of the lifetime. (Samuels D6) Before artists sign a contract with a record company, it is best that they hire a lawyer. In some states, particularly California; lawyers are required to enter into agreements with clients that state the type of work they are to perform for the client, the amount of compensation that is agreed upon, and the overall terms of that relationship (holding the attorney harmless for any cause of action, or any and all liability; ie. the artist fails from signing a bad contract). These agreements are legally binding. (Kashif 209) Since recording contracts vary, the basic terms in recording contracts is the number of albums to be recorded, budget, royalties and advances to be paid to the artist, what rights the company has with recordings and in the event of breach of contract. (Enright 52) According to the particular contract, generally the label owns title of the recording, control of distribution, as well as promotion. The artist is allowed to borrow any money needed in the recording/production costs, as well as any money needed for tour support. But any money advanced is to be recouped by the record company. Problems arising? Record royalties are the percentage of sales the artist and/or producer receives from the record company. They are based upon the number of records that are sold, the retail price, and standard deductions every record company takes from the gross income from the sales of those records. These deductions include the recording costs, packaging, returns and reserves, discounted military sales, video costs, tour support, and free goods. (Kashif 216) It is very easy for artists to fall in debt. Most artists receive between 6 to 13 percent of the retail sale price after the record company recoups all money loaned to the artist. Royalties are only calculated after packaging costs and taxes are deducted from the sales price and are payable only on the amount of records sold (about 85 percent of the total number of records sold as CDs and 70 percent of records sold as singles.) Music sold to the military and the rest of the world can expect a low royalty rate -sometimes as low as 50 percent of the sales of domestic. (Kashif 216) (Keep in mind, international wholesalers purchase American music paying top dollar to these record companies.) Even though all the percentages are expressed in the contract, artists don’t really think about the royalty rate which translates anywhere from 70 to 98 cents per album. Artists automatically assume that a 30,000 debt is not hard to pay back with the royalty rate. (Samuels D6) (While artists continue paying off their debts, record sales are soaring giving the record company the monopoly of all initial sales.) It is also very easy for artists to spend $30, $150, $400, etc. thousands of dollars -lawyers, accountants, managers, producers, engineers, recording costs, booking agents, tour vehicles, food, clothing, music equipment...the list goes on! All these necessities costs the artists. Reserves are the percentage of income that a record company holds and will not pay royalties on (just in case a portion of records that have been purchased are returned to the store or wholesalers.) If these records are not sold, the record company will never pay royalties on them. Reserves are the record companies’ protection from having to pay artist and producer royalties on records that are returned (have not generated income.) (Kashif 210) Record companies have agreements with large wholesalers and retail stores that allow them to return goods that have not sold to consumers within a certain period of time. Sometimes record companies will manufacture large quantities of CDs and cassettes in expecting a high demand in sales. But many times the record bombs and the result is a large number of returns. The greatest risk for a large number of returns is taken when a record company releases an album recorded by a superstar artist. The record company believes that project will sell a huge number of units and they then manufacture and send off a large number of records to wholesalers and stores. If the project is not a success, the record company can look forward to seeing truckloads of returns real soon. (Kashif 210) When a record company feels the only way to sell off existing inventory of a record is to sell it at rock bottom prices, they refer to these records as budget items. Here the trick of the record company is to negotiate how long after an initial release a record company must wait until they have the right to offer that record as a budget item. Royalties on budget items can be as low as 50 percent or even 0 percent of the base royalty rate. (Kashif 219) There is nothing more embarrassing and humiliating for artists than to walk into a record store and find their albums in the budget bin of that store for the low, low price of 99 cents. (Kashif 219) Growing problems arise for many artists who say the blame for the musical failure of their careers lies with management taking advantage of their unfamiliarity with the music industry. In return, the management blame the artists for getting themselves so deep in debt. By the time artists record their record deal, they are so excited over the whole thing, that they become stupid to the point of where the sense of fulfillment becomes greater than their business sense. (Samuels D6) Packaging and other deductions? Record companies usually deduct a certain amount of money income coming from sales for the cost of packaging records and CDs. They deduct up to 25 percent of the price on CDs for packaging, up to 20 percent for packaging on cassettes, and up to 15 percent on vinyl LPs. Artists/producers will not receive royalties on the money that is deducted for these costs. If the price of a CD retails for $15.00, 25 percent of that would be $3.75, which would be the packaging deduction. (Kashif 219) CDs: $15.00 Basic price of CDs -3.75 25% packaging