Record sales: Where does the money go?

I remember when new CDs used to cost at least $19.95. Since the whole MP3 and file sharing phenomenon, the prices of CDs has dropped significantly in order to make buyers go out to record stores and buy CDs instead of downloading them for free.

After all, isn’t that what the consumer wanted? Did they not ever say "If the prices of CDs went down, then I’d buy my music instead of getting it for free and having to deal with the hassle of finding the songs online?" So why did some of the biggest bands in the industry get all riled up over file sharing? Well, to many, the thought was they were pissed off because they would not make as much money as they could.

But the truth is, many major label artists don’t make a lot of money from record sales. Sure, if you sell 11 million records in the end you’ll have a full wallet, but for many who sell only 500,000 copies (a big achievement in its own right) the money they make isn’t even enough to buy a Honda Civic. This is what many music lovers fail to see. And who can blame them? Unless you know about the music business (which 95% of bands in the world don’t) you won’t realize how little money an artist actually gets even if they are the songwriters of the material found on the record.

[Major vs. Indie: What really happens when you sign a record deal]

Let’s break it down for you. In the making of a CD here are the key players and the percentage of sales that they get, Artist (6.6%) Producer (2.2%) Songwriters (4.5%) Distributor (22%) Manufacturing (5%) Retailer (30%) Record label (30%).

While these figures are an approximation, they come pretty damn close to the real thing. Now let’s put this to work. Again these are all approximated numbers, but you’ll get the idea.

Let’s say your CD is for sale for in stores at $16.00 and that you are a band of 4 that also writes their own material. Your deal is to receive a royalty rate of 11%, but your producer takes 3% of that. So in the end you make 8% net royalty. $16.00 – $8.32 (30% for retailers, 22% for distributors) = $7.68.

Let’s round this off to $8.00 (a very optimistic round up by the way) $8.00 - $2.00 (25% for packaging deducted by the label) = $6.00 X 8% = $0.48. So you make $0.50 per CD sold.

[Download our Free eBook: 23 Ways Musicians Can Make Money]

Now let’s say you sell 500,000 copies. So that means you have $250,000 coming to you, right? Nope. Let’s see what else is taken off. In many cases the record label will take another 15% is deducted for promotional and review copies for radio and magazines. $250,000 – $37,500 (15% for promo copies) = $212,500 In addition to that the record label has to take their royalties. That’s another 30% of $212,500. $212,500- $63,750 (30% for record label royalties) = $148,750.

Not as common anymore, but still in practice is the deduction of freebies and returns. What usually happens is that a retail store will X amount of copies, but what happens when they don’t sell? They get returned. And who ends up paying for this? Yup, you guessed it, the artist. $148,750- $14,875 (10% for returns) = $133,875.

Then there are recording studio costs that include the engineer, equipment rentals, and studio costs. With the advancements in the digital recording world studio costs have decreased, but let’s just say you spent $75,000. $133,875- $75,000 = $58,875.

And who got you the deal? If a manager was involved you can guarantee he will take 20% commission. If you are a multi platinum selling artist then maybe the rate drops to 15%. $58,875- $11,775 (20% to manager) = $47,100.

And now let’s say you split the band’s earning evenly. Since there are four members in the band, you’ll split the amount earned 4 ways. $47,100 / 4 = $11,775.

[18 Ways Musicians Can Make Money]

So if you ever asked yourself “what’s the big deal with getting music for free instead of buying?” let the example above shed some light on the answer. The above calculations are for a CD sold today. Keep in mind that back in the day before MP3s, bands could sell their CD for almost $20 giving the band approximately $1.00 for every CD sold instead of $0.50. Pretty dramatic difference if you ask me.

Of course record deals and artist royalties differ from contract to contract. The hotter you are prior to signing the better your deal and royalty rate. Also note that retailers benefit less nowadays as the price to make a CD has not changed all that much, yet album prices in stores are getting lower. Do not take the calculations above at face value. They are merely there to give you an idea of how little artists used to make and much less they do today.

Cut out the middleman. Sell your CDs and digital downloads royalty free on your Bandzoogle website, and keep 100% of your music sales. Sign up free now!

Comments

Posted by UncommonRecords on Jun 11 2006 4:56 PM

thats a good layout of the situation by Keif. You can flip numbers however you like, but realise that labels always have something to account for. Most labels definitly still take that percentage back for returns (especially "indie" labels that you may want to sign with). 19 dollars a cd was always a sham, I smile every time I see a Sam Goody close down. One thing to keep in mind, in most cases, retailers can charge almost whatever they want. So say the price per cd from the major label to the retailer is 11 dollars, a retailer can charge 14 to 20 dollars and take whatever profit they want off the top. When the industry struggled retailers had to make up the cost (of storage, employees, advertising, rent, etc.) and they did it on thier price to you, the consumer. The prices their selling thier cds at now are more a normal gauge of what it should be. So with that said, to the artist on a major it doesn't matter if a retailer sells a cd for 10 dollars or 20 dollars, their percentage comes from the wholesale price that the major label works out with said retailer.

