What if I told you that an artist could sell 14 million albums, generate hundreds of millions in revenue for their label, and still be so broke they had to get bar jobs to survive?
Within a month of deciding to enter the music business, I discovered one thing that instantly made me realize that the music business was set up to exploit artists.
This one thing was how the major record labels, large independents and even small independent labels recouped their investment into artists.
In any "normal" situation in business, an investor would invest, first get their money back and then get a return. This is often in the form of equity, meaning the return will come later when the company is sold or if there are profits declared.
If you get a loan from a bank, you'll pay a reasonable interest rate based on how much you borrow and the perceived credit worthiness you have.
But, this is the music business and the music business isn't like other businesses.
The powers that be, back in the day that created the business models, did so in a way where they could:
Be incredibly inefficient at everything they do and still win big.
Make sure that the artist pays for most every expense imaginable directly from their share of royalties.
Make sure that they have the mechanism to keep an artist unrecouped indefinitely, even when the artist is highly successful.
When I discovered all of this, I made a promise to myself that I would find a way to tear this unfair, unethical and outright disgusting way of operating up and create a way that was fair to all.
Let me explain how this all works so you can also get a sense yourself at how screwed up it all is.
Firstly, let's look at how it works in terms of how artists get paid.
The majors and big indies generally work on royalty based on the dealer price.
The dealer price is the price that retailers traditionally paid for purchasing vinyls and CDs from the label.
This means it's a discounted rate.
They apply the same discount on digital income today.
The other way that it works is a net profits deal, but this is often not what it seems.
A 50/50 net profits deal will still see most all expenses covered by the artist themselves, because the contract will state that the costs incurred are 'artistic' costs required in order to be able to produce the income in the first place, therefore these are costs the artists should incur.
Secondly, now you know how the royalties get paid, let's look at some math of how this works in practice and how the labels make sure that points 1 and 3 come to play.
To keep things simple, let's say that a major record label agrees to a royalty rate of 20% with an artist.
By the time they add in their breakage deductions and then their packaging deductions, this will drop down to 15%.
Producers who helped to make the album will get paid a royalty that is also deducted from the artist royalty, let's say that's 5%.
So now we are at 10%.
Let's say that the major label invests $1,000,000 in total and let's say that only 10% of that cost are costs that are not directly recouped by the artist.
So, now we have a situation where there is $900,000 to be recouped from the artist royalty.
This means that in order to get their account to zero, there needs to be $9,000,000 in revenue in order for the artist to get to zero.
So the label has got their $1,000,000 back and they now have $8,000,000 in profits.
The artist has zero, other than an advance they would have gotten when they did the deal, likely $100k or so on a new artist.
But here is the thing, now the artist is about to recoup, the label has a mechanism to be able to keep the artist unrecouped forever.
As recoupment gets closer, the bean counters will inform the label heads, who in turn inform the product manager to go and spend some more cash.
How about a party to celebrate hitting a sales milestone for $100,000.
How about a fresh digital marketing campaign spent across YouTube, Meta, TikTok etc. for another $100,000.
They can do this without consent by the artist.
Now another $2,000,000 has to come in to get the artist to zero.
And the whole cycle continues.
The most famous story about this comes from TLC when in one year they sold 14,000,000 albums globally generating the label 100s of $millions in revenue.
TLC only got the original $250,000 advance they got when they signed the deal, they were so hard up that they had to get bar jobs, while the label executives enjoyed private jet flights off of the back of the campaign's success.
Let's go back to the 50/50 deals.
They sound nice on paper, yet the same mechanisms apply.
The investment comes back from the artist's share.
As recoupment approaches, more spending happens.
Now the artist is still unrecouped.
This can continue forever too.
So despite the 50/50 deal looking nice, it's not in reality.
This is why when lawyers pretend to negotiate better deals for their clients, they're not actually doing that.
Instead they're racking up tons of hours that are charged directly to the artist to make more money for themselves.
But, anyone who thinks that this system is fair is quite frankly somebody who doesn't understand what fair looks like.
My belief has always been that the deals need to be fair for all.
If an entity is building the value in the assets, yes they should have a sizable stake and have long term protections.
But, it should be fair and equitable to both the entity and the artist.
Artists being artists.
They are desperate for impact and connecting their art with as many people as possible.
This desperation means they will sign deals like this.
But here is the thing, you can't change it by trying to change the system directly.
The only way you can change it is by creating a new way.
A new way that will in the future become the 'said way' in the way it is today.
I'll be revealing how we are going to do this at my keynote presentation on September 10th in Mexico City.
Register now for "Escape The Machine" - September 10th, Mexico City:
Free live stream for everyone who registers and 101 chances for artists to be there in person.
The unfair math ends here.
The time to do is now!
Kind Regards
-The Baker
Solving The World's Problems Through Art | #thetimetodoisnow