CHAPTER 10
At a time when the Internet has opened the door for so many artists to offer their recordings to so many people, any discussion about income from recording and the involvement of record labels needs a brief preface. Artists must have recordings and live performance of the music from the recordings as the foundation of their career. Music drives every aspect of artists’ earning potential for themselves and for the manager who oversees their career. Artists on private labels, indie labels, and major labels can all have success with their creative efforts. But the difference between them often is the scale of their success when success is measured in earnings, and earning potential can determine whether a professional manager could or should become involved in their career.
The role of the label continues to change. The strength of major labels has traditionally been their ability to market recordings and distribute them through the wholesale and retail markets. Labels have been full-service marketing and distribution companies for recordings, but the dramatic decline in the sale of recorded music has put pressure on them to pare their staffs and reduce the amount of marketing and radio promotion they provide. As a result, many management firms have begun to employ marketing and promotion talent themselves. But the bottom line for now is this: record labels are in the business of selling recorded music, and artist managers are in the business of developing sustaining careers in commercial music.
Until the 1950s, recording artists weren’t paid royalties for the sale of recordings. They were paid in a similar manner to session musicians, meaning they were paid at the prevailing rate for a vocalist who sang at a recording session, and that was the end of the compensation. Those artists who negotiated for a royalty for recording music “only received a penny amount per sale rather than a percentage of a sales price as they do today” (Butler, 2004). For today’s artists who own their own label and market their own recordings, income and earnings from the sale of recordings are immediate. In most instances, however, aggregate earnings from them can be far lower than for those artists who are signed to recording contracts with bigger independent or major labels.
The artist manager’s relationship with a record label varies with their management style. Managers who have had success directing an artist’s career tend to become good partners with a label, being actively involved in planning and discussing what they can bring to support an album project and how they can assist in its promotion. The managers’ past successes tend to make them compatible partners with a label. However, there are some managers who bring nothing to the table, are slow to respond to requests of the label, and find themselves outside the planning process.
Our look at income from recordings begins with a contract with a large independent or major label and what it can mean to an artist and their career.
From the artist manager’s perspective, the record label represents an important career-marketing machine for the artist as well as an indirect income generator for other aspects of the artist’s career, both as a writer and performer. Record labels continue to have marketing and product distribution as their strengths, and the recording contract can play a pivotal role in career advancement. Knowing that this will require the formality of a contract, the manager should seek an experienced and active entertainment attorney to handle the negotiations with the label. Entertainment law is a specialized area, with new contract provisions occurring as regularly as the music business changes—almost daily. An experienced attorney knows what he or she can get as concessions from the company and also what contract provisions might be open for negotiation for a better deal for the artist. The manager should let the attorney be the negotiator, but should also attend all meetings where negotiations are taking place. Because business negotiations can become contentious, it is better for the attorney to take the hard-line role with the label rather than the manager, as the manager will be conducting business with the label when the contract has been completed.
When you cut away all of the fine print of any contract, it is simply an exchange of promises. With a recording contract, the basic promises exchanged are these: the artist promises to create recordings exclusively for the record company, and the company promises to commercially exploit the recordings. Labels essentially promote and market recordings, but the label marketing and promotion result in immense benefit to the other aspects of the artist’s career. Among the most valued contributions a label makes to an artist’s career is actively promoting the recording for radio airplay, resulting in a greatly increased connection of the artist’s music to active consumers. The label often creates a video to accompany the release of the recording, which is then promoted through wireless applications, Internet sites, national and international music video channels, and local video programs, all of which add extremely valuable visual promotion of the artist and their music. It is impossible for managers of new artists to find enough funding to generate this much promotion of the artist, which is why the label becomes so important. The immediate benefits to the artist include quickly increasing their public profile and exponentially building a fan base that purchases tickets to performances. Many in the music business view the release of a recording as a way to promote a concert tour; a tour had traditionally been viewed as promotion for sales of a new album.
Clearly, the release of a recording promoted by a record company can infuse considerable energy into a career. As discussed in the next section, the actual earnings for the artist from a recording can be a complicated, slow-to-arrive income source, especially for the new artist.
