The Reduction Theory

[nomadthethird]

OK, I have heard about rare individual cases - not Whitney, but Sony pursuing Michael Jackson for the cost of his disastrous last album that Rodney Jerkins was supposedly getting zillions-per-track. (Rumour had it they wanted to leverage his Beatles rights with the debt).



More often than not with new artists, if the album isn't making it's money back they're dropped. End of story.

This is definitely true. Most of them end up bankrupt I'd imagine, too...

 

[mms]

This is actually just not true at all.

When you get your advance it is almost always a non-recoupable advance. Meaning that the label can't ask for it back, but they can charge your royalties against it. So say they give you $100,000. You can spend $50,000 of it on your album, and pocket the other $50,000 but even then you're still not going to be making your royalty until the label have made the $100,000 back again. Maybe some super corrupt amateurish indie labels who prey on the mentally retarded don't do this but all of the major labels do. It's an old system that dates back a long time.

The only way a label can recoup your advance back is via royalties.

What they can do is cross-collatoralize if you don't make it all back. So say you only pulled $50,000 in sales off that $100,000 advance. What the label will do will give you another $100,000 for your second album on advance, and then make the full recoupable amount $150,000 - adding on the deficit from the last album. They can do this into infinity with artists that don't make money by claiming that by not making the advance back, they ran at a loss.

This isn't true of course because in a company like that, "losses" like that are ghost numbers. They are pulling money off even poor selling records in so many ways that you can't, that even asking for an advance back is sort of a rip-off on the traditional royalty rate most people get.

this is almost right, course all advances are recoupable, but you'll never have a situation where a label asks for the advance back, they're advance payments for the artist to record the album, usually paid in two parts one part on signing one on completion of the album, also alot of artists will have publishing advances too, the record starts making money when that advance is recouped, thats set against various costs as well quite often, depending what the deal is like.

If the album doesn't recoup if it's unsuccessful then a band may be dropped or as you say cross collatoralised on the advance for their next album depending on how many releases the deal was for and whether there is seen to be some hope for the band, or more fairly the artist might just have to negotiate new terms on advances and royalties. New artists also often get tour support in their contract which is basically money to help them tour as for a new artist they might loose money touring, but they need to to support their career.

People sell merchandise etc alot nowdays because records don't sell that well, and merchandise is very profitable, usually the manager will sort this sort of thing unless the artist has a deal where the label also manufactures and takes a cut from merchandising. The other thing is it could be a long wait for an artist to recoup the advance on and album as royalties are paid twice a year, one of the reasons for this is because distributon of records and cds works in a way where often shops or distributors abroad will return unsold stock at points during the year which have to be counted into the sales too.
All in all it's a massive punt for everyone involved.

 

[Sick Boy]

Are you fucking kidding me? Losses are never "ghost" numbers.

I'm talking in terms of proportion. Major labels are like giant banks, essentially, and so are able to draw loans, invest, write off expenses, etc. and pull in (or used to pull in) so much money a year, that if the first album of a new indie signing "loses" the label $100,000 or two, it's just a drop in the ocean for them. Remember, that money for the advance doesn't include things like the marketing budget.

The label obviously doesn't want to continue investing in something that will take a loss, but they are (and indeed, must be) able to take the chance. So when they think the situation is a lost cause, they'll drop the act. But all the while it works for them because by making it appear that what are essentially initial investments are actually losses to them, it justifies their ridiculous and outdated royalty calculations.

The main point though is, no, labels can't ask for their money back. Like MMS described though, it doesn't surprise me contracts are renegotiated and money is taken from other places. Especially these days. I've heard of acts doing contracts entirely with their merchandising companies alone.

 

[Sick Boy]

This is definitely true. Most of them end up bankrupt I'd imagine, too...

Well this is why they say if you get signed to a major hold dear onto the advance money you have left at the end of the day, save it away, and let the label take as many expenses as possible while you roll around in hookers, do mountains of blow, stay in expensive hotels, sexually assault the cleaning ladies, etc..

You know, enjoy it while it lasts.

 

[nomadthethird]

Right but my major point was that major labels--I have no idea really what indies do in general because they're all different I imagine and lack a "business model" in the way major labels have one--are definitely very strategic in drawing up contracts.

When they're not--like in the case of Whitney Houston and Arista--entire labels can more or less tank.

When I was a kid I wanted to be a contract lawyer just because this stuff gets so complicated on the level of industry that you see major labels running on. $$$$$$$$$$$$

 

[mms]

Right but my major point was that major labels--I have no idea really what indies do in general because they're all different I imagine and lack a "business model" in the way major labels have one--are definitely very strategic in drawing up contracts.

When they're not--like in the case of Whitney Houston and Arista--entire labels can more or less tank.

When I was a kid I wanted to be a contract lawyer just because this stuff gets so complicated on the level of industry that you see major labels running on. $$$$$$$$$$$$

well major labels and indies just use similar models, ie advance an royalty models, often the terms will only be different because there is more cash at stake for the artist/management/label, things get more complicate as there are more people involved, indies don't lack a business model they just have a different often less complicated one than really huge artists, diff models for different types of artists too, hip hop artists will have a different model to oasis or radiohead, as there are different producers involved, guest artists, maybe sponsorship deals, television deals, more details on touring etc, much more complicated than the classic indie model of smaller advance then 50/50 split of royalties when the album makes money, maybe the same label or another publisher owning the publishing and taking a percentage of money made on syncs and licencing, that's changing a bit now as well though.

but as you say, both labels and artists can tank it pretty easily and do all the time recording and releasing music can be a financial gamble.

 

[nomadthethird]

Yeah, I always wondered about that, if hip-hop labels were really considered the pioneers in the "diva/rapper/actor/fashion mogul" business model within the music industry. It does seem like the music industry is evolving faster than a lot of others to accomodate new media and technologies--much faster than the film industry is!