Posted by hayseedsings.com on Jun 9 2006 7:05 PM

:( I'd also submit that there is the entertainment lawyer, publishing company, publicist, booking agent and who knows how many other folks sticking their fingers in the pie. And, if you're at that level, you probably spent more than 75K for your record. I'm tellin' ya, I've known dudes who had a #1 single and hot-selling record but were making less money than when they were making and selling their own records. The trade-off is that a lot more people knew who they were. There are folks in Nashville that have gold records and get dropped by their label because it's too costly these days unless you're platinum. It's at least a million bucks to "break" a new artist these days. That's a lot of investment. :(

Posted by TimothyP: on Jun 9 2006 7:16 PM

thats astonishing, but then go freelance and try to get into commercials and movie scores for some dough...so daunting!

Posted by SATURN DOWN on Jun 9 2006 9:14 PM

Keif's post is enlightening and very valid, but what you also have to take into consideration is that album sales are only a small piece of the pie when it comes to potential revenue for a band... merch, concert tickets, licensing, endorsements, etc. Those 500K album sales open the door to much more potential revenue...

Posted by Revenant on Jun 9 2006 10:39 PM

Something else to keep in mind is the continous label pressure for hits. Among other things, that means the label usually likes the artist to deliver a 2nd album that sounds like the 1st album, 3rd album that sounds like the 2nd etc.(Sorry, I still think in terms of albums when of course it's mostly CDs now). What this means in terms of the artist is that the label discourages innovation and growth. What results is a short career as consumers get bored and look for "the next big thing". The label looks at most of their artists as disposable, wanting to get as much return as possible before dropping the artist from the label. So you're constantly under the pressure of writing a CD that sounds just like your last CD, while building a base and trying to keep a reputation for being relevant and fresh. Meanwhile, as Kief and Hayseed have both pointed out: if you're selling 500,000 copies, you aren't making much money and you are at risk of getting cut from the label! Members of the band are probably at odds regarding how to market the band. "You're selling out while I want to do things that interest me musically, and how come YOUR songs are getting promoted more than mine" I'm not selling out. I'm just being realistic and my songs are better than yours" etc. Add the leeches that will say anything to get a little of the glory reflected from you and it gets real interesting like a VH1 Behind The Music episode!! The sad fact is that most of the most exciting and innovative bands in history probably would have to be independents today because they'd be dropped by their major label leeches after their 1st album.

Posted by nickwilsonmusic.com on Jun 10 2006 2:10 AM

Well as the guitarist in my last band said... don't quit your day job.

Posted by namoli brennet on Jun 10 2006 3:54 AM

Yeah, but to focus on the positive: As an indie artist, if I sell 1000 CDs, I've just made about $10,000. Which means the kind of money I would make with a major label is accessible to me already - and I don't have 15 people who want a piece of it. So sad! With artists so empowered, it must be hard to be a big record label these days :bawling:

Posted by SAN Q on Jun 10 2006 6:18 AM

I should know better than to post after a weekend nights activities but I still haven't learned. I love to perform. Hands down. Now in saying that I would have a real hard time not pursuing the dream of a major deal vs remaining indie. The rush of 10,000 + or - people to play for would make my life complete. As an indie the potential for that is unlikely but possible. On a major the likelyhood is more than probable. It just depends what your drive really is. If you are in music for money then your music really isn't gonna be what I see music from my point of view and feel. I am more than willing to tour, sell CD's and then go back to my humble life knowing that I lived out a dream that I couldn't go to my grave without. And that said brings to mind something that was left out. TOUR SUPPORT ? So ya got a spot on TRL or GAC's Across the Country or Headbangers Ball. Ya got an in store deal that goes 6 weeks. You are most likely racking up debt that will come out of that 11,000 or whatever dollars out of 500,000 sales. Now what do you have ? Tour support no matter what is going to absorb a pretty penny and if you aren't the headliner then these type of costs don't get paid for by ticket sales. So they come from the very deal that we call major. Per diem, for those on drugs that is daily spending money on tour, is great while you're on the road but what's left when ya get home ? If ya even have one. You may even think about merch and album sales while on the road but even these dollars may get taken by the headliner management because you are on their tour, needless to say the venue be it club or arena get's their cut too. So you can't look for money from that either. Then there is a bus, hotels, airfare ? I guess where I'm goin with this is what Rhythm often says. It is subjective. What is it that you want out of this ? Touring will keep you fed and sheltered but until you really make it above and beyond it will only be that you are a star while on tour. And honestly that is ok with me !!!! ~ Quentin

