A Million Dollar Record Deal Is Probably Not What You Think It Is

from the sounds-nice,-though dept

Thu, Jul 22nd 2010 12:04pm — Mike Masnick

Our recent post on recording industry accounting got plenty of attention, and it appears that more and more media sources are bursting the bubble of the myth of major record label deals. The latest is the BBC, which has a story about how a £1 million record deal isn't quite what most people think it is. Apparently, over in the UK, they throw around "£1 million record deal" like they throw around "$1 million record deal" in the US (despite the fact that the actual amounts are pretty different), and people think it sounds impressive. But, of course, as we've already noted, it's not really that impressive. Most of that money goes towards other stuff, and then the label keeps taking money that you earn to "recoup" the advance, even as it's taking most of your album sales revenue directly for itself anyway (and not counting that towards the recoup).

The article highlights a guy who won one of the big UK TV music competition shows... but has already been dropped from his label despite selling 500,000 singles and having a top 5 album in the charts. The final quote in the article basically highlights how a million dollar/pound recording deal really doesn't mean anything at all:

"What record companies are actually saying when they offer a £1m record deal is, 'we're going to pay the basic costs and, as long as you make it very quickly, then you can make a lot of money'.

"But you're going to have to make it very quickly.

"Now it seems to me that, if you don't make it in five minutes or on The X Factor, then you don't make it."

So there you go. A million pound/dollar recording deal covers your basic costs, and if you don't make it back in about five minutes, then you're basically a lost cause. Once again, those "big" record deals aren't looking so hot any more, are they?

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Filed Under: accounting, musicians, record labels

32 Comments

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Crosbie Fitch (profile), 22 Jul 2010 @ 12:40pm

Sell music - NOT copies
That what I keep trying to advise musicians: Sell music - NOT copies.
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nasch (profile), 22 Jul 2010 @ 1:08pm

What it means
A million dollar record label deal probably means the label expects to make a million dollars off you before they drop you.
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Michial Thompson, 22 Jul 2010 @ 1:35pm

WOW again little mikee misleads for his benefit
WOW little mikee, an artist enters into a contract where he is advanced money against HIS portion of the revenue, and you say he is NOT supposed to pay it back????

If you are advanced a $1 million, your cut of sales is 15%, and you have to repay the $1 million, of course you pay it out of YOUR 15%....
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jjmsan (profile), 22 Jul 2010 @ 2:10pm

Re: WOW again little mikee misleads for his benefit
Please show me in the article where it stated that the artist is not supposed to pay the money back.
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Bubba Gump (profile), 22 Jul 2010 @ 2:13pm

Re: WOW again little mikee misleads for his benefit
Yes, the record label makes $6 million on your $1 million and then dumps you because you "didn't make them any money".
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Anonymous Coward, 22 Jul 2010 @ 2:14pm

"If you are advanced a $1 million, your cut of sales is 15%, and you have to repay the $1 million, of course you pay it out of YOUR 15%...."

Its not a loan its an investment. If it was a loan then you would pay out of the 100% cut of sales you have. You only get 15% because the investor expects to get his return from the cut of the sales he has, not form your cut of sales.

That would be like getting someone to invest in your company, give him 85% ownership, and then have to also pay him back out of your paycheck.
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johnnyt, 22 Jul 2010 @ 2:18pm

Re: WOW again little mikee misleads for his benefit
so what the other 75% for? is the $/£1 million not an investment in order to deserver the 75%. Sounds like someone has quite a biased view here. after all with no artistic input there is nothing to sell.
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nasch (profile), 22 Jul 2010 @ 2:19pm

Re: WOW again little mikee misleads for his benefit
If you are advanced a $1 million, your cut of sales is 15%, and you have to repay the $1 million, of course you pay it out of YOUR 15%....

So... you agree. I guess there's a first time for everything.
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nasch (profile), 22 Jul 2010 @ 2:20pm

Re:
That would be like getting someone to invest in your company, give him 85% ownership, and then have to also pay him back out of your paycheck.

Good analogy!
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Gwiz, 22 Jul 2010 @ 2:23pm

Re: WOW again little mikee misleads for his benefit
I was not mislead.

