MEMO
To:
ARTISTS, SONGWRITERS & COMPOSERS
From:
Adrian Chambers
Cc:
LABELS & MANAGERS
Date:
28 March 2007
Re:
Where the Money Goes (Guidance Memo 05)
1.
Ace Of Jacks Records
PO Box 47619
London SE4 2WT
United Kingdom
T: 07961 977 707
E: info@aceofjacks.com
W: www.aceofjacks.com
INTRODUCTION
When you hand over your hard-earned in a record shop for a CD, where does the money
actually go? This section explains who gets what when you buy a CD.
For the sake of this argument, we'll say that the average CD costs about £15.
2.
STARTING AT THE SHOP
Record shops get their merchandise from a distributor. The distributor doesn't buy records
from the label; they merely ship them from the factory to the shops.
Shops only pay for the CDs they actually sell. Any that don't sell are sent back to the label.
A shop will pay about £8 for a CD that it sells to you for £15. That £8 is known as the
Published Price to Dealer (PPD). PPD is an important number because it's used to calculate
other royalties.
When a CD is sold, the shop pays the distributor for it. The distributor will deduct its fee around £2 - and pass the rest on to the label.
So we've now got about £6 left of the PPD to pay the label, artists and everyone else.
But to go back to our original £15 for a second, taking out the £8 PPD leaves £7 still with the
shop. A little more than £2.20 of that will go to the government as VAT. That in turn leaves
about £4.80 for the shop to pay staff and administration costs, heating, lighting, rent,
business rates and all that stuff.
‘Producing Good Music’
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3.
THE ARTIST'S SHARE
What happens to the £6 we've got left from the previous page depends on the artists'
situation and their record contract. Typically for a major label deal, the artist will receive
about 16-19% of the PPD. It's important to remember that this is money from record sales,
and it gets divided between the various full members of the band and their manager.
So in an ideal world, the band would end up with somewhere between £1.20 and £1.50 per
CD sold. In practise, there are all sorts of extra deductions that the record company will
make from that, which will probably drop it to more like 90p to £1.10.
Chances are though, they won't even see that. Most artists are massively in debt to their
label by the time they put a record out. They'll have taken out advances, which are kind of
like loans so they have some money to live on, and also to pay the costs of recording the
album. These advances must all be paid off from the artists' share of the income from sales.
In other words, the band won't see another red cent from their label until they've paid off all
those debts. For a major deal this can be hundreds of thousands of pounds, which at £1 or
so per record means that the artists have to sell hundreds of thousands of CDs before they
see any money from sales. Some artists have had long careers spanning several albums
without actually seeing any royalties from sales at all.
For more on royalties, advances and deductions, see “Guidance Memo 03 - Recording
Agreements”
4.
OTHER PERCENTAGES
There may also be other people who will receive a percentage of income from CD
sales. Percentages, by the way, are known as 'points' in the trade. One point is
approximately equal to 1% of income.
High profile producers and sometimes even engineers can command a few points on a
record - typically 3 but sometimes as many as 5 - as well as their regular fee.
You sometimes also see 'executive producer' as a credit on a record. This is sometimes
someone at the label who's made a significant contribution to the record and has been
awarded a few points in exchange. Other times it's a way of getting a big name artist or
producer associated with a new act. They may not have had anything to do with making the
record; it's a way of getting their endorsement
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5.
THE FINAL BILL
We also need to allow about a quid to actually manufacture the disk. So, here's
approximately how your £15 (100%) gets split up:
6.
32%
Shop - £4.80
15%
VAT - £2.20
13%
Distributor - £2
8%
Artist - £1.20 (subject to possible deductions and paying off advances)
6%
Writers - 90p (although 36p of that may go to the publishers of the writers)
1%
Producer – 18p
7%
CD manufacture - £1
18%
Label - £2.72
ONE-OFF COSTS
There are also a number of one-off costs which need to be met in order to make a record
and sell it. One of the major ones is the cost of actually recording the thing. This can run to
hundreds of thousands of pounds.
Studio time will be the bulk of that cost, but there will also be fees for the producer,
engineer and any musicians who have been hired in to play special instruments or sing back
vocals.
One of the bits of this which is pretty unfair is that the recording costs have to be paid off by
the band. And once they've done that, the label still owns the rights to the record. This is a
bit like paying off your car loan to find that the bank still own your car at the end of it.
Sadly, that's just how it is.
The other major one-off cost is marketing the record. This means things like buying
advertising space on TV, radio, poster sites and in magazines and will often run up to
another couple of hundred grand. Plus there's the cost of actually making the TV and radio
ads, and designing posters and magazine adverts.
Then there are some smaller costs like designing the CD cover and producing promotional
copies of the record to give to journalists, DJs and radio & TV producers. Often labels will
also produce extra marketing gimmicks like t shirts and frisbees which will be dished out to
media types to promote the record.
And we haven't even touched on the whole use of singles to promote the album, and the
costs of making and marketing them: more advertising space, remixes, videos and more
frisbees.
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7.
WHY THE LABEL GETS MOST
It's true. The label is already charging the recording costs back to the artist and will also try
and charge back as much of the marketing cost as they can too. So how come they get
twice as much as the artist?
Now we don't want to be seen as apologists for the major labels, but there are reasons for
the label to take such a huge slice of the wedge.
Mainly it's because most artists don't even get to the stage of releasing their first album.
Depending on who you believe, only about 1 in 10 or even 1 in 20 artists who get signed
actually go on to have a successful career.
Some of the others release a single or two that flops and are quietly dropped. Others even
get to make a whole album that never gets released because it's not great and the cost of
marketing a turkey would be good money after bad. So the label will dump the record and
sign another act rather than release an album they're not sure about.
And all of these artists will have been paid advances when they were signed and some will
have racked up recording and other costs. The label needs the money from the few artists
that did succeed to pay off their losses from the ones that didn't. So some of your £15 is
going to pay off the A&R department's mistakes.
8.
SMALL LABEL DEALS
The stuff we've looked at so far applies to major and large independent record deals.
For a small label deal, it's typical to do away with all the complexities. Often they'll simply
split the profits from the sales of the record 50/50 between the artist & label, once the label
has deducted manufacturing and other costs.
Costs may be proportionally higher than for a major deal. For example, it costs more per
unit to make a few hundred or a couple of thousand CDs rather than the tens or hundreds of
thousands that a major would press.
So it might be £2 or more per CD than the quid we assumed earlier.
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