Posted by MAFIA SWIM CLUB on Jun 10 2006 6:41 AM

If we were really interested in making big money, we'd be something other than musicians. We do this because nothing else makes sense to us. F@#k the money! If we can turn 10 g's a year playing music we feel more successful than if we were making 50 g's at an uncreative job. :agree:

Posted by Revenant on Jun 10 2006 7:20 PM

What I find astonishing is why someone would want a major label deal. Case in point: The Grateful Dead. They didn't make much money at all from their major label deal. All they really got out of it was distribution for their recordings that didn't make them much money anyway, and name recognition(a lotta people know who the dead are without ever buying one of their records or concert tickets). Where the Dead made money(and still make money) was in concert and merchandise sales. They had their own organization ahndling a lot of that. Crunch the numbers: You can hire some office support people and road support people for a total of around 100-150 grand a year. You can record and duplicate full length CDs for a ridicuously small amount of money these days. Inexpensive software enables you to design your own CD artwork. Digtal cameras and a little practice and you can have GOOD looking pics of your band. With some sweat equity on your part, and after all it IS your career, you can develop distribution deals. Bottom line, with a thoughtfully designed and executed business plan, you can do everything a record label can do, except you're doing it for yourself for less cost, which means you keep more of the money! I know a lot of you are gonna say you're musicians, not publicists, sales people or accountants. But the fact is the more you are willing to do for yourself, the more money you make and just as importantly, the more control you have over your life and your music.

Posted by GLENN EVANS on Jun 11 2006 11:14 AM

in house ...:agree:

Posted by hayseedsings.com on Jun 11 2006 2:25 PM

:) From today's Nashville Tennessean newspaper: Big label no longer key to big hit:Independents' day echoes earlier era on Music Row By RYAN UNDERWOOD Staff Writer Rising country star Jason Aldean's No. 1 hit single "Hicktown" held special meaning for various crowds at this weekend's CMA Music Festival. For fans, it was one of the most anticipated songs performed on stage at LP Field on Friday night. For some locals, it could have been the perfect anthem to describe what downtown looks like when tens of thousands of country music enthusiasts roll into Nashville. And for Music Row insiders, it served as the latest piece of evidence that young country hopefuls like Aldean no longer need the backing of a big corporate label to hit it big in this town — a significant shift that harkens to how the local music industry operated 30 years ago. "I think the profile of independent-label artists has certainly been raised," said Wade Jessen, director of country charts for Billboard magazine. "It's one of the most positive developments that this town has seen for a long time." In the last year alone, in addition to Aldean, who last month was named the Academy of Country Music's Top New Male Vocalist of the Year, artists such as Craig Morgan, Jack Ingram, Little Big Town, Neal McCoy and others have cracked the Top 25 on the country charts while on independent labels. It's a trend that's been under way in other music formats such as rock and hip-hop for years, though it's just now catching on in country, as this weekend's CMA performance lineup made abundantly clear. So what's changed about the Music Row landscape to offer such fertile ground for independent labels to flourish? For starters, deep job cuts over the past several years at major labels amid an environment of overall industry consolidation have left Nashville swimming in underutilized industry and creative talent. Mike Kraski, a Sony Music veteran who was being groomed to become a label president one day, found himself out of a job three years ago when the company let him go. Instead of hopping to another major label, Kraski hooked up with country star Clint Black and his manager, Charles Sussman, to form Equity Music Group. The label started out of the gates with Black, while it began to cultivate groups like Little Big Town, a 2003 Sony cast-off whose hit song "Boondocks" went to No. 9 on the Billboard country charts last year. "The way I look at it, the major labels spent millions on my education," Kraski said. "Now, as they consolidate, all these factors like indies getting acceptance at country radio, distribution opening up, then stir in Eliot Spitzer's payola investigation into the mix, and you've got this 'perfect-storm' opportunity for indie labels." John Grady, former head of Sony Nashville, said in February at the annual Country Radio Seminar in Nashville that the rise of independents on Music Row could help raise the quality of music because it meant "more records and more A&R staff." What made less sense to him and the other major label heads there was how indies could survive over the long term without ongoing sales from a deep catalog of previous songs to provide a steady stream of income in good times and bad. But independents see their size and simpler business models as a source of strength. Jon Loba, national vice president of promotion for Broken Bow Records, the label that Jason Aldean and Craig Morgan are signed to, said the smaller artist rosters at an independent allows the staff to focus more on individual projects, rather than just throwing lots of acts against a wall to see which ones stick. "I remember at Warner Brothers having to release singles — things that weren't ready — for the simple fact that we needed to hit our quarterly numbers," Loba said. Jim Yerger, Broken Bow's senior vice president of marketing, said when the label's business plan was drawn up in 1999, the founders were very careful not to put the company in a position of "having to sell X-number of records" by a certain date. As Scott Robinson, himself a layoff victim and co-founder of Dualtone Records, the home label of singer Chely Wright and others, puts it, "The majors are great at delivering hits; indies are great at developing hits." Lon Helton, Nashville bureau chief of trade publication Radio & Records, said while it's great that independent labels are creating buzz, the real test will be to see if they can sell records over the long term. "It's one thing to have a great restaurant," Helton said. "It's another thing to keep it full and sell a lot of meals." For proof that independents are indeed having more success, some say look no further than singer Jack Ingram, a longtime favorite among Nashville crowds who struggled to attain much commercial success — until recently. Ingram, who has been signed to labels affiliated with MCA (now part of Universal Music Group) and Sony, was the first artist signed by Scott Borchetta's Big Machine Records, which launched last August in partnership with country star Toby Keith. In the first six months of 2006 alone, Ingram scored the first No. 1 single of his career with "Wherever You Are" and secured touring spots with Sheryl Crow and the duo Brooks & Dunn. "At Universal I was over three labels and a person like Jack Ingram was just not on my radar," Borchetta said. "Then I went down to see him in concert — this is somebody that was already playing 150 dates a year — and it was like, 'Oh my God. This has been right under my nose all along and I didn't even know it.' " :agree:

