Data hereinunder are selection of the copyrighted data referring to the practice in the music industry. The sole purpose thereof is educative, therefore the data are being used in fair practice. The links to the selected sites are listed within the ‘LINKS’ area of this blog, and the visitors to this blg are strongly advocated to read the web sites pages and information therein to complete his/her understanding of what music business is,and how it functions. Original grapgics of the texts/tables displayed hereiunder affects the elegant visual expereience of this blog as a whole, but the essential purpose of this blog and alternatively the offer is to fully and in-depth inform any investor not familiar with the practice of the music industry.
“COST STRUCTURE OF MUSIC BUSINESS AND ALBUM (CD) RELEASE:
1. Calculation for a pop album
(sponsored by the AMM Music Group)Based on very decent sales in Germany – other countries have similar costs (but scaled to the sizes of these markets).The assumption behind those figures is that the musician is locally known or extremely promising, but not established yet.
|Cost in US-$||Remarks|
|Studio cost and advance for musician||60,000|
|Basic minimal administrative expense||10,000||very variable depending on company size and structure, mainly personnel costs for meetings, sales meetings, planning.lawyers etc. .. calculated for a large company|
|Radio , TV and print promotion||30,000||on the low side|
|Video clip and presentation video||120,000||(for 2 clips)|
|Photos and other PR materials||5,000|
|Cover design||5,000||can be lower for smaller companies etc..|
|Print advertising campaign||150,000||(music magazines, some teenie magazines some general interest magazines etc.) very variable – but could range from anywhere between 60,000 to 1 Million|
|Point of sales advertising campaign||20,000|
|Radio- and TV advertising and co-operative campaigns||160,000||can be much higher – or smaller|
|Posters and tour support||70,000|
|Total basic investment:||630,000||of which 185.000 can be shared for several countries, since they are the basic album recording and video investments|
Lets assume that the album sells about 100,000 copies – which should (if the timing is right and everything is happening exactly at the right time) also mean that the album reaches a middle chart position sometime during the first year of sales for a few weeks minimum.In this case the income and costs will look like this:
|Income from sales||1,300,000||taverage price to retailer in Europe at US-$ 13.00|
|Income from radio airplay||20,000||about 1,650 broadcasts at US-$ 6.00 per broadcast (this would not apply in the USA, since the record company/label does not get anything from US-aiplay)|
|Manufacturing||– 130,000||110,000 units (since promotion copies etc. have to be made .. and there will be about 10% over-manufacturing, because some CDs will be returned|
|mechanical royalties to composers and publishers||– 130,000||some might go to the performing musician if he is also composer on some songs|
|Royalties to musician||-10,000||can vary a lot – but assuming 10 % of PPD (US-$ 13.00) minus the advance paid – the advance being the costs of recording and at least half the video .. the royalties would be 130.000 – but half of the video and the full cost of the record master tape are deducted, so the musician get only US-$ 10,000.00 as payment|
|Distribution cost||-350,000||manpower, wharehousing, sales – administration, transportation etc. based on the calculations of pure distributors about a 27 % of the sales income is cost of these factors.|
|Miscellaneous charges||-10,000||internal administration, accounting etc..|
|Interest on investment||– 70,000||10 % interest payment on investment plus some financing costs|
|Total costs:||– 700,000|
|First year profit/loss||-10,000||Operational income (if the second half of the video cost is seen as cost)|
The investment is not recouped completely so far – but will make a small profit with the sales in the following years. But this investment is not interesting – unless the album can be sold in very good numbers in other countries too.
About a third to 50 % of the well-marketed albums with budgets like these only reach these numbers. Another 25 % of albums with this kind of marketing budget will not even sell these numbers – and about 25% will sell much better. In a case as this example, the real money will be made by the rights in future uses and further sales. It will be OK, but not great.If the next album by this artist is selling twice as many copies at the same investment in marketing – or the next album sell at least as many with a much lower investment in advertising and other marketing expenses, the overall project could become profitable – even if it is limited to one country as large as Germany.
