Question
"Whats happening in the industry?"

Answer
Artists are angry about the 360 deals. They equate it to signing over their lives to the record labels. Record labels claimed their profits from records sales are down; and they are demanding a percentage from everything that an Artist is involved in (merchandising, publishing, touring, acting, etc). Money from those sources used to belong 100% to those artists.

I understand the Time Value of money; but  Damn!! thats a lot of "loot" those labels are putting into their pockets.They should leave more meat on the bone to encourage/motivate Artists to work, instead of making them feel depressed.

This process is new to many artists, but it is not new to me. Labels had been practicing that for many years on new artists who were eager to obtain a record deal. For example, a desperate/unthinking artist would be given a contract, $100K cash advance, a Rolex watch, and a BMW and s/he would never receive another penny from record sales or publishing, even when his/her album goes multi-platinum. The label owns 100% of the rights to everything. Some labels will tell you those Artists were lucky to have gotten a contract from them.

Artists are fighting back. They are saying without them those record labels cant exist. Some of those Artists have formed their own Independent Record Labels (INDIES) and Music Library. They own 100% of their Intellectual Property inventory; and they are cherry picking events their Booking Agents send to them. Their calender is fill with assignments (Touring, Films, Fashion, Products, Appearances, etc). Some of them have staged their own concerts overseas. Many of them are planning to do the same thing. 

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 academic and practical experience in Business and Accounting before I entered the U.S.A as a foreign student; so fitting into the industry was not difficult. In the USA, I studied Accounting & Taxation at NYU; and I have also taken SELECTIVE entertainment classes that COMPLEMENT my business acumen (Brooklyn Music School, Manhattan School of Music, and the University of Soutnern Caifornia), to get a clear overall understanding of how the industry operates.

I learned the Business & Financial Side of the industry when I worked temporarily for  A&M Records and Arista Records, via the employment agencies in the 1980s; and I did bookkeeping and tax work for my first client, the owner of two retail record shops that I frequently visit to buy the latest hits (45s, Mixed Tapes, LPs, 8-Tracks and CDs for my collection) from almost every genre of music. 

***NOTE:- Having music industry experience and education is great. However, a solid work history in the COMBINE fields of Music, Business, Taxation, and Accounting provides depth into specific issues that will directly/ultimately impact a potential clients finances and net worth. Music Accountants work with creative people, and must appeal to their creativity when explaining/discussing business and financial issues with them.

Special Course-Work I Studied and Researched:
- 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 and IRS & IRD Audits.
- Tour & Event Accounting.
- Special Events Planning and Management.
- Event Risk Management.
- Media Buying and Management.
- Brand Identity, Merchandizing & Over-exposure.
- Sponsorship & Sponsors expectations.
- Artists, Talent Negotiation, Acquisition & Marketing.
- Casino Talent Buying and Event Production.
- Business, Contracts, and Entertainment Laws.
- Trend Forecasting and Direct Marketing
- Entertainment Taxation & Auditing (Music, Fashion, Sports, Culinary & Gambling/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 this 6th band. He told us the band was destined for superstardom but its members were unhappy with their former manager. What AL didnt know was the band was plagued with problems. Band members had squandered the $300,000 cash advance and the record label was threatening to cancell its contract.

The band was broke and its members couldnt set foot in a recording studio. People were claiming the band owed them money and the record label was angry with band members. We had the band sign a new management contract, settled the claims, submit a plan to the record label for full support, and prepared the band for tours. The first venue on the tour itinerary cancelled its contract with the band before the tour began. It claimed that some of the bands fans were notorious for displaying bad behavior and it didnt want to be associated with bad publicity.

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 to meet the urgent requirement of the stadium management. It was either that or no show. However, 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. The entertainment side of this industry/business is "crazy"/exciting and interesting. Expect surprises. The team on the ground must keep their guards up and be ready with alternatives.

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(LEVERAGE). 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. Dont be surprised if the record label offers you an "All-in" deal that appears so good that you cant refuse/resist it. Please be careful with "All-in" deals/contracts (Contact Your Entertainment 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 are the most important advice you can give to a new artist?"

Answer
Net SRLP ($13 - 15%)	=	$11.05
Artist 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 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

Important Advice:-

1) Get an Entertainment Attorney to review your contract and talk to you about Copywrite and Royalty from Publishing, Distribution, Merchandising, etc. If you accept/signed the contract make sure you deliver the album on time; and ALWAYS be on Your Best Behavior. If you dont, the Label will DROP you like a hot potato (terminate your contract fast/quickly/forthwith) for Breach of Contract and/or for BEHAVIOR that is NOT consistent with its CORE VALUES. Also, Advertisers dont want their Brands to be associated with BEHAVIOR that is Problematic/Erratic/Appalling. A lot of Artists have learned that LESSON the hard way. Your Entertainment Attorney and your Business Manager can guide you accordingly. Seek their help. That is part of what you are paying them for.

2) Build a Music Library. It will enable your music to be used in films, etc.

3) Always review and settle your split-sheet agreement.

Fire ALL Yes-Men; and Disassociate yourself from Hangers-on and Tag-along. Take a clean break away from them. They are LIABILITIES. They are not good for the business. If you keep them around:-

a) They will get you in trouble.

b) Your brand and musical career will fail/end miserably.

Their interest is sycophantic. They are servile flatterers. They will tell you what you like to hear and keep you on an ego trip(A Sinister Motive), instead of telling you things you must know that will enable you to make better/great decisions. Also, their negative behavior will create a toxic environment that will reflect on you as an ineffective/incompetent leader. Your leadership will become questionable. Fire them and avoid Potential Liability and Unnecessary Travel Costs/Expenses. A lot of people in the Entertainment Industry have learned that lesson the hard way. Dont become another statistic. I am keeping it REAL with you.

Keep Real, Genuine, and Capable people around you. You need people who have strong Work Ethics and the Right Attitude:-

a)Factually-deep.

b)Productive.

c)Relaible.

d)Results-oriented.

 

Summary/Overview

The entertainment industry is MORE THAN Glitz and Glamour and having a Great Time. It is a BUSINESS that requires strong/serious teamwork. It entails properly constructed contracts, skillful negotiations with record labels, promoters, sponsors, merchandisers, publishers, etc; and skillful management of the artist Career, Income(income streams), Expenses, Taxes, and Investments. Being Famous is Great. However, in the end it is about how much MONEY you get to keep for yourself, in addition to owning and keeping your inventory of intellectual property legally protected. That is the Economics of this business.Thats VERY important!!!

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/Business Manager, an Entertainment Attorney, an Entertainment Accountant ,and a License Security Guard/personnel who are familiar with the intricacies of the music industry and would help you to properly manage your Contracts, Finances, Investments and Personal Protection. As part of your strategic plan, you should have a Timeframe when you will own and open your recording studio. Your production/producer rights and writers 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 superfans and 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 and multi-platinum. More important than making a hit record is a visionary artist with good lyrical content 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 be fast asleep 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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