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Music Industry Madness

Only 533 pages left on your journey to becoming a rock star!

How much will I earn if I get signed by a record label?

Good question. The answer may vary, depending on the deal you get, and on the kind of record company that will offer the deal. There are

  • the big major labels,
  • the smaller independent labels,
  • a bunch of (often useless) amateur labels, and finally
  • the scam labels that will just rip you off.

The only labels that are important are the majors and the independent ones – forget about all kinds of amateur or scam labels, as they have no real infrastructure, they have no money they may invest, and in most cases they can’t help you in any way.

A record label will usually invest some money in order to launch a new artist. The bigger the label, the more money they will invest. Smaller independent labels may invest anything from $50,000 to $500,000 in order to launch a single new act (solo artist or band), while the majors usually invest about $500,000 to $2,000,000. The majors have deals with over 7,500 artists, they sign about 1,500 new artists a year, and about the same number of artists are being dumped a year. All independent labels combined have deals with tens of thousands of artists, and the entire industry is estimated to invest more than $4 billion a year in the production and the marketing of music.

If you compare the yearly investments of the entire industry to the outcome – a quite small number of songs that are acceptable at best – then this entire business seems to be nothing but a bad joke.

Nowadays the video budget is usually almost as high as the production budget (studio & producer), and in certain genres (such as low end hip hop for example) it’s often even higher. The marketing and promotion budget is sometimes as high as the production and video budgets combined. The money invested in a new artist will be used to pay for the recording studio, for the producer and for the engineers, for the video(s), for the marketing and the promotion, as well as for the upcoming tour. About 20% of that money will be used to pay the artist a so-called advance. The rest of the money will be managed by the company, and they will decide how it will be used.

So if you get signed by a record company, then you will usually get an advance, which means that you will get a bunch of money right away.

Such advances will allow you to quit school or your regular job for some time, so that you can fully focus on your music career, and this is also what your record company will expect you to do. If you get signed by a smaller independent label, then your advance may be anything from $10,000 to $50,000; if you get signed by a bigger indie label or by a major, then your advance may be in the range from $50,000 to $500,000. This will only be true if the record company thinks you will have significant success in the mainstream market however – as soon as you will be doing music in a less popular genre or even in some strange subgenre, then your advance can be considerably lower.

So if you want to get signed and if you want some money, then you will need to follow trends and you will have to make your music mass-compatible, which means that you won’t be special while you will face high competition, and thus chances that you will fail will be exceptionally high.

This is why this entire system doesn’t work out, this is why most artists are failing, and this is why this entire industy will drown. A typical advance for a newly signed band is about $200,000, but as said before this may vary depending on the size of the label and on how much they think you may make later on. If you’re a solo artist, then it may also be a bit less. And yes, you get that money right away, just like that.

Well-known artists get a lot more if they get a new deal of course. Whitney Houston signed a $100 million deal with BMG to deliver just six albums, Robbie Williams signed a US$125 million contract with EMI, while Mariah Carey signed a $80 million recording deal with Virgin Records that was cancelled instantly after her first album under the new deal sold poorly. But stop dreaming for the moment, and accept that you will never get more than $500,000 as a new act, no matter how good you are.

But even if you get that money right away, then there are a few things you will need to consider, and in the end you’ll understand that this is not much money at all. First, this money is an “advance”, which means that the record company will more or less only “lend” this money to you.

As soon as you will start selling records, the company will keep most or even all of the money you’ll be making, until your advance will have been paid back.

This means that in most cases you won’t get any further payments until your sales have covered all of the advances you received.

And even after that phase, the record company will keep the biggest part of all incomes, in order to cover their inital investment. Now the math is quite simple: If you, the artist, will get $200,000 as an advance and you’ll earn about $1 or $2 per album sold (and yes, you’ll get less than 20% of the wholesale price if you sign a deal), then you will need to sell at least 100,000 albums (or over a million singles) until you’ll see a first paycheck. With streaming things become even much more difficult – while successful artists usually took about 18 months to break even in the past, this may now take considerable longer, which means that signing traditional artists (singer-songwriters, bands) will become even more risky for record companies to sign.

About 80-90% of all artists never manage to cover their advances, which means that they will never see any money, except for the advance itself of course. The only good news is that you may keep the advance, even if your record will generate zero sales. There will also be some other sources of income of course, such as royalties (if you get radio air play) and merchandise for example, but that usually won’t be much either. And don’t forget that you will sign a contract that will span over a few years and over multiple albums. If you sign a 5 year contract with your record label, then you may get that $250,000 advance for a first period of 2 years, but you won’t earn more than this, unless you’re lucky to be among those 10% who sell a whole lot of records right away. If your first album doesn’t sell like crazy, then your next advance for the following albums and for the rest of your contract time will be considerably lower.

