Kirk’s recent post on AllofMP3.com lead to a few interesting comments. Okay, one interesting comment — one of our readers took Kirk to task for not discussing royalties and the payment thereof. Poor guy, he had no idea that this is one of my favorite topics. Calculating royalties from the perspective of a major entertainment company comprised a large portion of my professional career.
Or, that is to say, they never let me anywhere near math. My role in the whole game was far more sordid.
And instructive. Let us all begin with a basic fact of life: he who writes the contract wins. This generally means that in the entertainment industry, artists (especially, sigh, writers) get the short end of the payment stick. Sticking to music, for every unit (disk, download, whatever) sold, the artist receives a percentage of the list price. This is an old-fashioned concept, but, hey, there are a whole lot of contracts out there that must abide by this method of calculation. By way of example (and this is admittedly oversimplifying the concept and probably overstating the royalty rate):
List Price = $13.99
Royalty Rate = 6%
Payment to Artist = about 84 cents
Naturally, my example doesn’t take into account things like reserves for returns or other contractually permissible deductions, like, oh, the cost of making the record. One must recall that the music company isn’t receiving $13.99 either. List price is suggested retail price. What the labels earn might be half, might be three-quarters, might be almost nothing, depending on a wide range of factors that we don’t need to consider.
But let’s say it’s half. Let’s say that for every unit sold, the label gets seven dollars (I round; I’m a creative accountant). Using our handy dandy royalty calculation above, we see that the label actually gets $6.16. Except that the label has paid to manufacture the disk. Let’s say that costs two dollars. We’re down to $4.16. Then you have marketing and promotion and production and a slew of other costs. Let’s say that’s about three dollars. You see how this goes. I don’t defend the way artists are paid by entertainment companies, but I do know the reality. Accounting sleight-of-hand aside, real checks are being written for real costs. And that’s before considering the overhead…also known as the people who work for the label, the building, and free coffee.
Without free coffee, the world could not function.
Granted with digital media, a lot of the costs related to creating physical merchandise disappear. Goodbye, jewel boxes. So long, freight. Hasta la vista, returns. Of course, the royalty rate being paid to artists hasn’t changed. Nor has the cost to consumers. The price of digital music, despite the drawbacks to consumers, mirrors that of music you purchase on a CD. That’s a rant for another day.
The payment of royalties is a huge issue because labels generally take a highly aggressive position regarding the payment of royalties; Cheap Trick are not suing their label because they’re bored. They are suing because their label is paying them a lesser royalty than their contract states they are entitled to receive (note: I have not personally seen this contract, so this is based on media reports). Rest assured that the motion picture industry is due for similar lawsuits. You weigh the risks against the benefits, and they have.
I digress. The way the money flows is that the label sells the music to retailers. The retailers pay in a fairly timely manner (she says, laughing), though the label generally reports on sales rather than cash received. On a semi-annual basis, with either 90 or 60 days after December 31 or June 30 to issue statements and payments. Of course, the payments are less generous reserves for returns (liquidated in conjunction with total eclipses of the sun) and bad debt and whatnot. In the business, this is known as the time value of money — the labels hold on to artist money for far too long.
All of the above is also based upon old-fashioned accounting concepts. I wouldn’t be surprised if standard costs for manufacturing and shipping are being calculated on iTunes sales. Truly. I would not be surprised. I’ve seen worse. Much, much worse.
When we talk about fighting the good fight and collecting all the money due to artists for sales of their music, let’s talk about the way artists are paid. Semi-annual statements issued 90 days after the close of the period are verging on unconscionable. Let’s talk seriously about the fact that the system is not designed to make most musicians rich. And, yes, let’s talk about the fact that AllofMP3.com is paying into a collection society, the Russian Organization For Multimedia and Digital Systems (ROMS), but the labels refuse to recognize the organization’s legitimacy. And they refuse to accept the money (hopefully now) being held in escrow.
And let’s talk about the fact that there is no international copyright law. The United States is not the only country in the world with copyright laws, and until the entire world comes together to agree upon standards, we must accept that what happens elsewhere may not be something we like, but may very well be legal.
Piracy is a very real problem. Back in the day, I collected articles about piracy raids and collections and issues. I have emotional problems, but they illustrated the costs of piracy to the media companies and artists. You don’t get paid for pirated merchandise. But when a company is selling your product, and offering to pay, it sometimes behooves the industry to come off of its high horse and begin earnest negotiations. Maybe the prices are too low. Maybe there’s room for discussion. Maybe the DRM is too lenient, but maybe that’s why consumers are bypassing more restrictive protocols…and maybe there’s a lesson to be learned.
