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For a non-writing artist, royalties are the main source of income from the sale of their album. Somewhere in a recording contract you can bet that there will be pages devoted to how artist will get paid (and how artists won’t get paid). A Royalty is a percentage of the profits generated from the sale of albums. When you hear people talk about “points” on an album they are really talking about percentage points. If you get a producer who won’t charge you up front but asks for 3 “points” on your album, they are asking for 3% of the sale price of the album. Percentage points for an artist can be from around 8 to 25% of the sale price of the album (a brand new artist will be on the low end of this and an established artist will be on the high end). That sounds pretty good…at first. Record companies have all sorts of ways of making that number shrink.

The first way is by only paying an artist for copies sold. On a major release, thousands of copies are given away as promotional copies. These are called free goods. After all, someone has to pay for all those copies going out to all those radio stations and newspapers and clubs. And guess who pays for it…the artist, not the record company.

Another way is for the record company to hold back 35% of the artists royalties to offset record stores returning the album. Since music is very time-sensitive (something may be hot right now, but not in a few weeks), record labels have traditionally given record stores the right to return unsold records for a full refund. This is called the return privilege. And who pays if an artist’s album doesn’t sell? The artist of course.

And lastly, back in the days when albums were actually made on vinyl discs a lot of them would break in shipment. This is called breakage. For some reason this tradition carried on, even though albums are no longer made out of vinyl. So traditionally record companies would only pay artists on 90% of the albums shipped, assuming that 10% would break. Even though today CD’s don’t break nearly as much, this tradition still continues in many cases.

So, now let’s figure out how much an artist might expect if they sold a million copies of their album. Let’s say the average price per CD is $15 and the artist’s royalty rate is 10%. Right off the bat, the record companies deduct 25% for packaging (even though packaging doesn’t actually cost 25% of the sale price) so really we’re figuring out the royalty rate for $11.25. Ok, at 10% that still gives us $1,125,000! Pretty good! Well we need to subtract 10% because these were given away as free goods. Now we’re down to $1,012,500. Still not bad. Now let’s subtract 10% for breakage which leaves us $911,250. Ok now withhold 35% for returns, this should leave us with $592,312. Ouch. And we haven’t even talked about what it cost to make and promote the album let alone what money the artist may have gotten as an advance. Remember, all the money the record company invested in the artist up front is paid back first out the artist’s royalties. Hmm, maybe it’s a good thing that this model is completely collapsing!

Hans Erik
Content Marketing Director
Hans@Next2Friends.com
www.Next2Friends.com