So you’ll have about $125,000 a year, and if you’re a band with 5 members then this is $25,000 for one person, so you’ll get a bit more than $2,080 a month. Oh, and I guess you’ll still have to pay some taxes, and you’ll have to use that money to pay your manager, and to buy your equipment, your clothes, food, and everything else of course. You’ll also have tons of other expenses you may not think about yet. And then you may probably have to pay some more taxes again. In the end you will have zero money, unless your record really makes it and you go on tour. This is why most artists have to rely on live gigs to survive by the way.

So even if you’re a solo artist, then a $200,000 advance won’t be a lot. At the end of the month, even some of the stars you’ll find in the Top 40 will have less money in their pockets than many people who just have a regular job and who are simply working nine to five. And the problem with those advances is that many artists spend that money right away, as they don’t understand that they would better save that money for the hard times to come. Buying a Ferrari seems to be very tempting though.

Don’t forget that you’ve just signed a contract that spans over several years, which means that you will have OBLIGATIONS.

You will need to do further records if the record company requests them, and they will have a huge influence on what your records will sound and look like. They will take over the studio and production costs of course, but on the other hand they will also be the ones to take the most important decisions. And if your first album didn’t sell well, then they won’t invest a whole lot of money into the next one. Don’t think that anyone at the record company will care about you if you’re not among the 10% of artists who instantly kick off.

Your biggest problem however will be that you will have to give up some or even most of your artistic freedom.

This will be true especially if you’re signing a deal with one of the bigger commercially oriented companies, or with some scary producer. They may try to change your style in order to make you mass-compatible (thus eliminating everything that makes you special), they may decide what songs will make it onto your record, they may decide what song will be your single, what cover image you will use, what video you will make…

So please be very careful before signing any deal that may end your career before it even started.

If your first album flops (let’s say you sell less than 10,000 - 20,000 units, or less than 100,000 singles, depending on the market), then they may decide that they won’t push and promote you anymore. In this case you will be completely stuck, as you won’t be able to do a next album on your own, and you won’t be able to just switch to some other label unless your new label will pay your debts, which is sometimes called a “buy-out”. Your new label will have to pay back the initial investment, plus your advances, plus a bonus, unless you’re just so terribly bad that your original label will let you go just like that. But which label will want to pay for some losers whose first album just flopped?

Don’t forget that your chances to fail after signing a record deal are around 90%, that there is no easy way out afterwards, and that this also usually means giving up your artistic freedom, as they will try to mould you into some mass-compatible product.

Let’s do some more math now. If you sell your music on your own, then you may actually earn 60% of the wholesale price (maximizing your profits will be discussed in the second half of the manual), that’s roughly $7 per unit. If you manage to sell 15,000 units a year on your own, then you’ll already earn $210,000 over a period of 2 years, while keeping all of your artistic freedom.

And those numbers are not impossible to achieve. Experts will tell you that you will never be able to sell 15,000 records on your own of course, but only because they don’t have a clue about how this could be done. Read the manual, and you’ll soon understand why selling a lot of records will not be impossible. Of course you won’t have the support of a record label then, and it may be harder to organize tours. But once you will be in such a position, record companies will be forced to offer much more interesting deals, and they will more easily accept that you will want to decide what your future records shall sound like.

The artist usually gets less than 20% of the wholesale price, or even considerably less if further (co-)writers and / or producers have been involved.

Of course it may sound tempting to get a record deal, but in the end it will prevent you from ever becoming something really special. If you want to make a difference, then you will need to be really special, and that’s only possible if you either try to make it on your own (at least at the very beginning), or if you go with one of the smaller labels that offer you lots of artistic freedom.

Also remember that your chances to make it by getting a deal with a major label will be very, very small – if the majors sign 1,500 new artists a year (and we talk about deals in the entire world and in all genres here) and if even the majors have a failure rate of 80-90%, then this means that less than 5 artists a week will make it that way, but only by giving up most of their artistic freedom. Counting on the majors will be like playing the lottery, and even if you win then you lose, so this can’t be your plan. So for the moment you should just remember the following:

  • Getting a record deal will not make you rich.
  • Signing a record deal usually means that you’ll will lose most of your artistic freedom.
  • The advance you will get may seem to be a lot of money, but in the end it’s not that much at all.
  • Only 10% of all artists that get signed actually become successful.
  • The other 90% are usually doomed, and nobody cares about them.

And, most importantly:

If you sign a record deal, then you will become part of a broken system, you will become a tiny wheel in a big machine that has been standing still for about 25 years.

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Chapter 2   •   Page 3 of 6

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