Artists get paid by the labels, and as I was researching this post, I encountered one site that complained about never hearing about musicians receiving payment for their work from AllofMP3.com — gee, who’s the roadblock there? All things considered, maybe a mechanism needs to be created to allow artists whose work is being sold on the site to collect their share of royalties directly. Then, if the labels want to object on moral grounds, it’s only their money at stake.
Its quite ridiculous the level of ignorance you are prepared to indulge to justify music piracy. You’re pulling figures out of thin air to support your claims.
Lets have a look at some facts, not fiction:
I get paid 63.7c per track downloaded from iTunes. Thats money in my pocket, with all necessary splits already taken out of it. Any artist can have the same percentage if they choose to, as thats the standard iTunes payout.
If an artists has signed an agreement with their label to give away most of their share in exchange for a lump sum advance, then thats business between the artist and the label, and its not business of mine. They chose to enter into that contract. I chose not to and went via CD Baby to sell my music. CD Baby take only 9%. Out of 70c they are paid, I get 63.7c Most of my music income has come from iTunes. I hate to say it, but they are the one download service that I trust.
Looking on allofmp3.com, Robbie Williams’ new album is going for a maximum of 20c per track. How much of that goes to him? A bit fat zero. Even if ALL of that 20c went directly to him, skipping his label, he’s not even getting close to what I’m getting from iTunes. This is because the allofmp3.com business model is based on a false economy where everything is profit. They dont need to pay their suppliers a single cent.
By promoting allofmp3.com you are inviting destruction on the whole music industry, not just big name artists or big name corporations, but everyone, myself included.
If allofmp3.com really wanted to sell their music with the artists interests in mind, they would contact them and pay them directly. But no, they are doing that. And why should they when they can continue to rip off artists for nothing?
The whole ‘artists dont get anything from the labels anyway so we should just rip them off 100%’ argument can only be self-justification from piracy. You’re not fooling anyone who doesn’t have a vested interest in being fooled. Like yourself.
I’m guessing you’re pretty young. You don’t know me, but I assure you that I do not indulge, nor endorse, any sort of piracy, to the point that I do not even purchase used media because the artists lose out on royalties (if you’d like, I can point you to my extensive writings on this topic). I am and have been a vocal opponent of piracy since approximately 1990. I have been a strong supporter of anti-piracy efforts — though I will also acknowledge a high degree of skepticism about how the various entertainment industries choose to prosecute their campaign against piracy. There is a lot of wasted effort and energy going in the wrong direction.
And don’t get me started on the mixed messages sent by the various entertainment industries.
I acknowledged that my numbers were hypothetical, based on a standard royalty arrangement. As I’ve been doing this sort of work for most of my adult life, I assure you that these calculations were not based upon ignorance. This is what I do. I know these deals far better than most people, including the musicians who sign their agreements.
I think it’s great that you’re making a 91% royalty. I strongly encourage more artists to self-distribute. The current system does not favor artists — unless, of course, you find benefit in having a strong distribution and promotional machine behind you. Many artists believe this is the best decision for them. One thing they do not comprehend is how the system works. I don’t personally understand why people sign contracts without fully understanding each and every word, but that’s how it goes.
However, your argument about Robbie Williams is a bit convoluted. First, each and every country on this planet has a different currency, and the “value” of song tracks is pegged more to a local economy than a global notion of a “dollar”. The going rate for a single song in Kenya differs from the going rate in Japan which is quite different than the going rate in Mexico. Your twenty cent example needs to be translated into local currency and then compared against single song sales in that particular country…and then, I firmly believe, you need to adjust the price to compensate for the differences in how these songs are distributed. This goes for consumer pricing as much as artist compensation.
As for allofmp3.com (which I do not patronize, by the way), legally, they cannot pay artists directly, unless the artists are self-distributing. The licenses are between the labels and the distribution service, not between the artist and the service. all of mp3.com does not a) have the necessary artist information (names, addresses, federal ID numbers) to make these payment nor b) the underlying agreements that outline the artist royalty splits. Sure, that’s an easy calculation when it comes to a solo artist, but when you have a band, multiple songwriters, third parties…the accounting gets a bit trickier. Since I don’t know the ins and outs of transferring money from Russia to the United States, I cannot speak to the remittance tax issues that also might arise (another advantage of a major corporation is that they can often shelter some of these tax burdens that come from transferring money between countries). You need to consider all of these elements when it comes to paying artists — my final suggestion was a bit tongue-in-cheek for this reason.
Allofmp3.com states that they are putting the money into what is essentially now an escrow account — until someone comes out and states otherwise, I have to believe this is true (ROMS has not denied this statement — and, you must recall, that there are local societies like this around the world, this process is not maverick). This money should be distributed to the license holders (the labels or individual artists, depending). It will then be included on an artist’s royalty statement at the appropriate time. How these moneys actually get allocated is beyond my ken — in a perfect world, everything gets paid on a actual number of tracks sold basis, but who knows how all of this accounting will actually work.
