Survey of Music Business Exam 2 - Belmont University

Three Major Record Companies

Sony Entertainment Group - Japan
Universal Music Group
Warner Music Group - America

A&R

"ears"; scout talent
work creatively with artist

Sales

getting records in stores and on digital sites

Marketing

publicity, promos, website, advertising, merchandise

Promotion

getting radio stations to play singles

Production

Manufacturing and shipping CDs

Product Management

Telling other departments to push records

New Media

Techno Geek on all things digital

Finance

royalty computations and label's finances

Legal / Bus Affairs

label's contract with artist, licensing, etc.

International

Distribution of Records internationally

An independent label

Independents are record companies not owned by majors

a 'true' independent label

not owned by major; financed by owners or investors

The major record distribution companies

Sony - distr. Columbia, RCA, Epic, J Jive
Universal - distr. Universal, A&M, MCA, Geffen, Interscope, Motown, IslandDef Jam
WEA - distr. Warner Bros, Electra, Atlantic

Major independent distribution companies & their owners

ADA - Warner
Fontana - Universal
RED - Sony

Major source of physical CD sales

Retailers

Current definition of records in most recording contracts

Any kind of delivery of music for consumer use

Free goods

Free records given to retailers as a way of discounting the wholesale price to get them to stock more product

Big Box retailers

Walmart, Target, and Best Buy

Master recording

Original multitrack recording
OR the mixed two track stereo master

Reserves on returns

Labels withhold (reserve) royalties from artist due to the possibility of retailers returning product

An advance to a recording artist

Money given to artist when they sign a record deal for the future royalties an artist will make - this is recouped

Recoupment

the process of using artist royalties in order to payback label for expenses (advance, recording cost, tour support, video costs, independent promotion, etc)

Video Recoupable Percentage

50%

Independent Promotion Recoupable Percentage

50%

Tour support, Recording costs Recoupable Percentage

100%

Manufacturing, Advertising, Marketing, and Shipping Recoupable Percentage

not recouped

Cross-collateralization

Refers to the pooling of royalties earned for different albums recorded under the same record contract for the purpose of recouping expenses

R.I.A.A. and its function

Recording Industry Association of America
Industry group made of record companies
Certifies album sales figures (Gold, Diamond, Platinum, etc.)

Typical wholesale price of a CD in the U.S. (royalty purposes)

$9-$10

A 'point' as it relates to artist royalties

percentage of an artist royalties

New Artist points

13-16

Mid Level points

15-17

Superstar points

18-20

Escalation (recording contract)

increases in royalty rates based on sales of records
.5-1% b/w 250k to 500k Units

360 Deal

Record Deal where the label gets money from the artist's net income
15-30% of Net Income

Active Interest

Label takes some of the rights involved i.e., making the artist sing a publishing deal with a company they own

Passive Interest

Typically allows artist to make whatever deals they want then write label a check for their share

Option (recording contract

Power given to the label, gives the label the option whether or not they want to continue a certain contract. Artist wants to limit options

Commitment Album

Album artist is responsible for
Trend for company to commit to two firm albums - insist on the right to bail if the first flops
Artist sees them through
Albums part of the deal for a record contract

Types of albums - not commitment album

Live Album
Greatest Hits Albums
Instrumentals
Specialty Albums (Christmas)

Controlled Composition

songwriting artist***
Limits amount of publishing royalties that a label will pay an artist on songs that they write and record on their own records
Label will pay full publishing on only a limited number of songs per album

Role of producer

Oversee and maximize the creative process from conception to completion of an album
Artist hires producer*

Producer involved in

Finding and/or selecting songs
Managing the recording process
Handling all administration: booking studios, hiring musicians, budget, union reports
"sound" of an artist

Producers' royalties

computed more favorably than artists
paid for all records sold
only thing recouped - producer's advance
recording costs not recouped

Record One

producer's royalties, because the producer is paid from the first record sold

All-in rate

Artist responsible (out of royalty) for paying for record producer and mixer

Artist's net rate

Artist pockets the net rate: all-in minus producer rate

Role of a mixer

Mixer takes multitrack recording and mixes it down to the final two track master
Charges a fee -3,000 to 12,500 per track

Demo deal

Record company gives artist a small budget to go and record some demos ($10,000 or so)
label listens to demos to decide to sign artist to full record deal

Development deal

next step of demo deal, company spends more money ($50,000 or so)
from then recording contract is pre-negotiated, so if label moves forward it is activated

Right of First Negotiation

Under Demo Deal
Label has time to decide if it wants to proceed. If so, artist is required to work with them to negotiate a deal

Right of First Refusal

Under Demo Deal
if they don't, artist can go elsewhere, but if offered a deal, they must give the first label the right to match the offer. Called right of first refusal

Re-record Restrictions

-in all contracts
-artist can't re-record a song they've recorded during the term until a period of time after the term
-typical - 5 years from the date of recording, minimum of 3-5 years from end of term
-includes sound-alike recordings

Sideman performance

-Artists allowed to be on other artist's records
-truly background - not featured
"artist" appears courtesy of __ Records" statement
-can't violate re-record restrictions
-no more than 2 of a group

Territory (recording contracts)

anywhere the label can exclusively exploit the artist's records (whole world / universe)

SoundScan

company that collects and reports data on how many records are sold at retail

Canada

85% of US Base royalty rate

Major Territories

UK
Australia
Italy
Japan
Holland
Germany
France

Rest of World Royalty Rate

50% to 66.6% of US Base Rate

Royalty rates for major territories

70% to 75% of US Base Rate

Tethered downloads

service provider doesn't give you complete control over the download (conditional downloads)

Untethered/Permanent

opposite of tethered; you can copy it, burn it, etc.

Artists' royalty on typical permanent download

-10%-20% of label's share
-iTunes-type: label get "wholesale price" of 91¢ per download if artist has 10% royalty, get 9¢

Labels and Downlaods

-treats as sales not licenses
-better to pay artist a 10% to 20% royalty on a sale, opposed to a 50% on a license

Labels' share of typical permanent download

70% of retail price (provider keeps other 30%) minus the artist's royalties

Full price records

-record that sells in a U.S. store at full price - pay higher royalty than one outside the U.S. or another distribution method
-initial run in current release

Mid-price records

-catalog item
-not actively promoted
-mid-price (reduced price, encourage consumers)
-typical mid-price for a CD is 66% to 85% of US base rate
-Royalty rate for mid-price is typically 66% to 75% of US base rate

Budget Records

budget records - deeply discounted
-less than 65% of top-line price
-royalty typically 50% of normal rate

New and Developing Artist price

discount a new artist's album to help promote the artist
mid-price
CD price, some have done it for digital
limit number of CDs released at this price if possible

Schlock

music put in bins for 99¢

Loan-out corporations

-artist forms a corporation and the corporation enters into deals
-tax purposes and legal protection from lawsuits if artist is sued

How does loan-out corporations work

-artist signs exclusive recording contract w/ their own corporation or LLC
-label signs agreement w/ that corporation which agrees to supply artist's services
-inducement letter or Side letter stating that if corporation doesn't deliver the record, the artist will deliver directly to the record company