Mr. Industry
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Dear Mr. Industry,
I'm a singer-songwriter looking for a record deal. I've heard about "recouping," like the amount of time it takes an artist to make back the money the label puts up to make a record, get it on radio, etc. So how long does it usually take for a band to recoup and start making money? Is it different for bands on major labels vs. indies?
– Charley C.
Boulder, CO
Dear Charley,
The amount of time it takes to recoup an advance differs depending on the genre of music, type of label, production, marketing, etc.
In this context, "recoupment" refers to the process by which a record label recoups their costs and/or artist advances from income derived from the exploitation of recordings (or, in the case of a publishing advance, from the earnings of compositions). An "advance" can be described as loan for recording or living (by which you generally lose your collateral, but that's another column), so the amount of money involved clearly affects the length of time it takes for the loan to be recouped.
Since indie labels tend to spend less money recording and marketing records than majors, and might be more inclined to offer more favorable royalty rates, it is generally easier to recoup if an artist is signed to an indie label. Artists on major labels take much larger advances, spend more on recordings, and have more money invested on their behalf, which they will need to recoup. That being said, there are benefits to getting more tour support and marketing support, as these may give major label artists a leg up in ancillary (and extremely important) income streams such as touring and merchandise sales.
As a very rough estimate, an artist on an independent label might recoup if they sold 20,000 records. This assumption is based on a $15,000 "all-in" recording fund, a $10,000 marketing fund (a lean but reasonable budget for an indie label), and a $1.25 artist royalty (not including mechanicals, which generally are not used to recoup in record deals but instead are paid "record one"). Royalty rates vary widely, and net profit-sharing deals may pay up to $3.00 per record (but may not pay mechanicals, and have higher recoupables), so fewer sales (or successes in master licensing) may lead to quicker recoupment in some cases.
A major-label artist is better off
taking large advances and
never actually trying to recoup. |
Some people have reasoned that a major label artist needs to sell a million copies each of two separate records before it will recoup — but when it does, the checks will be large. This is because $1,000,000 is often spent recording and promoting an artist's first album, which would need to sell 1.25 million copies at the above royalty rate to recoup. At least 25% of the royalties for these sales will be held in reserve by the record company to cover possible returns, and with the accounting periods used in major label deals, an artist might expect to be credited for (or receive) a royalty one year after the consumer purchased the record. By the time this money counts against your recoupables, it's likely that still more money has been spent recording a follow-up album. The artist only begins to see royalties after the second album (combined with the ongoing sales of the first album, master license income for both, etc.) begins to earn enough money to recoup the continued spending by the label. However, since at this point there are many streams of income, the royalties are generally substantial.
But it gets more complicated. In reality, if an artist sells one million records on its first release, they have the leverage to renegotiate their recording agreement with the label. Major labels need superstar artists to recoup the losses incurred by the other 90-plus percent of their releases. If an artist proves to be a moneymaker, labels will renegotiate deals and offer larger advances so that the artist will record a follow-up record quickly, or extend the overall term. A happy artist signed to a long-term contract can be very valuable to a label.
The upshot is that, with the uncertainties of the business and the time it takes to receive royalties through the pipeline (reserves, accounting periods, underpayments, etc.), a major-label artist is better off taking large advances and never actually trying to recoup. In fact, very successful artists often never recoup to the label, and thus may never actually earn royalties. A million dollars is more valuable in your pocket now than in two years (due to inflation and investment potential), and since a platinum artist's royalty rate may not be dependent on the size of the advance they receive, due to the leverage they have against the label, it makes sense to put the risk of lower-than-expected sales on the label and make the label pay a higher advance upfront. In fact, if a major-label artist does recoup, it is a sign that the artist's representatives may have underestimated their sales potential during the renegotiation, and took too small an advance. But that is a luxurious problem to have.
– Mr. Industry
Dear Mr. Industry,
When does a band need a manager? We've been getting a buzz around town and we're about to record a CD on our own, and some of the other guys in the band think we need a manager to get signed. If we do get a manager, what should we look for? And don't they take a big cut of everything you do?
– Matt K.
guitar
Chicago, IL
Dear Matt,
The success of an artist's career is often determined by the performance of any number of people involved, but the manager is probably the most important member of the team. Managers are responsible for general strategy and the coordination and execution of everyone's ideas — often including coordination of the record company's activities, once a band is signed. Though some artists do quite well by self-managing, the relationships and experience that a good manager brings should be well worth the 15% to 20% commission of gross income most require.
It makes sense to choose your manager carefully. The management/artist relationship is a close one, and could be hard to break once it's established — not to mention the emotional realties of firing someone so close to you and your career. Managers often toil for years without actually receiving much in return, and thus generally have long periods of engagement.
Arguably, relationships and experience are the most valuable assets a manager can offer, though logistical support and financial backing can be very important as well. So an artist might want a manager who has been in the business for a while, and perhaps has worked with other successful bands. That means that your best friend who has helped book shows, or the guy who carries your gear (and whose friend's brother works for a label) may not be the ideal choice. Once you have a manager, you might not be able to engage a more qualified prospect as your career advances. (Or else you could ditch your friend right when you get big, which would add drama to the movie about your life, but might not be so hot for your karma.)
Perhaps the ideal artist manager is one who has other successful acts, but still has enough time to devote to your career. Stories of bands whose over-hyped managers didn't pay any attention to them litter Gotham's practice rooms. But a one-horse manager may not have the resources to make any headway for a band, even if he or she works 24/7. It's tough to find the right balance of experience vs. availability. Talking with the manager's other clients (past and present) is often helpful. That being said, more than a few A-list managers began their careers with artists whom they have managed throughout, and certainly great managers have to start somewhere. So who knows — your best friend may end up being an amazing manager.
Your manager must
be a good diplomat. |
Another key factor: Your manager must be a good diplomat. It may look cool to carry a cricket bat and swear a lot, but in real life managers need to deal with tons of sticky situations with both firmness and aplomb. It's hard to succeed in the music industry — and it gets significantly harder if industry folk won't answer the phone because your manager is a pain in the neck. Managers also are charged with mediating band disputes and other sensitive internal issues. Given that a manager often needs to be harsh or a pain in the neck to get things done for their artist, perhaps the golden quality is being able to tell someone to go to hell in such a way that they actually look forward to the trip.
In any event, artists can do a lot on their own while first starting out, and giving everyone in the band something to do (booking, promotion, etc.) can be empowering, if a pain. Getting a manager is an important step, and though it can be huge for your career, the person you hire will be the business face of your band. Be sure that he or she has the power to actually help you — you don't want to have to manage your manager! If you end up pulling him or her along, it isn't worth the hassle (and certainly not the commission).
– Mr. Industry
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney in your state/country for individual advice regarding your own situation. In addition, no e-mail or other message to or from rightround.com establishes any attorney-client relationship.
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Posted October 2006
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