RIAA Accounting: How To Sell 1 Million Albums And Still Owe $500,000

No question, any band will tell you that record sales is their least significant income source, for most merch is the big earner.

What bothers me most about this situation is that musicians would exist without labels, where as labels would not exist without musicians, the balance of power is all wrong.

So, the question I have is: how many of those bands/artists make it?

The article mentions an advance of $1M. I think the $20 per CD rate claimed in this album (1M CDs sold is claimed to be $20M in sales) is a bit high (then again, I haven't bought a CD in a while). Suffice it to say, I'd lower that to $10-12M gross and maybe $7-8.4M when costs are accounted for. Even with digital distribution, I think the iTMS/Amazon are taking 30% which would lower $12M gross to $8.4M after Apple takes its cut. Correct me if I'm wrong, but from what I've heard/seen an album costs around $10-12 on iTunes and Apple takes 30% of that. I can't imagine physical stores (who have the overhead of real-estate and employees) taking less. I mean, 20% breakage fees are outrageous, but arguing that selling 1M albums equates to $20M gross is also outrageous since CDs don't cost $20 a piece.

So, how many of these bands succeed? If I gave a $1M advance to ten bands, would nine of them sell a million albums or only one of them? Thinking of it like an investment, that's an important question. If only one of them sold a million albums (and the rest failed), it would mean that I've put out $10M while the CDs sold grossed $12M (and probably $8.5M after the selling store takes its cut, before any other costs). In this case, there isn't a lot of money for the successful band to be well rewarded. Even though they brought in 8x what was invested, there was only a 1 in 10 chance of them succeeding and a lot of that money is going to subsidizing the investment in the failed bands. However, if 9 out of 10 sell a million records, around $75M is being brought in (after the selling store's cut) while $10M was invested and so there should be plenty of money for the bands/artists to be well-rewarded for their success.

I'm not saying that there aren't dirty tricks being used. I simply don't know how often bands that get these advances do well. If the risk is that most ventures are very unprofitable, it means that the ventures that do become profitable don't get well-rewarded because of the risk involved.

There's also the issue of the amount of money. In this case, it's $1M. That isn't a sum that most people can come up with and, as such, commands a premium. A lot of the larger VC investment comes after a team has shown that it can get a bit of traction. Places like YC invest early, but it's small amounts.

In the end, if you believe in yourself and think there is little risk, it's always best to invest in one's self. However, it can be hard to stomach the risk if the costs are high and the industry failure rate is also high. I'm sure that the record companies are making off with loads of money unfairly, but what's absent from the article is a sense of how many bands that get the advance make it and how many fail. That's a critical piece of information that could turn their whole argument on its head. And without that information, it's impossible to realistically evaluate fairness. I'm no fan of record labels. I think they're an antiquated system in an age where digital recording, editing, and distribution can allow people to create high-quality media. However, if the article wants to convince me of its merits, it needs to offer some statistics about the success/failure rate of the bands/artists getting the advances. If the success rate is 90%, they have a good point. If the success rate is abysmal, it casts some doubt. I'd say it casts more doubt on the system of offering advances (than offering a defense of record labels) and argues for a more efficient initial production, but that's the hacker ethic in me.

And I'm supposed to be against piracy? I have no problem giving money to people who deserve it but these people do not deserve a single penny from me. The other issue is that by paying for CD's, I'm directly funding the unethical legal bullying that these companies are undertaking.

Really, it's the same issue with the government. I, for one, do not want to fund operations which kill people in foreign countries. I don't care if it's a 'democracy', I don't care if there's a hierarchy and that I'm supposed to vote to make myself heard. I simply want to cut funds to things I don't agree with but the issue is that doing so results in an entity orders of magnitude bigger than me bullying me into submission.

The key issue is that the advance from the label is neither a gift nor an investment; it's a straight up loan (most likely with interest) that is expected to be paid back, but the loan terms are horrendous. I get the feeling you think that the band receives a $1M investment that the label will recover at a certain rate from the generated profit, but that's not the case. After selling for $1M, the artists are still at $0, and they still owe the record company $1M. If the record company brings in $1M in profit from an album, they have covered their expenses. That $1M wouldn't even begin to repay the loan the artist have, though, so now the label is UP $1M - the artist still owes them most of the advance.

At least, that's how I understood the situation, correct me if I'm wrong.

Oft-times larger venues will not play you if you are not signed. Sometimes this isn't true, but it typically is.

Especially if the venue is owned by Clearchannel (most are).