RIAA Accounting: How To Sell 1 Million Albums And Still Owe $500,000
from the who's-ripping-off-whom-again? dept
And, as we noted in the post last year, don't think that because a band goes "unrecouped" that the label loses money on them. The "recouping" only comes from the 10% royalty rates, which are really much, much lower (in this example, the "real" royalty rate is more like 2.5% due to the clauses in the contract). That leaves 97.5% of the money in play. Obviously, some of that is covering costs and expenses. But there's plenty of cash that makes its way into the label's bank account, when an album sells $20 million.
As for what kinds of tricks the labels use, well, Frascogna notes "breakage fees" of 20%, which are based on breakage rates for vinyl from half a century ago. That CDs don't break so much and that digital files don't break at all, doesn't matter. The labels still try to get a super high breakage rate that they get to deduct. For them, it's pure profit. Then there are "uncollected account" withholdings, on the basis that some retailers go bankrupt and don't pay for the stock they had. The way it's described here, that's often just a set number, rather than based on any actual, documented cases of uncollected fees. Next up? "Free goods." Now, we talk about the importance of free goods all the time. But here it's used in a different manner. Basically the labels deduct the "cost" of providing reviewers/radio stations/etc. with "free" copies of your album. That money comes straight out of the gross that the royalty is calculated on. The fact that you could just email the mp3 to those folks yourself? Well, pay no attention to that newfangled technology.
Next up, there are "container charges." That's for things like the jewel cases and inserts for CDs. Again, the fact that digital music doesn't have such expenses is pretty much ignored. Also, the fact that all of these expenses get deducted from the artists' share? That also seems wrong. Even more insane? Apparently the standard "container charge" is an additional 30% off the revenue. Again, in many cases that's just pure profit for the labels.
Finally, there's the ever lovely and totally amorphous "reserves." As Frascogna notes: "no one really knows what reserves entail." It's basically a blank check for the record labels to claim they have to keep some of the money themselves for "other stuff," which is mostly undefined. In this case, some labels simply set a straight percentage, up to 20% more of the gross that artists never get to see as part of their own royalties.
Bring all that together, and the 10% royalty looks more like a 2.5% royalty, and that's not enough to even get halfway to recouping even if you sell 1 million albums at the high high price of $20/album. And that doesn't even touch on splitting up any money you get between band members and paying the manager/agent, etc. When you dig in to things like this, you can understand how artists like Lyle Lovett can say they've sold 4.6 million albums and never made a dime in royalties from album sales.
Now, many of these points can be negotiable if you're knowledgeable about them. But many artists sign such contracts without realizing what that fine print really means -- and that's just what a lot of the labels are counting on.