deduction $11.25 After packaging Cassettes: $11.00 Retail price - 2.20 20% Packaging deduction $8.80 After packaging (in the following "Real Costs"...we are explaining the REAL manufacturing costs of goods) REAL COST OF CDs: $15.00 Retail price of CDs -0.37 Actual packaging cost $14.63 After packaging REAL COST OF CASSETTES: $11.00 Retail price of cassettes -0.31 Actual packaging cost $10.69 After packaging (Kashif 215) Free goods are referred by record companies as CDs, cassettes, and records the company gives away to record stores. Of course, the artist gets no royalties on these records. The reality about free goods is that they are meant as a way for record companies to make money on sales of records and at the same time not have to pay artists, producers, and publishers. The average deductions for free goods are 15 percent for CDs and 23 percent for singles. This means that for every 85 CDs or cassettes sold to record stores, an additional 15 are received as free goods. (Kashif 216) Artist royalties are based on the retail selling price. Record companies make more money based on the wholesale price. No matter what the record company charges a wholesaler, artist royalties are still based on suggested retail price of the product. (Kashif 220) Record companies exaggerate the wholesale price of records by 15 percent and pass along to wholesalers 15 free records for every 85 records the wholesaler buys. The wholesaler is still paying the exact same price for the same amount of records, but since record companies pay no royalties on free goods the artists does not receive royalties on 15 free records the wholesaler is supposedly “getting for free.” (Kashif 216) Also, most artists misunderstand the 15 percent free goods issue with the free goods that record companies give to record stores, radio stations and TV stations. There is a difference with the free goods that labels give to record stores for promotion, product attraction, and in-store air-play (a further deduction of 5 - 10 percent from artist, producer, publishing royalties!) (Kashif 216) When artists are signed, in general, the record label will sign them up and then leave them alone for a while until they sign a profitable deal or have a hit recording. Then, the record company will crawl out of the woodwork, waiving their old contracts and claiming that they own the rights that the artists just sold. Chances are, the record company wins. Unless the artists has money to pay for lawyers to hopefully get them out of the jam, or get another record label to buy them out, they are pretty much at the label’s mercy (Kashif 36). A record company usually guarantees or contains them to a minimum number of albums to be recorded under contract. This is typically one CD or sometimes maybe a single. Thereafter, the company can, at its discretion, require the artist to record additional recordings. This is referred to as an option. Normally, the company agrees to do one CD with options to do seven to nine additional CDs. The fewer the options, the better it is for artists to become a “free agent” sooner and can arrange for a new contract on the open market. Sometimes artists are allowed to be terminated if a certain minimum number of records were not sold on the prior release or if the albums were not released in the US and/or other major world markets. (Enright 52) Artists wanting to purchase their own music recordings for selling at live performances, as well as for giving to friends and family members, are only permitted to buy back the recordings from their own label at a special wholesale rate. The labels charge the regular wholesale rate $6-$8 per CD to the artists for their own music. (Keeping in mind, CD manufacturing at most costs $1.22 to make.) Artists pretty much rely on touring for their main source of income and not the royalties from their record label. The record label pushes artists to tour (in order to sell more music.) Artists need a lot of merchandise in order to sell at live performances. A lot of times artists have no choice but to loan money from their record company in order to buy back their CDs at the special wholesale rate. So while artists are stuck in debt, the record label makes money off the band (for making the band purchase the CDs at the wholesale rate) as well as keeping the artists in debt and touring in order for the record label to make most initial sales in record shops. That is commonly known as LOAN SHARKING! (practiced everyday with the music industry!) Calculating basic artist royalties: How much do artists get paid? Here is a fairly accurate sample of income and costs. Remember artist royalties are based on the retail selling price of cassettes, and CDs are based on a price just slightly higher than cassettes. For simple calculation this is the cassette royalty rate. (Kashif 220) $9.98 Average retail price of Cassettes - 1.45 15% Packaging deduction 8.53 -.99 10% of $9.98 deduction for free goods $7.54 Amount artists royalties are really based on x0.12 Artist royalty rate 0.90 Artist royalty rate per unit Now we will take this example and show what an artist will make if their record were to luckily go GOLD (sells 500,000 units) (Kashif 221) $0.90 Artist royalty per unit x500,000 Number of units sold $450,000 Artist royalty before deductions An artist does gain a lot of money from their recording sales reaching 500,000 units. But before the artist gets paid, record companies will deduct certain expenses that greatly affect the amount of the actual artist royalties. Here is an example of standard deductions that record companies take from the artist royalties. (Kashif 221) $450,000 Artist royalty before deductions - 200,000 Recording cost - 75,000 50% deduction for two videos (costing $75,000 each) - 100,000 Tour support * - 75,000 Independent promotion 50% of actual costs - 10,000 Independent publicist 50% of actual costs - 5,000 Retail marketing 