Barry's Accounting Services, Corp.
1852 Flatbush Avenue - 2nd Floor
Brooklyn, New York 11210
(718) 677-4006
E-mail:
clembarry@aol.com
 
Client Update - quarterly newsletter
 
 

 

Entertainment Discussions

Question
"How would signing a contract with your company benefit us, the artists/band? Would that interfere with our artistic creativity?"

Answer
We are "forward-thinking" and we practice "hands-on" strategic management. Managing your financial affairs properly is a priority and the contract would describe how we would help you and your artists accomplish your financial and business objectives. We assume that you know your way around the industry. Therefore, we would not interfere with your artistic creativity, tell you what to do with your music, or when and where to go on tour unless you agree for us to include those as additional items in the agreement/contract. How do you feel about that? Are you OK with that? Based upon this conversation and your knowledge and experience in the industry, how do you see me bringing value to your brand?

Question
"Your company promises free limousine, security, and hotel for entertainment clients. How does that work if an artist or band members want(s) to meet with you?"

Answer
If an artist or band is under contract with a record label, is about to sign a contract with a record label or planning a domestic/overseas tour and wants me to be part of their team or wants me to be their private consultant, as is customary in this industry, then the accommodation is free — "It is on the house." The money will come from my company's marketing budget and it is a tax deductible business expense. This is a token of my appreciation for the artist/band doing business with me. This is how I do business with people in the entertainment industry.

Question
"Where is the beef at? What's popping in the industry?"

Answer
Everybody is up in arms about the 360 deals because the process is similar to signing over their lives to the record labels. The labels are not paying for studio and producers' time the way they used to because they claimed their profits from records sales are down. They are demanding a percentage from merchandising, publishing, and touring. Money from those three items used to belong 100% to the artists. Damn, that is a lot of "loot" the labels are putting into their pockets. This process is new to a lot of artists, but it is not new to me because a lot of labels had been practicing that same thing for years on new artists who were eager/desperate to obtain a record deal. For example, a desperate artist would be given a contract, $100K cash advance, Rolex watch, and a BMW and s/he would never receive another penny from record sales or publishing, even when his/her album goes platinum or double platinum. That is a lot of "loot."

Question
"How did you learn the business side of the industry? How did your first client know about you, and what did you do for your first client?"

Answer
I had a strong business and accounting background before I entered the U.S.A., so blending into the industry was easy. I learned the business side of the industry when I worked temporarily for industry icons, A&M Records and Arista Records, via the employment agencies in the 1980's. I did bookkeeping and tax work for my first client — the owner of two retail record shops. I walked into the store, gave the store manager my brochure and some tips/information, and the owner called me three days later.

Industry Course Work:
- Entertainment and Event Planning
- Entertainment and Event Marketing
- Entertainment and Show productions
- Budget, Cost Accounting & Financial Management
- National & International touring
- Transportation logistics & Security details
- International Taxation
- Tour & Event Accounting
- Special Events planning and management
- Event Risk Management
- Media Buying and Management
- Brand Identity, Merchandizing & Over-exposure
- Sponsorship & Sponsors expectations
- Casino and music entertainment management
- Artists, Talent negotiation, Acquisition & Marketing
- Casino talent buying and event production
- Business, Contracts & Entertainment Laws
- Trend Forecasting & direct marketing
- Entertainment Taxation (Music, Fashion, Sports, Culinary & Casino)

Question
"What is the most crazy or interesting thing that you have encountered in this industry? What did you learn from that experience?"

Answer
I picked up the phone and my friend, Crazy Al, a band manager said: "Clem, I am excited. I signed this band yesterday and I would like you to help me. This band is hot and I am convinced it will become the next big thing." Al was managing five bands on tour and he was putting together a team to restructure the 6th band. He told us the band was destined for superstardom but its members were unhappy with their former manager. What Al didn't know was the band was plagued with problems. Band members had squandered the $300,000 cash advance. The band was broke and its members couldn't set foot in a recording studio. People were claiming the band owed them money and the record label was threatening to cancel the band's contract. We had the band sign a new management contract, settled the claims, submitted a plan to the record label for full support, and prepared the band for tours. The first venue on the itinerary was cancelled before the tour began because some of the band's fans were notorious for displaying bad behavior. The stadium management gave the band a new venue, a 20,000 seat arena that did not have a "mosh pit," so the promoters were scrambling to make adjustments. We tripled security and increased insurance coverage. Everything went smoothly and the band sold 15 million albums in the first year. It earned over $200 million in record sales, concerts, merchandising, sound tracks, live show recordings, and instrumentals. It has made the Forbes list of top-earning musicians for several years. This business is "crazy"/exciting and interesting. It can push you to the limit so you have to be prepared for the unexpected.

Question
"My band is negotiating a five-year, 10-album agreement with a big record label. We anticipate selling more than 10 million records/units. We are asking $775,000 per album. The SRLP is $12. Our contract will pay us 12% royalty on 90% sales. We have to pay 20% packing costs and 25% of our paycheck will be withheld in reserves. We will receive an advance of $5 million. What is your take on that? Should we sign the contract?"