If the artist can be established, then additional income can be generated from the use of the songs in compilation albums.So farit is clear that everyone will make a bit of money from his work or investment, but not a lot – in contrast to the usual opinion of music journalists. Actually, the musicians who worked on the album for a flat fee have typically made a good income for their time, the star and the record company did make almost nothing. If the album has a chance to be sold in other countries, then it will definetely make money – but it will make decent profit margins like in any other normal activity – and not the excessive ideas of profit that people think is being made in music.As can be seen, the risk is rather high – it is not as risky as films (where you hardly make any money if the film does not really hit big in the movie theatres and the investment in marketing is extremely expensive too), but still quite risky. The success chances for albums with marketing budgets of this size is considered currently to be about 25 to 30 % with high quality musicians that can actually play live.Success means in these cases that the albums reach more then 200.000 album CDs – and in these cases they are very profitable as can easily be seen.On the other hand most albums are released with much smaller budgets (for marketing) or with good-looking but incompetent musicians as stars. In these cases the chances for an economic success are normally considered 10 % (often at a lower level though) – but personally I would rate the chances in these cases as even lower – probably about 5 %. People only loose a bit of money in these cases – but they can almost be sure to loose it. To have a chance to have successfull project in Pop, Rock or Hip-Hop means serious business.If a product is not competitive with the best worldwide, then it should not be there on the market under todays circumstances. For new musicians or amateurs the best way to test their potential is to just do their album on their own and try to sell it at concerts. There are some companies that will also handle such projects – but most of them will not tell the musicians the real situation, instead trying to convince them of their great potential – just to make a few bucks as convinience record labels. These always end as financial disasters (mostly for the musicians).By the way – these values are the results of statistics of the IFPI chapter Germany and a private study of our company about the marketing expense and the chart positioning and approximate sales figures for new album CDs in the years 1997 and 1998. Some data sources are confidential – and most are commonly available by tracking announced marketing campaigns in “Musikwoche” and “Musikmarkt”, correlating them with the media advertising buying prices – and checking the results of the campaigns. (the latter data are not commonly available).The overall situation is one of the reasons that record companies are pressing for several things today:
- higher income from radio (radio profited most from very low rates for giving music away) Probably the first step to a better situation will be the Europe-wide adoption of the rate of income from rate that is paid in Ireland today – 9 % of the radio stations income goes to the music business. (according to Fiancial Times data) versus typically 2% to 4.5 % in most other european countries
- Strong fight against CD-R copies – or the introduction of an acceptable fee for these
- No theft of music with MPEG-audio files
Is This A Business Or A Game?
By: Allen Johnston, The Music Specialist (Contributor) 2006-03-19 Karl, the owner of Show Off Records, has made a lot of money. He has worked long and hard to obtain and maintain his money, family, lifestyle and power. Now he believes in the American dream and feels that his “crew” is beyond a doubt the most talented group of producers and rappers in the game. He forms Show Off Records and is determined to make his label the greatest Rap label in history. He calculates and determines that the yearly SOURCE Awards in Miami is the place to launch his label, so he makes sure that he is prepared. He first buys a full-page ad in the Special Awards issue of the SOURCE magazine and two Platinum tickets each for himself, his partner and three artists. Now he is guaranteed a chance to walk the red carpet and sit near the front of the auditorium. He buys two used motor coaches to transport his 60-member crew in, rents a mansion on “Millionaires Row” for three days to house part of his crew and to have a place to hold an exclusive private party. Knowing that the real ballers need to be seen, he rents five rooms at the Loews hotel for three days just for himself and four trusted lieutenants. His three acts must look good, so he gives each act a clothing allowance budget and sends them out to shop. Having seen how the greatest rap artists party, he rents the VIP room at the hottest clubs in town for three nights and makes sure that he has plenty bottles of Moet, Grey Goose and Dom available for his guests. He has setup performances by each of his acts every night, and partnered with the club owner to have a major recording artist “after party” in the club while he hosts their VIP area. Within his crew are his Street Team members, who will drive two wrapped vans around the event and make sure the city is saturated with flyers, posters and mix CDs. His lieutenants have visited the main strip clubs in Miami, and now he knows that he will have beautiful people at his private party. His party plans are a huge success, and he now knows that his label will be the talk of the weekend.
Let’s look at his total expenses:
Transportation: Motor Coaches: $100,000
Drivers: $1,600 (per diem, driving charge)
Gasoline float: $500
Additional cars: $10,000 (2 used Wrapped Vans)
Parking : $150
Club Rental:$15,000 (3 nights $5,000 each)
Mansion: $2,000 (2 cooks in crew)
Hotel: $1,250 (room service charge)
Club: $1,500 (VIP snacks)
Night Club: $6,000 ($2,000 per night)
Street Team: $1,500 (hotel, food, misc.)
