[This is the second article in our series on the dangers that await artists in the big bad world of the music business. The first installment was titled Major Label Microscope, but since then it has occured to the editors to broaden the series title, as there will surely be stories of abuse at the indie level as well. We are pleased to have music attorney Dina LaPolt back for a second article in this series. She sees these things happening and reports them first-hand. If you have a story to tell, please send e-mail to microscope@cosmik.com. - Ed.]

Because the record contracts offered by the major labels are so unfair to the artist and one-sided (hence, Courtney Love's lawsuit against Universal), many successful artists are not re-signing with the majors because they are discovering that if they sell 100,000 albums on an indie label or their own label, they are making five times more money than when they sold millions of albums on major record labels.

For example, let's look at the band Big Head Todd & the Monsters. Big Head Todd was signed to Giant/Warner Bros. Records in the 1990's and their 1993 album Sister Sweetly went multi-platinum (e.g., sold over 2 million albums). Unfortunately, according to Giant Records, the band's next 2 albums only sold 700,000 and 500,000 albums (a complete failure for any major label) and as a result, Giant decided that it was not going to pay the band any more advances to record any further albums, and it was not going to release them either. After paying lots of cash and putting in an immense amount of time trying to get off Giant Records, now Big Head Todd & the Monsters established their own record label called the Big Records Label. Their new album, entitled Riviera, was released on March 26th, and says the group's singer/guitarist Todd Park Mohr, "We've already seen more money from the pre-order sales than I can remember ever seeing from Giant after we sold 2 million records."

Incidentally, the president of the now defunct Giant Records was none other than Irving Azoff who has now become one of the staunchest supporters of artists' rights and has been very influential in the Recording Artist Coalition (RAC) headed up by Don Henley and Sheryl Crow. Azoff, in his recent interview in HITS Magazine (March 29, 2002) stated that "the old traditional record model is dead" and that the "business has changed drastically but the music executives insist on hanging onto outdated business models that cannot possibly survive." Further Azoff states, "the major labels are clinging to a past dictated by huge CD profits pre-Internet that primarily existed by underpaying artists on a black-vinyl royalty rate for the CD." Pretty sick huh?

Another example of an artist taking their careers in their own hands is the band Wilco. Wilco was quietly dropped from Reprise/Warner Bros. ten months ago shortly after turning in their 4th studio album entitled Yankee. Although it was not openly discussed, Reprise's message to the band was clear: Although Wilco religiously played to a fan base of 200,000 people every year, it was not enough to warrant the record company putting out subsequent albums. According to Reprise, the band's prior albums "only" soundscanned between 100,000 and 200,000 units a piece. When the band turned in the album Yankee to the Reprise A&R rep, they were told to go back into the studio to create "a single." This, of course, left the band scratching their heads thinking to themselves, "they are all singles." At this point, front man for the band and former Uncle Tupelo member Jeff Tweedy approached Reprise and told them that he wanted Reprise to drop Wilco so he could take the album somewhere else. Reprise agreed and after a substantial amount of legal fees paid by the band, their Yankee is scheduled for release on April 23rd on the band's new label, Nonesuch Records. For more info please log onto the group's website at www.wilcoweb.com.

In my article last month, The 7-Year Rule and What Does That Really Mean, I was very clear about 3 things:

1. Make sure you have a music lawyer. Not only will your music lawyer protect your rights and make sure you do not give up your first male child in the recording agreement, they are very instrumental in getting your music to the ears of the professional music industry at large. According to Billboard, over 60% of all record deals are facilitated through music lawyers. Due to copyright liability issues, record companies cannot accept unsolicited demos (which means that you cannot send the record company your CD unless they ask for it or unless it comes from a lawyer or a well known manager or producer). Music lawyers are a sure fire way to get your music to the ears of the A&R folk at the record companies (indies and majors). For a complete list of music lawyers in the United States check out the following:
   The Musician's Atlas

   Music Attorney, Legal & Business Affairs

   Yellow Pages of Rock

2. Educate yourself. Make sure you understand what your music lawyer will be talking to you about. For a complete understanding of the music industry and recording agreements, pick up the book entitled, All You Need To Know About the Music Industry by Donald S. Passman. This book will be your bible to surviving in the music industry. [Ed. Note: Pick up the book at www.amazon.com.]

3. Have realistic expectations. A record company president is not going to walk into a club where you are playing with a record contact in his briefcase. It just ain't gonna happen, my friends. SO...with the consolidation of the major labels and the rapidly changing tides of the music industry due to the rise of the Internet, you are going to have to DO THE WORK before the ball starts rolling.