INCOME AND EXPENSES FOR THE ARTIST FROM A RECORDING CONTRACT
A recording contract specifies how the artist will earn income from the relationship with the record company. Contracts state that the record label provides all financing necessary to create the recording. But it also includes specifics about what the artists must recoup (pay back) to the record label as part of their standard agreement to pay for the creation of their own recordings. Remember how the promises work: the artist promises to create recording for the label, but most artists don’t have the money to pay the costs of creating one. So the label loans the artist the money in the form of an advance against the artist’s future royalties, but the artist is required to repay the label for the loan. The label withholds royalties that the artist has earned until there is enough held in reserve to pay off the loan to the artist.
As you read this section, keep in mind that the expenses being charged to the artist are payable to or recoupable by the record label only if the recording earns adequate income from the project to pay them. The artist will not be personally liable for repayment for any losses as a result of the creation and marketing of the recording. If it does not make money, the artist must repay nothing. The understanding that the label is taking the financial risk for the recording project helps to explain why the label has considerable control over how the recording is handled as a commercial music project and why they require a part of the artist’s other income streams as part of multiple rights contracts—especially for new artists.
One notable exception to the artist repaying recoupable expenses occurs when the artist offered a second album after the first one loses money for the record label. In this instance, losses from the first album will be carried forward to cross collateralize (help pay for) the second album. This means that the artist will not be paid royalties until the recoupable items from both albums have been repaid through the artist’s royalty earnings.
Creating and paying for the recording
The contract with the record company will require that the artist pay for all of the costs of recording an album. The artist has agreed to create recordings and the label expects the artist to pay for them as part of that promise. All of the recording costs—including the studio time, payments to players on the recording session, payment to the producer of the recording, travel costs, instrument cartage, and dozens of other expenses—are all borne by the artist. When these and all other recoupable expenses have been paid back to the record company, royalty checks will begin to issue to the artist. We discuss other deductions against royalty payments later in this chapter.
The artist will be offered an advance as an incentive to sign the recording contract to help offset living costs while the album is being created. The label may agree to issue a check for $50,000 as an advance, but the manager and artist must remember that this is merely a loan against the future anticipated royalties the artist will earn from the sale of the recording. So if the recording session costs $250,000, and the advance is added to that amount, the artist has created a $300,000 obligation ($250,000 + $50,000) against the future earnings from the recording.
For several reasons, it is always advisable for the artist manager to negotiate as large an advance as possible from the record label. First, an advance is the ideal income source to help pay off existing debt the artist has accrued and to help the manager put together a new show for the artist to take on tour. Second, because of the way record companies handle their accounting and payments to a new artist, it might be two or three years before the artist is issued his or her first royalty check from sales of the recording. A large, early advance puts income into the artist’s career now and not later, and given the odds against the recording project ever breaking even, there is a good possibility that the advance may be the only money the artist ever receives from the record label. Finally, the portion of advance checks from record companies that are not intended to cover recording costs ($50,000 in our example) are immediately commissionable to the artist manager because they are actually prepayment of the artist’s future earnings. For the manager of a new artist, this commission will help offset considerable personal expense that has accrued launching the career of the artist. Some would argue that large advances might make the artist unaffordable to the record company, but labels are conservative by nature and will advance only amounts that they feel they will recoup.
An artist earns most of their income from the record company in the form of royalties that are due, according to the recording contract, each time a copy of the recording is sold at retail. Royalties are a percentage of the price of a recording paid to the artist, which operate very much like a salesman’s commission.
The “price” against which the artist’s royalty payments are made is defined in a couple of ways. Many new recording contracts specify that the royalties paid to an artist are a percentage of the wholesale price of the recording (published price to dealers, or PPD), meaning they are paid a percentage of the price that the record company charges its dealers who distribute their recordings (Passman, 2009). Simplifying the math, if an artist is paid a 10% royalty for each album sold through iTunes and the wholesale price is $7, then the artist earns 70¢ in royalties each time a recording is sold. Another way royalty payments are determined is found in many older contracts that still contain language saying that royalties are paid as a percentage of the suggested retail price minus a 25% charge for packaging. There are actually more calculations to determine royalty earnings, but this shows the basic concept of payment by the label to the artist.
