Music BusinessRecord Company Roles & Terminology Chris Baker www.musicstudentinfo.com
Major Record Company Function Signs artists Pays for production Distributes records (CD) directly or via a distributor Company is responsible for: Advertising, promotion & marketing
Independent Record Company FunctionSigns artistsPays for productionMarkets and promotes the recordDoes not distribute directly but instead negotiates distributiondeals with a distributor or a major record company
Record Company Roles President US, C.E.O. UKPresident CEO (Chief Executive Officer) Oversees entire company Chief financial officer (C.F.O.) Has final say regarding artists, personnel and direction of the company
Business Affairs/Legal DepartmentFunction• Write and negotiate contracts with artists, distributors, publishers, licensers and other company holdings such as real estate, property, sample clearance patents and trademarks• Primarily owners, lawyers and management
A & R FunctionA & R = Artist & Repertoire Ears of the company Search for and select artists Choose/approve material to be recorded Oversee production Manage the production advances or funds Often credited as executive producers
Promotion Department Function• Primary job is to ensure radio & internet airplay for a CD• Call radio program music directors• Try to ensure maximum exposure for their artist in media including radio, television, etc.
Marketing Department FunctionAdvertisingPublicityCD cover, artwork etcPromo videosIn-store promotionsPromotional merchandiseStyling
New Media Department FunctionFind new types of delivery methods and media iTunes. iPods Satellite radio Mobile phones Internet radio DVDs
Record Production FunctionProducers oversee and are responsible for the creative processOften help choose material and direction of the artistMostly sub-contract labor and not working full-time for a recordcompany
Product Management FunctionCoordinate all record company departmentsEnsures that all tasks related to the record production, releaseand promotion are timely and efficientSet and monitor deadlines for art work, production, promotion,release, videos, etc
Record Company Finance Department• Compute and pay artist’s royalties, salaries, production budgets, etc.• Manage the company’s income and expenses
International Department FunctionCoordinates the product worldwideThis includes airplay, distribution, promotion, etc.
Sales Department FunctionResponsible for getting records in the store
Music Industry Language TermDefinition Length of contract:On average, records take from 9 months to 2 years to produce.Thus, 5 records can represent a much longer period of time than5 years
Industry Language Term Cont. • Typically, contracts are written in terms of albums because years usually represent a shorter term. • Shorter contracts favor the artist if the artist is successful. • Long contracts normally contain many options. • Options are at the whim of the record company.
Industry Language Floors & Ceilings• Contract specifies the minimum and maximum advance or fund amounts to be issued to the artists.• First album in the contract has a fixed amount.• Other amounts vary upon artist performance (sales).
Industry Language Cross-CollateralizationAll funds, advances, expenditures and profits are combined overthe course of the artist‘contract.Each album/CD is not an event unto itself.
Types of Artists By Sales U.S.• New artist: sold less than 250,000 records.• Mid-level: artist has sold between 750,000 and 1 million copies.• Upper level: Superstars are artists who have sold 2.5 million units or more.
Album Awards US & UKGold Album US 500,000 U.S. copiesPlatinum Album US 1,000,000 U.S. copiesSingles UKSilver 200,000; Gold 400,000; Platinum 600,000Albums UKSilver 60,000; Gold 100,000; Platinum 300,000Music DVD UKGold 25,000; Platinum 50,000
Music Business Terminology Royalty RatesNew artists rates signing with an independent label 10 and 15points.New Artists signing with a major label 13 and 16 points.Mid level artists 15 to 17 points.Superstars 18 to 20 points.
Music Industry Terminology SRLP• The suggested retail price.• This is the number from which your royalty base, after deductions, is figured.
Music Industry Terminology Escalations• Prospective - An escalation applied upon reaching a performance/sales marker. This escalation is applied to all units sold after the marker is reached.• Retroactive - An escalation applied to all records sold, from record one, upon reaching a performance/sales marker.
Industry Terminology Royalties• Net/Artist - The artist royalty/point rate.• All-in rate - The combined artist and producer point/royalty rate.• Producer points range from 0 to 5 points.• Point equals a percent.
Industry Terminology Advances & Funds• Advances are issued to a producer or artist. The artist or producer turns in a finished master and keeps money left over.• Funds are available to an artist or producer. Money not spent is not kept by the artist or producer.
Industry Terminology AdvancesAdvances Positive More control of funding. Money saved can be kept.Advances Negative All money issued is recoupable. Large advances can prevent an artist from earning royalties because the money is not recouped.
Industry Terminology FundsFunds Positive Typically forces lower recording costs. Money saved in recording allows faster recoupment and royalty earnings.Funds Negative Less control of funding and thus recording. Does not provide an incentive for efficiency or a large cash base for artist/producer.
Industry Terminology DeductionsFree goods = 15%Packaging = 25%10% for breakageReserves = 35% (Make up for returns. Liquidated within 2 years)85% of net sales - makes up for piracy, etc.
Industry Terminology RecoupmentRecoup - to earn back the money advanced by the recordcompany at the point rate specified in your contract.Red position - not-recouped/loss.Black position - recouped/profitable.
Industry Terminology Returns• Retailers can only return 20% of goods shipped without penalty.• All units over 20% are charged a restocking fee.• In the past, retailers enjoyed a 100% return privilege SOR
Industry Terminology Options• Firm albums are mandatory. Most new artist have one firm album with a series of options.• Options are exercised at the discretion of the record company based upon sales, conviction or momentum.• Options can be bad because they tie up the artist for long periods of time.
Option Negotiation Strategies• Try to limit options• Do not assume you will be a failure. Try to assure better rates if you have success.• If offered 4 or more options try to force a 5th CD if the 4th option is exercised and so forth.
Industry Terminology Term• The term of your contract is the maximum length including all options.• The term is measured in CDs and not years.• CDs can take 2 or more years to produce.• The contract can be terminated by the record company at any time as specified in the contract.
Late Delivery of Items• Producers can loose future accounts by turning albums in late because this destroys the marketing process and causes huge financial losses to companies.• Albums delivered late can force contract termination.
Satisfactory Recordings• Technically satisfactory - Recorded and mixed professionally. Sounds good.• Commercially satisfactory - Company believes CD will sell and is representative of the artist image or style.
Pay or PlayRecord company can shelve or not record a CD by: Paying the artist the union scale for the CD. Negotiate and pay the difference between the recording fund and the cost of the last CD. Pay a pre-determined amount.
Types of Deal Demo Deals• Company will pay for a 3-song demo.• Contract will require a period of time (30 to 90 days) during which the demo is shopped internally.• After this term expires, the artist can shop this demo to competitors.• Originally company has the right of first refusal.
Demo Deal Advantages• Professional recording with a qualified producer paid for by the record company.• Instant artist credibility.• High-quality demo can be used to shop at other companies.
Demo Deal Disadvantages• A lot of record company input.• Money must be recouped.• Record contracts will typically offer low point structures and be more in the company’s favor.• You must inform the original company in case of any offers.• You cannot use the master for profit unless you buy it back.• Money will be recoupable for any company contract issued.