Let's first get the "big picture" of the major record labels today and then we will talk about "doing the work."

THE MAJORS: When you hear people saying, "There are only five major record companies left," what they really mean is there are only five major distributors left who distribute all the major record labels. So, basically, there are only five purse strings, which means that there is not all that much money available to develop artists. Let's take a look at the five major distributors so you can get the "big picture" and learn most of the major labels that they distribute:

1. Universal Music Group
   
   1. Dreamworks
      
   2. Hollywood
      
   3. Mammoth
      
   4. Interscope/Geffen/A&M
      
   5. Island/Def Jam
      
   6. MCA
      
   7. Roadrunner
      
   8. Universal/Motown

2. Sony Music
   
   1. Columbia
      
   2. Epic

3. Warner Music Group
   
   1. Atlantic
      
   2. Elektra
      
   3. Warner Bros/Reprise/Maverick

4. BMG
   
   1. Arista
      
   2. ArtistDirect
      
   3. J Records
      
   4. Jive
      
   5. RCA
      
   6. V2
      
   7. Wind Up

5. EMI
   
   1. Capitol
   2. Virgin
   3. Blue Note

Major record companies say that they cannot afford to "develop" artists the way they used to in the past because the risk of losing their money on artists that do not sell millions of albums the first time out is too great ( ... yawn, yawn ... anyway). Today, all the major labels are HUGE corporations, which are all publicly traded, so they all have STOCKHOLDERS to report to. (In my opinion, "music" and "stockholders" are two words that should not be in the same sentence). However, "it is what it is," and we all need to make the best of what is available to us. So....how do you do that? By "developing" yourselves and making the majors come to you. It is no secret that an unknown artist with no power (e.g., huge regional/national following, radio air play, or independent record sales, etc.) who gets offered a record deal for the first time is almost always getting a CRAPPY RECORD DEAL.

So ... before the deal comes rolling in take the time now to DEVELOP YOURSELVES. It's not that overwhelming. But how? There two parts to "development":

1. Your Music; and
   
2. Your Business

YOUR MUSIC

THE TOOLS OF THE TRADE: There is an audience for everything and there is a record buyer for every type of music so make sure to BE YOURSELF and not try and conform to some stupid model that you think may be "happening" right now. Whether you are a singer/songwriter, a rap artist, or a rock band, you need the essentials. The essentials are the "press kit" which contains the following:

1. CD
   
2. Picture
   
3. Bio

You can do two things with the CD:

1. You can include three (3) or four (4) of your best songs on the CD so you have a "calling card" if any music industry professional wants to hear a sample of your music AND;

2. Depending whether you have the money to do so, you can create an entire CD containing ten (10) to twelve (12) songs (many artists who tour have a full length CD because they sell the CD at their shows).

The wave of the future, is the "EPK" (electronic press kit). The EPK is basically a CDROM or a DVD that includes an artist's music set to clips of live shows, a succession of photographs, or a low budget video. The EPK/DVD can also include a bio of the artist, artist's discography and club/show history, and contact information with upcoming show dates.

YOU MUST TOUR: There are many ways to develop a good regional following (that is how Hootie and the Blowfish and AFI finally got signed to major label deals on their own terms). You can do this by either playing the clubs or playing the college market. All colleges have a Student Union Organization which ALWAYS include concert committees run by students. The concert committees get allocated a clump of money EVERY YEAR by the Student Union Organization and the students must spend this money by the end of that fiscal year. So..... unlike the club circuit, where you actually have to bring people in the door that pay in order to get paid, all concert committees put on free concerts for their students and they PAY YOU to play there! Sometimes, a concert committee may even pay an unknown artist to open up for a name act that they are booking (I was in a band in college called "Potsie Crier" and we were paid to play on the same bill as Joan Jett & the Blackhearts and the Smithereens by playing the college market).

To get a complete list of the concert committees and the contact information for the students that run them, log onto www.CDBaby.com. This website offers the list for the cheap price of only $75.

If you start playing college dates and getting your music played on the college radio stations, the major record labels are going to want to know who you are.

YOUR BUSINESS

Besides marketing yourself and working on your tours, you must also understand the issues that will come up once you do get offered a record deal from a major, as well as how much money you can expect to make from each CD sold.

First, you need to understand some of the common terms that are used in the music industry and some of the customs that govern the industry today. Listed below, these industry customs are "standard industry practice," meaning: They cannot be changed no matter how successful you are or no matter how powerful your lawyer is.