To me the post says that a $1 million record deal really isn't that great of a deal. Period.
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Gwiz, 22 Jul 2010 @ 2:27pm

Re: Re: WOW again little mikee misleads for his benefit
SP: mislead = misled
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a-dub (profile), 22 Jul 2010 @ 2:33pm

Re: WOW again little mikee misleads for his benefit
Yeah thats how contracts and advances work, but you are incorrectly assuming that the $1 million record deal is actually worth $1 million. In reality, its an over inflated amount charged for producing an album, among other things. And then the artist gets to pay it back. It's basically predatory lending.
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Valkor, 22 Jul 2010 @ 2:54pm

Re: Re: WOW again little mikee misleads for his benefit
... and that's a lot of quidbucks.
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Michial Thompson, 22 Jul 2010 @ 3:32pm

Re:
It is called an "Advance against EARNINGS" shortened to ADVANCE and is also know as (WOW you guessed it) a LOAN....

The difference between a loan and an Advance is just in the terms, the loan has interest, and an advance may not, and also a loan is expected to be paid in full, and an advance may have terms allowing the balance to be forgiven if the full amount is not earned.

BRAINS anyone????
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Michial Thompson, 22 Jul 2010 @ 3:34pm

Re: Re: WOW again little mikee misleads for his benefit
You kinda made my point about little mikee neglecting things...

The term ADVANCE pretty much sums up the obligations. In the contracts it will be spelled out simply as "ADVANCE against earnings"

BRAINS anyone????
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eclecticdave (profile), 22 Jul 2010 @ 3:43pm

Re:
I agree it's a good analogy. Let's expand upon it just so people can see how it works more clearly...

Imagine you're on "Dragon's Den" (you have that show in the US right?). Peter Jones wants to invest so he says "I'll give you $1 million, but I want 80% of the equity".

Now you use that million to make the album. It sells in the stores for $15 a pop, the retailer takes $5 and you get $10. You sell 200,000 albums so you make $2 million.

Peter has 80% equity so he gets his $1 million back along with $600,000 profit. You get $400,000 to spend on sex and drugs and all that.

Now imagine you go on American Idol instead. Simon Cowell gives you $1 million as an "advance". Just as before he expects 80% of the cut and you sell 200,000 albums and make $2 million.

Now Simon gets $1.6million and you get $400,000. EXCEPT Simon still wants his "advance" back. So you have to give him your $400,000 and you still owe him $600,000!
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Michial Thompson, 22 Jul 2010 @ 3:52pm

Re: Re:
Yes, that is EXACTLY how an advance works... Like it or not the artist agreed to it... They agreed to it because they wanted that money UP FRONT.

Not many labels ask them to pay back the unpaid balance, they just keep with holding royalties until it's paid back...
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Modplan (profile), 22 Jul 2010 @ 3:58pm

Re: Re:
I think it's you that needs brains little Michi. You don't seem to have presented anything that refutes the article. Don't let that stop you trolling though, I'm sure you're not here for any kind of debate around facts or about what people actually said.

Did you have fun setting up Asterisk?
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Anonymous Coward, 22 Jul 2010 @ 4:18pm

Re: Re: Re: WOW again little mikee misleads for his benefit
So you're saying that it's less than a million dollars. Wow! Why would anyone sign a contract with a recording label?
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Headbhang (profile), 22 Jul 2010 @ 4:23pm

Re: Re: Re:
And that strikes you as a nice, fair system for the artist, Michi?

The people in the Dragon's Den example ALSO get the money UP FRONT, you know? Why should the recording industry operate in a different way?
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JP, 22 Jul 2010 @ 4:27pm

Michial is right, that's how an "advance on earnings" or an "advance on royalty" works... It's a common practice in publishing, recording, and film making... The only entity it really "works" for is the publishing, recording, for film company... Most people around here, and I would agree, that it's not really an equitable financing model... But in the past, the big companies have been the gatekeepers and have been able to force everyone to play by their rules... That's changing as the industries are losing their gatekeeper status.

The other ridiculous part is that often a large part of the "advance" goes into paying the advancee's organization for services... The person(s) receiving the advance often have little say in how the money is spent and has no ability to negotiate for pricing on the services that are provided and paid for... These terms are usually locked into the contract, so even if a band (for example) could go out and record their album for $80,000 at another studio, they're locked into paying the advancee $150,000 for the same service at the advancee's recording studio... So, now you're not only paying back your "advance" out of your equity, but you've got to pay back for services charged at a higher rate than the free market would normally bring.