50% of actual costs - 15,000 Actual artist royalty if they are lucky! (* Artist must tour to help increase record sales. They must be able to pay band and road expenses. Therefore they take a loan from the record company.) (Kashif 221) The actual artist royalty does not reflect the 35 percent of total royalties due to the artist that the record company will hold back as reserves. If we add that number to the equation the picture changes severely. (Kashif 222) -$15,000 Artist royalty after deductions -157,500 Reserves held by record company -172,500 Artist account with record company until reserves are liquidated. As if above mentioned numbers are not enough to make you want to throw up, let’s take a trip into the future when our artists will begin to record their second album. The record company is telling the artist that everything looks good and that they feel good about their success of the first album. The executive is implying that they have laid down some solid ground work, and although the record company has not had the kind of sales they hoped for on the first album, they are still behind the act and looking forward to building on the sales base they have already established. The artists agree because they are hypnotized by all attention they are receiving from their public and press. (Kashif 222) Take the negative balance from the first album, which is $172,500, which now appears as the act’s account, and add to that a recording budget of $250,000 for the second album. The account will reflect a balance of -$422,500. (Kashif 222) -$172,500 Artist negative balance from 1st album -250,000 Recording budget for 2nd album -100,000 Two videos for second album - 100,000 Tour support 622,500 New unrecouped artist account before release of the second album. By the time the act has recorded their second album, they are beginning to wise up and realize they are not raking in the kinds of cash they expected. Not only are they not having the kind of financial success they had hoped for, but in most cases they find themselves in a serious financial crises. (Kashif 222) The good news is, if the records reach sales of over 750,000 units, artists will start to receive royalties, unless they have taken advances that will keep them in the un-recouped position. The bad news is that most artist’s records do not reach anywhere near 750,000 units and therefore 95 percent of all artists who have records released never receive a royalty check. Can the artists break out of the recording contract without any serious legal problems? Yes, if the record company is willing to release the artists from the label and they go through normal legal channels. No, if the record company is not willing to release the artists from the contractional obligations. In that case, the best thing for the band to do (with great care and caution) is to try to find another label to buy them out of the contract. (Kashif 36) What about independent record labels? Being called “independent,” these record labels are based on the ideas and ways of the major record industry. With increasing frequency, on artist recording agreements, the smaller labels are reflecting the contractual style and approach of major labels. What are they doing different? but replication on a smaller scale. Artists succeeding and doing very well on independent labels, where else can they go? -but advance to signing a record deal with a major label. Independents follow the same format giving it one way or another. What is a good record deal? Artists deserve to make lion’s share of profit from their artwork. Artists should have complete control over the recording and manufacturing of their own release, a control over the distribution, and control over what the retail price of their release should be sold at. Although it appears as though record labels are taking a risk in the beginning for signing artists, if the artist’s time, energy, and emotions mattered to labels, they wouldn’t feel they were the only ones taking risks. Without artists, record labels would not exist. The only thing record labels have as their most valuable contribution is money. Artists bring talent and creativity as a most valuable contribution. Which is more valuable? In all reality, record labels would not exist if it were not for artists bringing them the talent. (Kashif 202) What about scouts and A&R? An A&R (Artist and Repertoire) Coordinator or rep performs a variety of functions depending on the record company he or she works with and its size. The main duty is to find talent for the company and sign them up. By visiting clubs, listening to tapes or demos, or watching videocassettes of acts performing, when A&R reps are ambitious for an established act to sign with their company, they do everything in their power to make their contract more attractive than competing companies’ contracts. A&R reps are given bonuses for signing existing “superstar” talent or an artist makes it big. Scouts are people that are closely associated with record labels. They also seek artists for potential success and recommend A&R reps to look into these artists. Scouts can be magazine writers, booking agents, radio DJs, TV producers, lawyers, accountants, any regular person “involved” in the entertainment field. Scouts are also given bonuses for turning in artists. How can artists get heard without any part of the record industry? If artists have the know-how about releasing their own music and continuing by themselves. But if an artist succeeds, they usually get caught into record labels that become their “best friends” in order to “help them” release future music. Presently their is a music system designed as a logistical support for helping any artist to be able to reach thousands and thousands of people, without any restrictions from the record industry, distributors, and media exploiting artists. This music system can be used for any music style, music is