Royalty rates for new artists can range from 12% to 14% for each recording sold; more established artists can earn up to 20%, and major recording artists might exceed 20% (Hull, 2004). Most contracts also include a provision that allows the royalty rate to increase as a recording reaches sales plateaus such as a half million or million units.
Here is an example of how an album that sells a half million units would theoretically generate income for the recording artist. Table 10.1 shows how the royalty base for the artist is determined for CDs and digital albums. In this example, the artist has a base royalty rate of 13% from which the producer’s royalty is deducted.
Table 10.2 shows the result of applying the artist’s penny rate (royalty rate) to the number of units that were shipped.
Table 10.3 shows the total earnings from both CD and digital sales but also lists those items for which the label typically pays but are required to be paid back, or recouped, by the label. We discuss this later in the chapter. It’s also important to note that the units the calculations are based on are on “shipped” albums, meaning that stores will be permitted to return any unsold copies, which will also affect the ultimate amount of royalty payments.
Throughout the life of the recording, the label also collects royalty earnings for the artist based on the shipment of the recordings into the marketplace. As the shipments are made, the label sets aside the artist’s royalties for each and holds them in a reserve account. As the royalties accrue to the artist, costs that are recoupable to the record company are paid from that account. This simply means that the label applies earned royalties to the money the artist owes back to the label for creating the recording. It becomes easy to see why artists may not receive a royalty check from the label for perhaps two years after the first recording was released, if ever.
For the established artist, income arrives quickly to the label, costs are recaptured quickly, and the label is able to distribute royalties much earlier than for the first album released.
The timing of royalty income is important to the artist manager because one of the typical responsibilities they have is to manage a budget for the artist. Labels distribute royalty checks for sales of recordings three quarters (one quarter equals three months) after the release of the recording. Remember that the artist must recoup certain recording and other expenses to the label before being entitled to royalty payments, so the timing of those earnings may take considerably longer than nine months to appear. The label may be able to give the manager an estimate of when and how much the royalties will be when they are distributed.
New and established artists must deal with another delay of royalty distribution, which is defined by label accountants as “the reserve for returns.” The artist’s royalty account is based on shipments of recordings minus the royalty value of the albums that are returned unsold. In an effort to hedge the overpayment of royalties to artists, the label usually withholds about 20% (but as much as 50% for new artists) of royalties that are due to the artist in a separate account that is referred to as the reserve account for returns. When the album has completed its life cycle, distributors return the unsold recordings to the label. The label then deducts the value of artist royalties for the returned recordings from the reserve account for returns, and then pays the balance (if there is one) to the artist (Macy, 2006).
How does an artist manager determine whether the royalty payments to the artist are accurate? Most recording contracts allow the artist a two-year window within which to request an audit to confirm that payments are accurate. However, California law extends that to three years, and it has given more latitude on the choice of the auditor who is permitted to examine the label’s accounting records.
Another element that has an impact on the earnings of the artist is the cost of paying a producer to create the recording. The producer is the individual who assembles all of the necessary elements to take into the recording studio to create the recording. This ranges from reserving a studio, to finding musicians, to helping choose songs for the artist to record. Because the artist pays for the recording, the responsibility of paying the producer is the artist’s, and this is done through the artist’s royalty earnings.
Also, an artist signed to a record label with an “all-in” contract means that the specific royalty rate being paid to the artist includes the royalty payment to the producer of the recording. For example, the artist who earns a 12% royalty may be required to pay 4% or 5% of that royalty rate to the producer, depending on the rate the producer negotiated, reducing the artist’s earnings to 7% or 8%. Many producers require an advance paid by the record company followed by earnings from royalties. Because the record label is fronting the money to create the recording, their position is that of a key stakeholder in its success, so the company will have considerable input into who is chosen to produce the recording. The artist and producer certainly must have compatible creative chemistry, but the label will want to have the right to overrule a decision by a new artist on who the producer will be.
The choice of the producer should be based on who can create commercial music using the talents of the artist that will result in a recording that connects with music consumers. The label and the artist look for a producer who has a good or a developing reputation, and one who is a good creative “fit” with the artist. Labels also seek producers who have their own marquee value to terrestrial radio programmers as well as with the consumer. The success a producer has with other artists can help build the reputation and market the music of a new artist.