As others here have noted, an investment model would be a more equitable solution for the artists, but of course would deprive the recording, publishing, and film industries of their gaudy profits... Note that an investment model could actually also help the industry (they'd become venture capatilists, basically)... However, they would also no longer be relaint on sales of infinite goods to make money.
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Anonymous Coward, 22 Jul 2010 @ 4:46pm

Re: Re: Re:
So let me get this straight.

You've spent this entire time repeating what the article says and confirming what everyone else says, yet still insult people despite saying the exact same things?

Wow, you're like a douche-bag parrot.
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SeanG (profile), 22 Jul 2010 @ 7:21pm

anotomy of a record deal
Anyone who needs an overview of major label's creative accounting should read this. http://alanbergman.com/articles.htm#deal
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Anonymous Coward, 22 Jul 2010 @ 9:59pm

Re: Re: Re: WOW again little mikee misleads for his benefit
Crawl back under your bridge little troll. You make no point at all that hasn't been made in other articles Mike wrote. All you do is come around making insults that make you look the idiot.
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eclecticdave (profile), 23 Jul 2010 @ 4:00am

Re: Re: Re:
Other people have got in before me, but just to defend my corner ...

Yes, I know how an advance works and I understand the artist agreed to it (except where they were too naive to know what they were agreeing to, but if you swim with sharks you should expect to get bitten!).

My point is this is NOT a good deal for the artist, but it's a GREAT deal for the record company. It only works that way because there used to no other way to get a album made. That's not the case anymore.

I also accept that if in my example Simon drops the artist after the first album he "writes off" the $600,000. However he's not out of pocket, he's still made $1 million. The only time Simon loses money is if the artist sells less that 100,000 albums in which case he really does write off some of his investment. But then so would Peter so there's still no advantage there.
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Michael Birnholz, 28 Jul 2010 @ 7:11am

Selling 1 million worth of stolen downloads?
Everyone seemed to forget that selling 1 million downloads is um, not exactly happening every day either. It is more like 1 million downloads of which 100,000 were paid for if you are VERRRRRY lucky. Illegal file sharing still very much alive in well out there.

ps: The only artists getting 1m record deals are those that win on shows such as Idol in the USA and others like it abroad.
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nasch (profile), 28 Jul 2010 @ 9:17am

Re: Selling 1 million worth of stolen downloads?
Who is talking about a million downloads? Other than you I mean.
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Jay crispy, 2 Oct 2011 @ 2:57pm

Re: Sell music - NOT copies
what do u mean when u say sell music and not copies?
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y Crispy, 2 Oct 2011 @ 2:58pm

All Facebook Friends please go to your search boxes and like Pyramid Gang Productions if you have any Questions please contact me (Jay C.)
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nasch (profile), 2 Oct 2011 @ 3:18pm

Re: Re: Sell music - NOT copies
You didn't read the linked article, did you?

"In some accord with the form of Zygo�s article, here�s the sequence of steps that musicians interested in selling their music will go through:

Invite your fans to pay you to compose/perform/record music
Compose/perform/record music and deliver to paying fans
Get paid (in proportion to number of fans)
Indiscriminately distribute some or all of this music to file-sharing sites, etc.
Having obtained more fans, goto 1."

This is of course just one possibility, not the way to do it as Fitch states. He contrasts this with selling copies of music, which anybody can produce for free.
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Crosbie Fitch (profile), 2 Oct 2011 @ 3:26pm

Re: Re: Sell music - NOT copies
Selling music: "I'll play a tune & sing a song if you pay me $5000"

Selling a music recording: "I'll produce a recording of my music for $100"

Selling copies: "I'll make copies of the recording for you at $1 each, but as you've already bought the recording you can probably make your own copies more cheaply"
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CallMeChaz, 7 Dec 2013 @ 7:11am

Jealousy?
All the negativity here assumes that major recording companies have a business model that depends more on cheating upstart singers than it does on developing their long term careers. Does anyone REALLY believe that they prefer 100 losers to a Michael Jackson or One Direction??

No one has a gun to their head. If you think it's so easy to get "milked" by these companies by letting them advance you $1M, let's see you get the advance.
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