music...music is art! The proof happening now here in the East Coast punk underground. Behind the closed doors of an actual signing of a band... [back to top] Less Than Jake, a punk-ska band from Gainesville Florida, explains their leading up to signing a contract with Capitol Records. Chris Niels, front man for Less Than Jake says, “Basically we got a lawyer and worked everything out. We never went out looking for them. We don’t have a bio or anything like that. It’s not in us. Music has always been a hobby, and it will always be to us! To make a long story short, this guy from Capitol named Lorne, who’s an understudy to our A&R guy who signed us, is a scout who goes out...He knows every underground music zine out there. He knows zines done by kids with a run of 30. He’s a hard worker. Anyway, he kept seeing music reviews of us. He called around and in Atlanta got our 10 song sampler “Better Class Of Losers” from Dill Records. When he listened to it, he gave it to Craig Aaronson, our A&R guy, and told him he should hear this. Though he didn’t like ska, he ended up listening to it and liking us. So in June of ‘95 he flew out and saw our June 23rd show at the Hardback Cafe in Gainesville, FL. He liked what he saw and followed us around on tour last summer before inviting us to California to carve out a deal. That’s pretty how much it started” (Rational Inquirer 3). Roger Sixx, bassist, explains; “They flew us down there and, sitting in a room across from Capitol executives, told them what we wanted: the freedom to release vinyl on independent labels and to have songs on compilation tracks” (Cariaso 1). “They were completely left of center”, Aaronson, A&R from Capitol Records says. “It was the first thing I’ve heard with horns in a long time, but horns with an edge. It was really, something original. You get so much pop-punk coming in, but these guys had something original. And more importantly, they had good, old-fashioned song writing!” (Rennie 1) “I saw these guys in Gainesville and then chased them around the country,” “I wasn’t going to stop until they signed. It took six months, and it was worth every second of it,” says Aaronson (Cariaso 2). Less than Jake signed a “letter of intent” with Capitol Records, a formal way of saying that the band is not pursuing other offers. The letter allows Capitol to begin funding projects while the band cleans up it’s own backyard. “Basically, the label needed something with our signature on it so they could advance money to -not to us- but to our recording costs,” says Chris Niel, “This way, we have time to deal with incorporating the band and all that legal matter” (Rennie 2). “The contract basically boils down to the fact that Capitol touches NOTHING.” Says Vinny Balzano, drummer, “That means that they don’t touch tours, merchandise, they don’t tell us what to do, when to do, or how to do it.” Basically they say that at this point you [LTJ] need an album. We’re going to promote and distribute that album. We’re allowed to do independent releases. Basically, we are an independent band on a major label that gives us good distribution.” Chris adds, “There are limits also. There’s also the fact that if they don’t make money, we are thrown off the label. We know that. They’re a corporation” (Rational Inquirer 4). “This is going to sound crazy, but...we’re not going to make it to six albums.” Chris says. “It’s a six album deal. That’s the way they sign contracts -six albums, ten year deal. But after two albums, if we’re not selling, they’re going to say bye to us fast” (Rational Inquirer 4). Chris says, “If we want them to, Capitol can help with our touring. It all has to do with advances. All these bands, like the early eighties metal bands that did all the hotels and hooker thing and getting two hundred thousand dollar advances owe the label all that money back. They did not know what they were getting into. They had to pay for all of that. We asked the label every question imaginable, and went over this for seven months before signing the contract, and what we got what I think was a fair deal” (Rational Inquirer 4). Nobody is holding a gun making artists sign contracts It is very simple to point fingers at artists for getting themselves so deep in trouble after signing a contract with a record label. Record labels are to blame for indirectly instigating harm and dangers many artists face. If record labels really cared about the artist’s true talent, problems many artists face from signing bad record deals would be eliminated from the beginning. How can record labels change to help bands? Whether or not the Less Than Jake contract is an excellent record deal it is all a matter of personal opinion. The fact is, Less Than Jake as well as many other bands are starting to wake up and be more aware of what goes behind the closed doors of recording contracts, and making changes about it! Many people will agree that the methods many labels employ are damaging to artists. Without artists, labels would be nothing. They should return the favor and give artists a fairer shake of the deal. The corrupt methods most labels employ are facts. And the results to artists are harmful. Many of us agree that these methods and practices most labels use are harmful and will continue to speak out about it. Works Cited Cariaso, Michael. Archive, online, 27 Nov. 1996. (1-2). Enright, Ed. “Negotiating The Nuts and Bolts of a Record Deal.” Down Beat August 1994: 52. Kashif, Michael J. Everything You’d Better Know About The Record Industry California: Brooklyn Bay Books, 1996 (36-224). Rational Inquirer #6. online, afn.org. Internet 27 Nov. 96. Rennie, Michael. “Less Than Jake Interview”, online, Internet. 27 Nov. 1996. Samuels, Anita M. “A Rapper Who Found Music to be the Easy Part.” The New York Times 5 Feb. 1996: sec. D6. William Krasilovsky, Sidney Shemel, This Business of Music, New York: Billboard Books, 1995: (662-666). Ó 1996