New Band Signs on to Major Record Label – Where Does All the Money Go?

If you’ve been around the copyright debate for a while, chances are, you’ve heard the labels in the debate argue over and over that the artists deserve to be paid. Really, though, if you look at the numbers of where money goes in a major record label when it comes to album sales, maybe the major labels should take that advice and actually pay their artists a decent amount of money for a change.

Note: This is an article I wrote that was published elsewhere first. It has been republished here for archival purposes

It’s been the dream for a lot of artists in the 90s and earlier – get the big break so you can be signed on to a major record label and make it big. There’s that image that artists that get signed on to major record labels are living the life of luxury. To this day, there are still a large number of artists out there that still believe that this is how the music business works even after a large number of cautionary tales and artists going bankrupt shortly after signing on to that major label have surfaced over the years.

Unfortunately, the much more common story seems to be that a band signs on to a major record label, tours for a few years, then winds up going bankrupt. How does this happen? The artist seems to be selling tens or even hundreds of thousands of albums. The artist signed on to a major label. The artist is even heard in radio seemingly around the clock. Unfortunately, for a vast majority of artists, being signed on to a major label isn’t exactly a road paved with gold.

There’s some new numbers that tells the story about when a consumer buys a CD from an artist, where that money actually goes – and the picture isn’t all that pretty. Such stories like this isn’t entirely new. CIPPIC (Canadian Internet Policy and Public Interest Clinic) ran similar numbers a few years ago. In the US, Courtney Love had a similar story about where money for music CDs goes.

The topic of paying artists isn’t exactly a topic major record labels like to talk about. The only time they like talking about paying artists is when they’re on another anti-file sharing campaign, but otherwise, the topic seems to just drop off the radar. One reason might be that the labels really want to pay the artist as little as possible. Just look at 2008 when the labels were in court to reduce artist royalties they have to pay out to name one example.

So what do these latest figures say about money earned by music sales? According to the statistics, 63% of the money earned on album sales goes straight to the label. Another 24% goes to distributors. The remaining 13% actually gets split between the artists, band management, producers, lawyers, personal managers and whatever other costs are incurred along the way that may not be mentioned in the graph being provided:

The Root also points to a Nielson Soundscan report which suggested that “Only 2,050 of 2009’s New Albums Sold Over 5,000 Units”. Unfortunately, that doesn’t tell the whole story since digital music sales are going up. When it comes to where the money goes in digital sales, though, the picture is probably the same as physical album sales.

There’s often an argument that the reason music quality is in decline is because of file-sharing. Somehow, it’s not because artists see all of their hard earned cash going straight to the labels. In fact, a number of deals demand the artist to make additional albums as well. One of the main reasons that is a raw deal for artists is that if the artist’s first album is a huge hit, the record company makes a huge profit and forces the artist to make an additional number of albums. The label can then court a new artist by fanning out cash in front of their eyes while still chiseling out whatever profits are being made from the last “deal”.

We can illustrate just how bad this whole deal is with an example of a six album deal. The first album goes big and the artists music is on the radio 24/7. After a while, music fans get tired of that music to the point of getting tired of that style sometimes. So the artist makes a second album a year or so down the road and there might be a few fans left over to buy that album. The music makes brief appearances on the radio, but things die out quickly. A third album is made, but only hardcore fans are able to still stomach the music thanks to market saturation. If there’s enough money and will left over, a fourth album might be made, but after that, most artists are done for at that point. By the time an artist gets to that sixth album, chances are, they cannot sustain any profits and operate at a loss. The artist goes bankrupt, and the label is off fanning money at the next artist while enjoying all the profits that were made from the previous deal. One could easily argue that the labels are outright parasitic for artists. Ironically, these labels have the audacity to call file-sharers thieves.

I think there are lessons from this here. For consumers, if you buy the album from a major record label owned artist thinking you are supporting the artist, you’re not. You are supporting a system that has screwed over hundreds or thousands of artists and allowing this system to continue. For artists, signing on to a major record label is not a one way ticket to success, it’s actually more than likely a one way ticket to throwing your career away because the system will make sure of your failure either immediately or somewhere down the road.

There is, however, a good point that needs to be made and it was a sentiment I got when talking to independent radio. Yes, major labels do this, but smaller independent labels usually have a more honest relationship with their artists. Incidentally, a large number of independent labals in Canada are opposed to major record labels position in Canada (i.e. the bigger ones leaving CRIA due to differences in view regarding copyright laws a few years back to name one example)

So while the message being made through these numbers isn’t entirely new, it is nice to have that reminder every once in a while.

[Via Techdirt]

Drew Wilson on Twitter: @icecube85 and Google+.

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