So @Chordwainer (Dave) asked me an interesting question last night. Out of the $4,000,000,000 that the Warner Music Group made in gross revenue during the last fiscal year, how much of that went to the artists.
When I was breaking apart Warners books to answer that question in the other thread, I saw this line in page 9 of their budget.
We are also continuing to transition to other forms of business models with recording artists to adapt to changing industry conditions. Many of the recording agreements we currently enter into are expanded-rights deals, in which we share in the touring, merchandising, sponsorship/endorsement, fan club or other non-traditional music revenues associated with those artists.
So I traced the chart of accounts to where it showed how much they made from this. $389,000,000. This is NOT including the money they made off sales. This is in addition to it.
The answer to Daveâs original question is here⌠and I answered it in terms of the total royalty payouts they sent to the artist/songwriters/producers.
1 - Sign band with a record deal
2 - Stipulate years / number of records that were part of the deal
3 - Advance money to make the album
4 - Recoup the advance when album goes on sale
5 - Advance money to make the next album
6 - Repeat until the contract is over
Most artists end up owing the record company more than the sales of they album could make, and therefore they go on tour and sell merchandising, and keep all of that money for themselves. They can then pay back their debts to the record company.
So if Iâve got this correctly, the 360 contract gives the record company a cut of all sales, all tours, and all merchandising. So if the likes of U2 or Guns and Roses were on a 360 deal, the record companies would just be rolling in money (when you consider the revenue from these tours).
Yup. You got it. Its different than a development deal and a songwriting/publishing deal, but thatâs pretty much it.
Sometimes their publishing catalogs and capital investments (such as vehicles, real estate) could be posted as collateral. But a lot of labels didnât have the legal power to hold the debt over them for life. The band LLC can declare bankruptcy, dissolve, then the members are off the hook. One label I know tried to make each member sign the loan using their personal social security numbers, and they wisely didnât do it.
Thatâs exactly what the 360 deal is, except a label working with U2 doesnât need to mitigate risk by committing U2 to a 360 deal, because their albums will most likely sell. And besides that, U2 isnât dumb enough to sign a 360 deal lol. Hell, U2 could pay for their own damn record if it game down to that haha.
Not only cut of the sales, the label also slap their own minions over the whole process, so âyourâ tour is staffed and manned by label mooks and you have no oversight of expenses whatsoever.
I hope this isnât off-topic, but I noticed that Ariana Grande released a song/video from her new album on YouTube. It was released on YT 3 days ago and already has over 41 million views! I looked up her net worth and a current estimate seems to be $50 million! She released her first album in 2013, so she has been a recording artist for just over 5 years. She seems to make tons of money off of each album, each tour, merch sales, streaming, probably YT as well. I think I would call that a âget rich quickâ scheme.
Of course, she did have some exposure before that ⌠she was on a Nickelodeon TV show called Victorious for a few years where she reportedly made $9k per episode. There was a spinoff show also, but I donât think it lasted more than one season, if that.
Her record label, Republic Records, was just honored by Billboard as âLabel of the Yearâ, and I think Ariana just won her first Grammy award tonight.
Obviously, this is an exception to the rule that most artists never do nearly that well commercially. I watched this new song/video and I thought it was really cheesy, mostly sample/beat-based stuff (like much is these days), and not what Iâd particularly call âgood musicâ or âquality musicâ, but of course that means nothing to her (presumably) legions of loyal fans. It is certainly visually captivating, and baits you with an interesting story-line that seems to have a âtwistâ ending. Is it âartâ? Yes. Is it good? YMMV. Does it make money, bring fame and celebrity, and awards? Apparently, an emphatic yes.
If I remember correctly there was even a highly publicized shooting on one of her London concerts that made her a worldwide artist or at least known all over.
It was actually a suicide bombing attack in a Manchester, UK venue in May of 2017. At least 22 killed and many others injured IIRC, and responsibility was claimed by ISIS. While that publicity certainly made her more well known, she was already famous at that point IMO.
It was generally accepted that the artist would be paid the mechanical songwriting credits (12-15% ish?) up front when the record was pressed, and the label would charge the artist back for everything else (inc. recording costs) and only pay out the roughly 50/50 (profit) royalty AFTER ALL the RECORDING bills were ALL paid off by the artist.
Tour support was essentially a LOAN, not a profit center.
Mechanical copyright is song ownership royalties - not normally a record companyâs area of concern in the past (although it certainly is now, as most record companies have a publishing arm). You would sign up with a publisher for collection of mechanical royalities. Any deal less than 50% for the artist is poor. The publisher is simply acting as extra backroom staff so that the artist doesnât have to go through the process of collecting the royalties themself, so 20% should be enough for the publisher - although many get away with charging much more.
Any advance made the record company is made on artist royalties (i.e. sales), which is typically 10% - ish of the retail price.
The first two Van Halen albums sold I donât know how many millions of copies of each. You think Van Halen was rich after these first 2 albums? No, they OWED Warner Brothers $1.8 million dollars! They earned a very small royalty rate per album and had to pay much or all of the expenses.
Good point. Itâs easy to see by the numbers that artists rarely make a lot up front. However, with a sustained career of many reasonably good albums, and decent management and deals, eventually the debt gets paid off and âclassicâ albums and songs keep selling - so eventually I think some artists do pretty well and fund their own comfortable retirement. Despite Rock 'n Roll being dead to some degree (did you watch the Grammy Awards?), I think thereâs still lots of interest in the back catalogs of the classic artists. I wouldnât be surprised if they continue to sell pretty well to this day.
I have no doubt Van Halen eventually made a lot of money. Iâm guessing they were able to later negotiate a better contract. Decades ago, I went to Michael Anthonyâs house (for a long time he lived in Glendora, California, the same city I lived in for a long time) briefly. A friend of mine knew Michael. He claimed Michael was making $800,000/month at one point (this was roughly 30 years ago). Michaelâs house was like a big mansion.
Wow, thatâs crazy. But I guess not completely unexpected. I donât know what all income sources figure into that, but yeah when thereâs all that success going around the dollars seem to flow like honey.
Its the same thing now. Advance cash, acquire assets, and reap returns. But the numbers compared to 10 and 15 years ago show that labels have adapted to hitting their 180 breakeven point in less time according to their official SEC filings. In plain english, this means theyâre no longer viewing investment as a long term venture. Theyâre getting whatever they can fast, then dropping artists that donât sell.
Let me clarify something. They are not personally liable for debt. Compare this to a typical equity deal on Shark Tank. If a shark invests and the company folds, everyone is out whatever they put in. The sharks capital growth is proportionate to the capital growth of their equity percentage, but since in the case of a record label, the shark is shouldering all the risk, the returns must be proportionately high to justify the investment.
And just for kicks, if the $1.8m was invested in Van Halen today, that is exactly .01% of the money Warner invested in artists development and signings during the 2017 fiscal year.
Aaron, you might call this a 1.8m deal, but in reality its more like a hypothetical purchase order. If the 1.8m is accurate, its 1.8m over the timespan of 2 entire full length records with tours in between. Its not a lump sum. So Van Halen was not paying interest on the full amount of the loan the minute they signed the deal. Thatâs where it starts to differ from how it would work if they were securing funding from a bank for a 1.8m house.
Does it make money, bring fame and celebrity, and awards? Apparently, an emphatic yes.