Answer
SRLP ($12 - 20% packing cost) = $9.60
Gross royalty ($9.60 x 90%) x 12% = $1.0368
Net royalty ($1.0368 - 25% reserves) x 10 million units = $7.776 million
Less advance payment you received = $5 million

The recording company owes you a balance of $2.776 million if you honor your contract. If your records are completely sold out (there are no returns or damages), you will be entitled to receive an additional 10% royalty of $1.152 million from sales, plus 25% or $2.592 million for reserves that were withheld from your paycheck (recoups). Some artists are not aware of that. The record label can withhold your reserves for years. You should negotiate to get paid in 60 days instead of 90-180 days (liquidation period), thus increasing your working capital and liquidity ratios (solvency). You are receiving 12% of SRLP so try negotiating a sliding scale SRLP. Major artists often command more than 15% of SRLP while minor players are signed up at 10% or less of SRLP. You are a superstar, so negotiate to recoup your tour expenses. Get the record label to produce videos for your album(s) and guarantee you a spot on video channels. If the label resists, then remind the A&R executive about the size of your fan base — you have critical mass. Remind them that your shows are considered "must-see" events and arenas are sold out in minutes when your name and itinerary are mentioned in the media (value proposition). Try negotiating more publishing and merchandising rights. Promotion, packaging, handling and shipping deductions will cost you 25% of SRLP or $24 million. Try negotiating 10% of SRLP — albums produced by superstars seldom need a lot of promotion because they are quickly bought as souvenirs by legions of fans. Overall, you can earn $1.5 million per album instead of the $775,000 that you are asking for. Why not! The record company is poised to collect 88% royalty from you. Don't be surprised if the record label offers you an "all-in" deal that appears so good that you can't refuse/resist it. Please be careful with "all-in" deals/contracts (contact your attorney). Be sure to factor in your estimated overhead expenses to see if the deal is profitable to you. You would have to release at least two albums per year, therefore your tour should begin when the lyrics have become a hit with your fans and they are ready to greet you with a standing ovation and sing along with you. The timing of the tour is important for you to generate the exposure needed to leverage the sale of records and licensed merchandise and attract sponsors. You should sign the contract if the record deal is profitable to you and the terms and conditions in your contract are reasonable. Good luck!

Question
"I am a new artist and an independent label has offered me an "all-in" contract. I will be paid 10% royalty on 80% sales (20% freebies and returns). The contract requires the sale of 500,000 units. The SRLP is $13, packaging costs 15%, and reserves 25%. I will receive $100,000 in advance, and rehearsal time and production fees will cost the label $46,980. Royalty on additional units above the number of units required for me to break-even is 18% on 95% sales. Reserves are reduced to 10% and packaging costs are unchanged. How many records do I have to sell to earn the advances that I will receive? How much will I earn from my recording contract? What is the most important advice you can give to a new artist?"

Answer
 
Net SRLP ($13 - 15%)
=
$11.05
Artist's net royalty per unit [($11.05 x 80%)(10% - 3%)] - 25%
=
$0.4641
Advance (loans) received
=
$146,980
Number of units that must be sold to settle your debts with the label
=
316,700
Additional units over break-even units (500,000 - 316,700)
=
183,300
Artist's net royalty per unit [($11.05 x 95%)(18% - 3%)] - 10%
=
$1.4171625
Additional royalty (183,300 units x $1.4171625)
=
$259,766
Total (Gross) royalty earned from your recording contract
=
$406,746

The entertainment industry is not only about glitz and glamour. It is a business. It entails properly constructed contracts, skillful negotiations with the record labels, promoters, merchandisers, sponsors and publishers, and skillful management of the artist's career and finances.

If you have plans to make it big in the entertainment industry, then you should hire people who will be an asset to you — people whom you can trust to help you achieve your goal. Your first priority should be to hire a personal manager, an attorney, and an entertainment accountant (business manager) who are familiar with the intricacies of the industry and would help you to properly manage your finances. As part of your strategic plan, you should have a timeframe when you would open your recording studio. Your production (Producer) rights and writer's credit will earn you royalties. Those additional income streams (royalties) are what every artist looks forward to receiving for many years into the future.

If you want to be taken seriously as a new artist then you must plan, prepare, and position yourself for a sustainable career in the music industry: How can I continue to be creative? How can I reinvent myself and become more marketable? How will I be able to continue to generate additional revenue? Your album must be more than an instant hit. It must be a monster hit with cross-over fans. It must dominate the airwaves and the charts. Each of your hit singles in the Top 10-release can take you from gold to platinum or multi-platinum. More important than making a hit record is a visionary artist with good lyrics that makes the charts regularly.

You would also receive royalties now and in the future as your monster hits/album become a vintage product. You can lie in bed and have monthly royalty checks deposited in your bank accounts. Your contract should include all foreign countries and territories where your album release is planned. A significant portion of your record sales may occur in foreign countries at royalty rates of 75% or more of the domestic rates. You can lose millions of dollars in royalties if your contract is not properly/intelligently constructed. We have recovered unpaid royalties for our clients by utilizing the audit clause in their contracts. I have reviewed/analyzed a lot of contracts that have been drawn up by entertainment attorneys, so you can rest assured that I have the insider scoop. I hope I have enlightened you. Call me if you need my service. Good bye and good luck.

 

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