Mix CDs: ($10,000)
Source Ad: $10,000 (full page color ad)
Radio Advertising: $5,000 (3 days on 2 stations)
Artist Clothes: $9,000 ($3,000 each)
Platinum Tickets: $30,000 (10 x $3,000)
Jewelry : $12,000 T
TOTAL: $245,950 This does not take into consideration studio costs, producer fees and individual artist costs. What has Karl received for his money outside of a wonderful, fun-filled weekend in Miami? Ř Show Off Records’ name has been blasted over the radio every night, but none of the Show Off Records music has been played. Ř Hip Hop Industry attendees and some Miami fun seekers now have copies of the Show Off Records mix cd, which they may or may not listen to. Ř Some industry notables now understand that Show Off Records throws a mean VIP room party, and a few may have even seen there acts perform in the club. Ř Karl has personally met a few major recording artists, but doesn’t know their management team, booking agent or record label executives. Ř The majority of his promotional materials have found their way to Miami Beach & Miami Dade County Sanitation Bureau because his material was just one of several hundred labels’ material that was promoted during this weekend. Ř The organizational structure of Show Off Records has not been created; there are no products ready for sale and no plan to create either.If Karl has an accident or for some unforeseen reason cannot function as the head of the label, who will take over and save his investment? – The creation of a written document outlining the agreement among partners should have been one of the first things he did. – Next, the organization of his office environment should have been instituted where all mailings, billings, invoices and correspondence can be collected, sorted, acted upon and filed. – A central phone number and a computer-based office system should have been formed. How will he keep in contact with the many different individuals and companies he and his crew have come in contact with? Ř Incorporation of the business will give Show Off Records the tools needed to create a corporate bank account, savings certificates and a corporate credit card. Additionally, it will also give him the basis for paying his taxes and the ability to keep open and honest legal documents. – The entertainment industry is based on communication, so a strong, ever-increasing database of radio, retail, publicity and industry executives should be started. Every good song needs distribution, and in order to obtain a decent distributor, Show Off Records should have an established marketing and promotional plan available with some type of radio or club play prior to acquiring distribution. Most important of all is the staff that Show Off Records must utilize to accomplish the type of marketing and promotion they will need to place product into the mainstream. Ř Staffing should consist of a primary industry professional (consultant), an office manager, and at least three office workers, all who should be computer literate. – Duties will include: communication between retail, radio, pools, clubs, publicity and industry contacts on a weekly basis; the ability to get promotional product out and to follow up on the product sent; the ability to get information on upcoming shows, festivals, events, parties and station promotions, disseminate it to the staff; and keep the lines of communication open between record label and ALL others. Unfortunately, what I am finding more and more of this the young entrepreneur who really only desires the fame and popularity associated with the entertainment industry, and not the basic business acumen needed to initiate and maintain a viable entertainment business. “BALLIN” has become a game of one-upmanship to see who has the brightest “iced out jewelry,” the biggest most expensive cars, and the latest fashions, who can market themselves into a major deal, yet not have any professional team available to maintain a deal. Recently, I spoke at a conference and during a private networking session, I was asked how to just “jump over” all that old fashioned business and go directly to having a major record deal. My response was that it would be really easy to do if you have met someone in the position of power at the major labels that wanted to immediately sign you and spend their money on making your career. The only issue I can see would be how you would keep a deal of this magnitude without chosen individuals around you that know the business, have connections, and will work on your behalf to ensure your continued success and well being. In other words, where is your trusted team? Why not develop the business structure you will need now, acquire your trusted team, develop your database of industry connections, and prepare yourself for success?
Here is a basic Record Label startup expense sheet based for a six (6) month plan. The difference between the two expense sheets is phenomenal. Office
Multi phone line with paging/intercom/hold system:$3,000
5 lines with account codes: $1,500
Microwave oven: $200
Coffee Pot: $50
Stereo system: $1,000
DVD system with monitor: $1,000
Copy machine: $250
Computer 5 each, $5,000
Pentium 3 or better
40 gig hard drive
Multi function printer/flat bed scanner/fax
Sound cards with speakers
Microphone Video camera
Server system for marketing, promotion teams
Microsoft Office XP Professional: $800
Right Track royalty/accounting: $3,000
Professional Consultant: $50,000
Office Manager: $19,500
Office Workers (3): $39,000
TOTAL: $142,600 This does not take into consideration studio costs, producer fees and individual artist costs, but now you still have money to create product, test it, sell it, market and promote. So my question becomes, IS THIS A BUSINESS OR A GAME? Why venture into the entertainment industry if what you really want is your personal 15 minutes of fame? The duties of a record label are to produce, manufacture, market, promote, sell and collect monies on the music that is created by the company. Anything less is not a record company!
