To ask avid music fans who they consider to be their heroes, many would give the names of their favorite bands and musicians. Fans are always trying to find ways to show support for their beloved musical heroes, and often think that buying their records is the way to do this. The unfortunate fact of the matter is that most of the money made from CDs and records never see the musician who created it. Here we will discuss why this is.
Unless the musician wanting to come out with an album owns their own record label, they are probably going to have to hire one to market their music and get it produced. While the record label is going to request the majority of the royalties made from the CD, there are also other key players in the making of the record that will also be taking a cut, and sometimes quite a large cut.
One thing to note is that large record labels like Sony and Universal are going to request large cuts while small indie record labels hold the benefit of requesting less of a cut from their musician’s earnings. To learn more about the pros and cons of signing with a large record label versus an independent record label, read our article How it Helps to Sign with a Record Label.
In order to paint a clear picture of how the money is divided up once a record is made, we will look at each stakeholder separately by percentage. Generally speaking, the percentages earned from the CD goes as followed: Artist (6%), Producer (2%), Songwriters (5%), Distributer (20%), Manufacturing (5%), Retailer (30%), and Record Label (30%).
Assuming that these numbers are pretty accurate, which they are, let’s see how the royalties for a musician can quickly be withered away to almost zero by the multitude of cuts taken out for other players involved.
The average CD sells in stores for $16.00 and a band generally consists of 4 people. Let’s say you write your own music leaving you with you an 11% cut. Since your producer will take 3%, that brings your net royalty down to 8%. After taking out the 30% for the retailers and 20% for the distributors, that brings your $16.00 per CD down to $7.70. Rounding this number up will bring us to $8.00 per CD and subtracting $2.00 for packaging brings us down to $6.00 per record. Since the artist in this scenario makes 8% of the royalties earned, they will end up taking home a whopping $0.50 per CD. Not too good.
Assuming you sell 500,000 copies, you would think that the musician would take home $250,000. But unfortunately, this is not the case. We also need to consider that 15% will be deducted for promo copies brining that number down to $212,000 and another 30% will be deducted for the record label’s royalties. At the end of the day, the artist is only seeing $148,750 for the album they created.
While this isn’t such a common practice, it is important to note that there could be a deduction from records returned or freebie records. This means that if a retailer bought a bunch of CDs, and didn’t end up selling them, the responsibility is then put on the musician to pay for the unsold records. If 10% is deducted for returns, the ever dwindling $148,750 made by the artist is subsequently reduced even further to $133,875.
And as if this isn’t bad enough, the musician is also required to pay roughly $75,000 for studio time, recording equipment, and engineering. Now that we are at $58,875 and the deal has been made, the musician’s manager is going to want a hefty 20% cut for their services. And there you have it, $47,100 left for the whole band divided amongst 4 band members leaving $11.775 for each person. This is why thinking that your favorite musician would see all the benefits of their monetary success is but a far fetched fantasy.
With the information provided above, it comes to no surprise that musicians are becoming less and less willing to let their music run freely on the internet. After all, the reason CD prices are going down in the first place is because of the need to compete with the online world of free music sharing. With this in mind, it’s important to also remember that other sources of income become available to artists once they become known (shows, merchandise, licensing..). Musicians need to weigh the benefits and risks of signing with a record label in order to decide what’s best for their music career.