SRLP: "Suggested Retail List Price" which is the top line price a CD is sold for in stores. Currently, the SRLP is $18.98.

Producer Royalty: All producer royalties are deducted from the artist royalties, meaning the artist pays the producers, not the record company. A producer usually gets a 3% producer royalty (or "3 points") (pro-rated with all the other songs on an album) which is deducted from the artist's royalty.

Packaging Deduction: Major record companies always deduct 25% from the artist's royalty for "packaging" each CD.

CD reduction: Major labels consider CDs to be "new technology," so they very rarely pay an artist on 100% of all CDs sold (for a new artist, they usually only pay 80% to 90% of all CDs sold). So, if a record company is only paying artists on 80% of CD sales then the artist is basically only getting paid for 80 out of every 100 CDs that the record company sells.

Artist Royalty: A new artist will probably be offered a royalty of 15% (or "15 points"). So, if an artist gets 15% and the producer gets 3%, then the artist is really only getting 12% (because the producer's royalty is deducted from the artist royalty).

Unrecouped: Artists hate this word. It means that you have not paid back all the money that the record company has laid out for you. HOWEVER, the way it works is WHACKED. Typically, if an artist is paid a 15% royalty then the record company pays itself back $0.15 for every $1.00 that they bring in. Thus, it keeps the remaining $.85 per every $1.00 as an immediate profit. GET IT?? The record company only credits the artist's royalty account with $0.15 per $1.00 until the artist pays back the $500,000 the record company spent at the $0.15.

So, hypothetically, if a record company spends $500,000 on an artist’s record and they allocate the artist a royalty of 12% (which is the 15% less the 3% producer royalty) then the record company has to make approximately $4,000,000 before the artist is even in a recouped position!

Penny Rate: The actual dollar amount that is paid to the artist for every CD sold (when they refer to it as a "penny rate" they ain't kidding!).

Determining Your Record Royalty Penny Rate

Now that you understand the terms and concepts above, below is how the major labels calculate the artist's royalty rate per CD sold which, in turn, becomes the "penny rate" that is paid to the artist.

Single CD Record Company Royalty Formula

$18.98 (the "SRLP" ) x 12% (the total artist royalty of 15% less the producer royalty of 3%) x 75% (the packaging deduction remainder ....remember 25% off for every CD sold) x 80% (the CD reduction) = $1.37 per CD!

You do the math. Hypothetically, if Big Head Todd and the Monsters were only making $1.37 per album less their recording costs (which includes their advances and probably 50% of all marketing, promotion, and video costs totalling, let's say, 1 million dollars), then note that Big Head Todd will have to sell 729,927 albums before they even end up inrecouped position (i.e., $1,000,000 in recording costs divided by their net artist royalty rate of $1.37 equals 729,927 albums). However, please note that, although Big Head Todd would technically not make any money if their record sells 729,927 units, the sale of their album will have generated approximately 13 million dollars in record sales!

  [Help make it happen! Click the image below to check out this release at CDNow.]

On the other hand, with the release of their new album entitled Riviera, if they spent $50,000 making the album and they sold 100,000 copies less a distribution fee of probably 15%, they will make A LOT of money. The way it should be.

Keep ya posted!

[Look for another article in this series from Dina LaPolt in the next issue of Cosmik Debris Magazine.]


[Pictured: Dina LaPolt]
*Dina LaPolt is a music lawyer in Los Angeles, California at LaPolt Law, P.C. Her clients include the Estate of Tupac Shakur and Afeni Shakur's record label, Amaru/Interscope Records; Ed McMahon and the "Ed McMahon "Next Big Star" television show; the Outlawz and Outlaw Recordz, Inc.; Victoria Silvstedt, and Jasmine Guy, among others. In addition to practicing law, she is a panelist at various music conferences across the United States such as South By Southwest in Austin, Texas, Eat Em' Music Conference in Las Vegas, Nevada, and NEMO in Boston, Massachusetts. Dina is also an author and contributor to the Matthew Bender Music Law books, she has a Bachelor's Degree in Music, and sings and plays guitar in all girl band called, "Trophy Girl."

To contact Dina LaPolt and to find out more about her firm, please log onto the firm's website at LaPoltLaw.com.

[Disclaimer: The opinions expressed in this article are those of the author and do not necessarily reflect those of the publisher and editors of Cosmik Debris Magazine. This is also not to be taken to mean Cosmik Debris is not in agreement. This very same disclaimer will run with every article and interview in this series, no matter what view is being presented.]