Digital music is moving into the mainstream of consumer life
John Kennedy, Chairman & CEO, IFPIThe biggest challenge for the digital music business has always been
to make music easier to buy than to steal. At the start of 2005, as the legitimate digital music business moves from a niche market into the mainstream of consumer life, that ambition is turning into reality.As the IFPI Digital Music Report 2005 report testifies, 2004 has seen an amazing change in the digital music landscape. And the market will grow apace in 2005. Here are some key highlights from this report:· Record companies have digitised and licensed over a million songs. In 2004 the available catalogue on the biggest online services doubled from around 500,000 to around one million tracks · The number of online services where consumers can buy music has increased four-fold to more than 230 worldwide – and over 150 of those are in Europe · Services like iTunes and Napster have become household names internationally – but local repertoire services in many countries are also developing fast · The digital download market is growing geometrically – in 2004 downloaded tracks rose more than ten-fold to over 200 million in the US, UK and Germany combined · Record companies have seen their first year of significant revenues from digital sales – from practically zero to several hundred million dollars. Jupiter thinks this will double in 2005 · Digital sales could rise to as much as 25% of total sales in five years, according to some record companies and third party analysts · Consumer attitudes are changing – the latest IFPI European survey shows increasing awareness of, use of, and intentions to use, legal download services Legitimate online music services have done what some thought only a year ago was unthinkable: they have proved that they can take on the unauthorised free alternatives. Online music today offers unbelievable value for the consumer: for 99 cents in Europe – the price of a loaf of bread, a bus fare, a can of Coke – you can download a piece of music that will stay with you for life. For those who claim they took music for free because there was no digital legal alternative, there is no longer any excuse.However, making the catalogue available is only one side of the story. We can’t just promote online music, we have to protect it as well. Today’s legitimate digital music market is evolving in such an extraordinarily adverse climate that it is almost a miracle that it has been able to grow at all. What other business has had to break into a 100% pirate market?Anti-piracy enforcement is a critical part of the recording industry’s digital strategy. And it has proved an effective one too. By sending the simple message that unauthorised file-sharing is illegal and could lead to significant financial or even criminal penalties, we are helping to create the breathing space the legitimate services need. In 2004 the industry launched over 7,000 legal actions in North America and Europe. There will be a lot more cases in more countries in 2005.As an industry we are embracing technology on one hand while fighting the abuse of technology on the other. The start of 2005 sees record companies discussing with technology firms the best way to harness peer-to-peer for commercial use. If a legitimate and viable commercial business results, based on the payment and permission of right holders, this could be a very exciting development for the online music business in 2005.Another major development will be the wider consumption of music on mobile phones. Some estimate that 50% of mobile content revenues will be from music.One important problem that hinders growth of the online music business is the lack of interoperability between services and devices. The danger is of wide-scale consumer confusion and wasted opportunities in a market which has extraordinary growth potential. There is no easy solution, but all players in the online market need to work harder to solve this problem in 2005.If 2004 was the year record companies digitised and made available their repertoire in bulk, then in 2005 our industry priority is simply this: we must market, promote and sell music, for download, hire, subscription, wherever and whenever we can. Record companies want to license the music – to as many services, for as many consumers, on as many formats and devices for use in as many places and countries as they can. There are straightforward conditions: the business must be legitimate; the music must be correctly licensed by its rightholders, and record companies and other right holders must get properly paid.I am confident that in twelve months’ time the digital music market will have grown very significantly around the world. A sector that currently accounts for a very small percentage of the industry’s revenues is poised for take-off in the next few years. At long last the threat has become the opportunity.
© IFPI. All rights reserved.
The Digital Music Report 2006 – Facts and Figures
19 January 2006
Record company revenues (trade revenues) reached $US 1.1 billion in 2005 showing a threefold increase on 2004 ($US 380 million).
Digital music (online and mobile) represents approximately 6% of overall music sales
Mobile music sales are not far behind online, with revenues roughly split (60-40 as at H1 2005).
420 million single tracks were downloaded in 2005 globally – more than double the number downloaded in 2004 (156 million).
