How much overall do the major record companies pay to artists?

July 9, 2008 1:52 PM

What portion of major record label gross income goes to pay artists and how much does the average American spend on music each year? A few years ago I heard that (1) the major record companies paid 4% of their income to the musicians, and that (2) the average American spent $20 a year on music. I've tried and failed to find these figures again. The first seems especially difficult to find (or maybe I'm just being dumb). There is plenty of information about what the average contract gives to the artist, but I'm not interested in that -- I'm looking for aggregated figures. Help?

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posted by johnsu01 to media & arts (9 comments total)

At the end, a breakdown of the cost of a CD is including payments to artists in a few-years-old Rolling Stone article about Wal-Mart trying to drive the cost of a CD down to $10. Here's another one from a 10 year old book. It's worth reading Steve Albini's discussion of what the "real math" of a record deal looks like. Obviously these figures aren't actually uniform for every artist and I highly doubt the record labels are a) bothering to work out real average figures on what they actually let trickle down to artists or b) giving anyone an honest look at their books regardless of what analysis they are themselves doing, so I'd take it all with a grain of salt.

Here's a PDF you can download on the global music market, you might be able to extract some useful market info out of that. You probably need to dig into Nielsen Soundscan to get into primary data on music purchasing. Here's a few secondary articles you might be able to dig some data out of. Since Nielsen only recently started to track digital downloads and let's face it, chances are a lot of the "long tail" sales all the kids are talking about aren't tracked at all (significant when CD Baby claims to be the biggest online retailer of CDs next to Amazon and probably a fraction of their artists are jumping through the hoops to get tracked) these stats are probably somewhat suspect too. Whatever you're aiming to calculate (I'm guessing something about how many artists we could actually support if you cut out the middlemen, so to speak) it's bound to be a bit back-of-the-envelope (which I'd say is fine, it's all speculative anyway). Self-link, I pulled most of these references off of a few articles I wrote in one of my blogs about the record industry, starting here.
posted by nanojath at 2:57 PM on July 9

That second figure isn't really ever going to be meaningful. For one, the average American may spend $20 on CDs or downloads or vinyl, but the major labels see much more than that per capita from licensing recordings to movies, television shows, ads, and many other things. So when a person goes to see a movie in the cinema, he or she is also spending money on music, but this isn't really calculated. It would be helpful if you mentioned what you were trying to get at; I've seen too many instances where someone will use this "major labels only give 4% (or what have you) of their income to musicians" idea to create some distortion of what that really means. In some sense, that could be a lot.
posted by Dee Xtrovert at 3:03 PM on July 9

Steve Albini's discussion is about the most misleading and worst-case scenario situation you can imagine. People take it as gospel, but it would be a truly unusual case when compared to most.
posted by Dee Xtrovert at 3:05 PM on July 9

And remember that the Albini article was written in 1993.
posted by ludwig_van at 7:04 PM on July 9

The answer really depends from contract to contract for each band label with each different label. In general, bands that sell better can renegotiate the contracts and start getting a higher amount per sale, but it's still subject to all the exemptions in place that prevent most signed acts from ever earning much from album sales. Bands typically get an advance of a certain amount that increases for each successive album, which is used by the band to record the album. This money from the label is also, however, used for almost everything else the label does for the band during that recording. Are the band member's put up in a fancy hotel? They're also paying for it. If the label rep takes the band out to a nice restaurant? Band's paying for that too. This advance amount is usually high enough and the majority of debut albums never sell enough that the band never sees any money from it because all the income is used to pay back the advance. And if, by the time the next album comes out, the first album's advance has not been paid off the band will have to make it up along with the second album's advance before any royalties are paid out.

This continues to compound from album to album until the band either makes it big enough that they can start paying off this loan or they are dropped by the label (remember, it's usually up the label to decide from album to album whether to continue with the band or end the contract) in a hard to escape system known as cross-collateralization. Depending on the artist, they may have a little or a lot of discretion as to how they want to record the album, which can mean the difference between costing $5,000 and costing $25,000-50,000+, the leftover amount of which could be used to pay back the advance and hopefully get some royalties. But why would you pay back money you have for maybe some potential money if the album does well? I could go on but it just gets more complicated from there. Still, in some ways the record industry is less corrupt than they used to be, but not by much. How the system has survived this long is beyond me.
posted by fishmasta at 8:18 PM on July 9

I don't think you'll find any study or any piece of research stating what percentage of their gross income is paid to artists. Quite frankly, the labels don't know. There is such a variety of different contracts all at different rates, with different sub labels in different territories and even different rates for various formats, that it would be hard to make anything other than a stab in the dark.

To make that stab in the dark I can tell you that, as fishmasta identifies above, major label artists are paid anywhere from zero in advance all the way up to a few million in advance for the biggest artists. A hot rock band starting out on their first signing might get a couple of hundred thousand if they're lucky. All this money is recoupable from record sales, and labels traditionally try and prevent artists from ever recouping.

Artists are paid on a percentage of the wholesale price (known as dealer price). This can be any percentage from two or three for old-school artists from long ago right up to 50% for an indie artist or an artist on an indie that was bought by a major or simply a megastar act. There are also now a few 360 degree deals where artist and label share equally in recording, music publishing and merchandising revenue - they're also 50/50 deals, albeit 50% of a far larger pie.

Adding an extra element of flux to all this is the fact that sales are now moving over to digital, where it is becoming harder to make money because tracks are being "cherry picked" on iTunes so album sales are getting hit hard. We're not yet at that "long tail" point where labels are making more from digital than they were from CDs - currently digital revenues are 15-20% of overall sales.

As for your figure about the average member of the US public paying $20 a year on CDs, I'd say that's way too high. I'd guess $2 or $3. But the average CD buyer (ie someone who does definitely buy music each year) might spend $20 a year on CDs.
posted by skylar at 11:55 PM on July 9

All You Need to Know About the Music Business
posted by Ironmouth at 6:51 AM on July 10

This is not so much an answer as a pointer in the direction of where to find the answer. Take a look at the Annual Reports and quarterly SEC filings for the Big 4 labels that are public companies.

For example, in 2007, Warner Music Group had $3.385bn in revenues. Its liabilites included $1.226bn in accrued royalties. This is not including the payments made as recoupable advances nor does it include the royalties paid to recording artists who are also songwriters.
posted by andrewraff at 8:18 AM on July 10

@andrewraff, Thanks for the link and idea to look at the SEC filings, that was helpful. It indicates that 36% of revenues went to artist royalties in 2007. That's a lot higher than I would have thought.
posted by johnsu01 at 2:33 PM on August 6