None of this suggests that I want artists to be ripped off. But if you want to talk about paying artists their fair share, then you have to talk about the system as a whole. Allofmp3.com is a very small piece of the puzzle, and available evidence suggests that they’re trying to work with the system as it exists. It is not a perfect system, and it certainly does not benefit smaller artists. That’s how the music industry has worked since the music industry began.
If you can make a living by self-distributing your work, I think that’s great. Like the motion picture industry and publishing industry, the music business is hard on individual artists. The system — from initial production to distribution to booking live performances/readings/theater — is geared toward major distributors. I advise that you stay outside the system as long as you can because you’re going to be in for a rough landing when you sign your first major label deal.
And if you’re serious about agitating against allofmp3.com, you might want to get truly activist and work with the global societies to come up with a fair, standardized process for distributing music and paying artists around the world.
I’ll just add that Medialoper does not advocate piracy. However, we do advocate reading comprehension. Please re-read the above article and quote the exact portion that advocates piracy.
Also, as I’ve noted in another thread, the vast majority of musicians selling music on iTune are not receiving the same payout you are. Most artists are in mid to long-term contracts with recording labels and, as a result, are subjected to the sort of accounting described in this article.
You seem to have little knowledge of the true complexity of the music business. Which is fine. As an artist that’s not your job. If you’re lucky enough to make it big you’ll have accountants and lawyers to worry about the details for you. In the meantime, don’t make the mistake of thinking that your limited experience selling music on iTunes is a true indication of how the music business actually works.
Okay, you guys got me. You obviously don’t condone piracy and yes I am inexperienced, my field of vision being limited to the last couple of years and one pretty much vinyl-based genre with shrinking sales. I dont claim to know everything, instead I can only say what I see everyday around me.
Even so, the experiences I have had indicate that the music industry is in turmoil due to digital distribution and by all accounts the paid market has sufficiently shrunk in the past 5 years to make all the difference between being able to produce music professionally or simply as an unpaid pastime (in my main chosen genre). I can and do sympathise with those who oppose allofmp3 and as you can see, the issue of piracy clearly frustrates me. On the verge of a new release that has taken most of this year, the perils of having my hard work stolen and resold at a price I cannot compete with are all too glaring.
I am very aware of the very small percentages that most artists get from their music sales and its one reason that I don’t see the attraction to signing with a major unless its purely on my own terms. Why so many artists around me await a major label signing with almost unconditional approval I can’t understand. I am cynical by nature and especially so of the major labels.
With regard to allofmp, whom my main beef is with, their prices are so low in comparison to the rest of the market that its pretty obvious why they are getting increasingly popular. Even if they are intending to cut in all the artists they feature, the returns will be pretty insulting. As such, the promotion of the site seems to imply condoning of piracy, but thank you for putting me straight on that one.
Thank you also for taking the time to respond. You have at least gained an interested subscriber.
Regards
Contayjen, I have read your comments with interest, and I would just want to point you to your very last comment “With regard to allofmp, whom my main beef is with, their prices are so low in comparison to the rest of the market that its pretty obvious why they are getting increasingly popular. Even if they are intending to cut in all the artists they feature, the returns will be pretty insulting. As such, the promotion of the site seems to imply condoning of piracy…”
1) Pricing: Your conclusion that a “low stated retail price = piracy” is wrong! In countries other than the established markets of the US, UK, parts of Europe, Japan, Australia etc legal downloads go for as low as US$0.12 or even less. A case in point is top100.cn in China which is endorsed by the IFPI which sells tracks at only US$0.12. So it is obvious that your interpretation of “rest of the market” is flawed
2) “the returns will be pretty insulting” – did you know that for full tracks and mobile ringtones sold via mobile carriers are often such that the carriers take up to 50% or more of the retail price, leaving very little to the artist. In many markets, the average track might only cost US$0.15 or less per track, so the returns per transasction to the artist are as you call it ‘insulting’. But if there were millions of ‘insulting’ transactions, this would translate into a sizeable income, and surely you are not going to refuse that?
On the other hand, there are many online retailers around the world (that are not called iTunes) that promise sizeable revenue shares per transaction, eg. 70% of retail price. However, most of them are not audited and you will not know if they are actually giving you a share of ALL transactions or just 70% of a portion of transactions.
I have done a more detailed write-up on this on my blog at http://maths.blogthing.com/2006/10/24/message-to-poor-musician-and-the-state-of-internet-downloads/
Have you looked at some of the new sites that are trying to help indie artists sell their music AND get the majority of the profits. http://www.IndiependenceMusic.net only keeps what they need to cover costs – the rest goes to the artists which amounts to >70% of all sales. This is definitely the way to go for indie artists!