US: 353 million single tracks downloaded (up from 143 million) [Nielsen SoundScan]
UK: 26.4 million single tracks downloaded (up from 5.8 million) [OCC]
Germany: estimated 21 million single tracks downloaded (up from 6.4 million) [IFPI Germany]
France: estimated 8 million single tracks downloaded (up from 1.5 million) [SNEP]
The number of users of subscription services, such as Rhapsody and Napster, increased from 1.5 to 2.8 million globally in 2005.
Online song catalogues doubled to over 2 million tracks on the major services.
Globally there are now over 335 legitimate online services, up from 230 in 2004 and 50 two years ago. In Europe alone the number of services reached 200 in 2005, up from 150 in 2004.
Mobile sales in Japan totalled $US 211 million, or 96% of digital sales in the market, in the first nine months of 2005. Single track downloads reached 4.3 million during the period.
Mobile phone subscriptions reached 1.5 billion in 2005 – a 50% increase on 2002.
Globally there is an estimated 70 million subscribers to 3G. Jupiter estimates that by 2010 3G penetration will reach 60% in Europe.
Satellite radio subscriptions reached over 9 million in the US alone – three times as many as the number of global subscription services users. Over 475 million people globally receive Digital Audio Broadcast services (DAB).
The number of infringing music files available on the internet at any one time is estimated at 885 million. This is slightly up on January 2005 (870 million) but down compared to June 2005 (900 million). By contrast, broadband uptake rose by 26% in the past year. Total infringing music files are down 20% on the 1.1 billion peak in April 2003.
Alternative Sales Sources for Your Music
The following is a list of alternative sources that may be interested in carrying your music for sale for their particular clients and customers, if only they were aware of your music. Most of the clients and customers are already “captive” audiences who are waiting on a product or service, so why not promote (and sell) to them as they wait? Additionally, if these sources have their own in-house music system (which many do), you should also speak with them regarding adding your music to their own in-house “playlist.” In some instances, I have also suggested certain genres that I feel will lend themselves best to the particular businesses below; however, it will also depend on the business owners personal tastes, as well. 1. Music retail stores (Any)
2. Bookstores (Mostly soft, Jazz, New Age, but depends on store)
3. Flower shops (soft Folk, New Age, Jazz)
4. Boot stores (Country, Americana)
5. Western wear (Country, Americana)
6. Restaurants (Any, but depends on restaurant)
7. Church stores (Gospel, Christian)
8. Christian bookstores (Gospel, Christian)
9. Doctors’ offices (Soft Rock, Pop Rock, New Age, Jazz)
10. Convenience stores (Any)
11. Airport gift shops (Any)
12. Bus station gift shops (Any)
13. Train station gift shops (Any)
14. Electronics stores (Any)
15. Office supplies (Any)
16. Corporate/company cafeterias (Jazz, New Age, Soft Rock)
17. Jewelry stores (Soft Rock, Jazz, New Age)
18. Barber shops (Any)
19. Beauty shops (Any)
20. Nail salons (Any)
21. Sports shops (Any)
22. Health clubs (Rock, Dance, Electronica)
23. Apartment management offices (Any)
24. Variety stores (Any)
25. Game arcades (Rock, Dance, Electronica)
26. Bed & Breakfast Inns (Jazz, New Age, Soft Rock)
27. Bridal consultants (Jazz, New Age, Soft Rock)
28. Bridal stores (Jazz, New Age, Soft Rock)
29. Tuxedo shops (Jazz, New Age, Soft Rock)
30. Bridal services (Jazz, New Age, Soft Rock)
31. Clothes cleaners (Any)
32. Mainstream clothing stores (Any)
33. Shoe stores (Any)
34. Coffee houses (Jazz, New Age, Soft Rock)
35. Computer stores (Any)
36. Eyeglass stores (Any)
37. Consignment shops (Any)
38. Farm supply stores (Country)
39. Flea markets (Any)
40. Swap shops (Any)
41. Formal wear stores (Any)
42. College bookstores (Any)
43. College music stores (Any)
44. Gift shops (Any)
45. Hardware stores (Any)
46. Hospital gift shops (Any)
47. Hotel gift shops (Any)
48. Insurance companies (Any)
49. Massage therapists (Jazz, New Age, Soft Rock)
50. Cellular telephone services (Any)
51. Motorcycle shops (Any)
52. Night clubs (Depends on the genre)
53. Party supply stores (Any)
54. Pawn shops (Any)
55. Cosmetic stores (Any)
56. Satellite dish stores (Any)
57. Thrift shops (Any)