Posted by Revenant on Jun 12 2006 2:18 AM

Great article, Hayseed! I've always felt that an incredible amount of good music gets lost, due to being under the radar of the major label it's on. The major label business plan's been broken for a long time. Indie labels have the chance now with the advent of the Internet especially to create a huge change in the music biz landscape. As a matter of fact, the change has been happening for quite some time and is starting to gain momentum. It'll be interesting to see what the business model's gonna be like 5 years from now;)

Posted by thenewcongress.bandzoogle.com on Jun 13 2006 3:10 PM

Indie is moving up!!! Right now, it takes up around 25% of the industry... By next year it's expected to be around 28-30%. That's pretty substantial! Stick to your guns, and don't be fooled by the labels promising you the world. 90% of big record deals are tax write-offs!!! However, it's hard work, ain't it? We just came off of a 10-day tour through the mid-west, ending with a performance at Wakarusa Music Festival in KS. Great time, but tough... Pretty spendy for six fellaz on the road! Even when half is camping!!! Peace...

Posted by TheUglyMugs on Jun 13 2006 3:59 PM

We were approached by a small label, and were offered 2 % wich at that rate we may have paid for gas to get to the studio

Posted by Revenant on Jun 14 2006 10:36 PM

Wow, 2%! Sounds like they apprenticed under Berry Gordy and Motown!! Best way to control your destiny is to be your own publisher, label etc. As an earlier post said, it's a lot of work but aren't ya worth it?:laugh::laugh::laugh:

Posted by TheUglyMugs on Jun 17 2006 6:18 PM

Exactly

Posted by grimreaper on Dec 15 2013 11:23 PM

I know this is old but i just happened to stumble upon it and found it interesting. I thought the label made 10 dollars off every cd sold.So if you sold 500k that would be 5 million to them technically that would be way more than the advance. I also thought artists made 10 cents off a cd sale not 50 cents so you lost me at "Now let’s say you sell 500,000 copies. So that means you have $250,000 coming to you, right?"

Posted by Joe on Jul 1 2015 10:27 PM

sad. ... but bottom line here is get a job....more technology we get the worst of it become for an artist,,,,and when u see some of the cats acting like the got bank and really they're broke..so most artist would love to have a six figure salary and say the he'll with music business

Posted by Matt Kimbrow Band on Nov 12 2015 9:29 AM

I have a question. An Independent Artist cuts and Independent writers song. How much is paid to the writer off of Physical sales and digital sales?

Posted by John on Dec 15 2015 7:54 AM

I thought this article was very informative. I've always been curious how the money to split people always say artist don't make money off of record sales.

Comments on this post are disabled.

The Bandzoogle Blog

Record sales: Where does the money go?

Why not share this with your friends?

Comments