OTHER EXPENSES CHARGED TO THE ARTIST
The label has promised to market and exploit the recordings that the artist creates. However, the marketing they are willing to pay for has limits. When these limits are exceeded, the excess is charged back to the artist with their permission or that of the manager, and the artist must pay for it with royalties earned from the sale of the recording. Here are some of the charges the manager can expect to see on the artist’s statement of account:
• A portion of the video will be charged to the artist. Recording contracts often specify that the label will pay half of the cost of a video up to a total of $100,000; the artist will pay for all amounts that exceed that. Competitive country videos can be created for less than $100,000, but videos for BET and MTV2 can easily exceed $250,000 dollars.
• If independent radio promotion people are hired—those not directly employed by the record label—to attain radio airplay, the artist may be required to pay half or all of this additional expense.
• If independent publicists are hired (those not under contract with nor on the regular payroll of the record company), they will be paid entirely by the artist.
• If the record company pays for any aspect of live performances, the entire amount becomes recoupable. This would include costumes, hairdressers, makeup assistants, and other stylists—plus any transportation or equipment required for a performance.
• The artist will also be required to pay all costs of creating multimedia configurations of the recorded performance for current and future technologies.
• Any tour support money provided by the label will be recoupable by the label.
• An array of other things might be charged back to the artist. For example, if the artist wants an upgraded jewel case for their CD, they will be charged the difference; if the artist wants a full-color jewel case booklet rather than one with black and white interior pages, they will be charged an additional amount.
Any charges to the artist that are beyond the specifics in the recording contract require the approval of the artist manager before the artist becomes responsible for the expense.
Deductions from the artist’s earnings also include a reduced royalty rate for recordings that are sold at various discounted price points, at military installations, and in foreign markets. Certain taxes are also deducted from the artist’s earnings.
THINGS FOR WHICH THE LABEL CUSTOMARILY PAYS
The manager will find that the contract contains some things that a record label typically provides as part of its agreement with the artist. Labels pay for the manufacturing of the physical product after it is mixed and mastered.
Promotion costs are paid by the label. In this instance, label “promotion” is more like lobbying. Most labels employ promotion people whose responsibility is to influence radio programmers to choose the label’s recordings to be played on the radio. The personnel costs for this service are borne by the label. However, if outside independent promoters are hired, some or all of this additional cost will accrue to the artist. Label promotion also includes those at the label who are trying to influence programmers of video channels to choose the artist’s work, and those who are working with Internet websites to place the artist’s music videos.
The label also pays for marketing costs, which includes advertising. The label makes advertising decisions based on the most effective way to place a paid message in front of a consumer within the target market of the artist. There is a wide array of media to carry the message, and the label will choose the most efficient way to use the available advertising budget to reach the consumer. Other marketing costs can include product design, wholesale and retail distribution, shipping, publicity, tour support, and a portion of the video production. Labels will view some of these as products of their creative services department, but they all serve to market the recording.
It becomes the responsibility of the artist manager to ensure that the artist is getting the best opportunity for success with their recorded music project. A prominent record promotion executive with a major label said, “All artists are not created equally at a label,” meaning that artists have similar contracts with the label, but can be treated quite differently in the way company resources are used to promote the artist’s recordings. A manager needs to have a good relationship with the promotion people at the label and to be actively and continually aware of the amount of effort the label is making to promote recordings—in part because the cash cows will always get what they need and the new artists will get what’s left. This becomes one of those times when the artist manager must be a very aggressive advocate for the artist to be sure the label gives the artist a reasonable amount of the resources needed to make the recording a success. It is logical to assume that labels would want to commit resources to make all of their recordings successful, especially those of artists with multiple rights recording contracts. However, many radio promotion people are paid based on the chart position achieved by a recording, and/or retail sales of a recording, so they will put their energies where it has the most impact on their personal bonus structure.
CURRENT TRENDS IN CONTRACTS FOR RECORDING ARTISTS
Trends in recording artist contracts being offered by major labels and large independent labels contain numerous concessions that contracts have traditionally not included. Labels are seeking ways to reduce their financial risk and increase their earnings by linking to income streams that were previously reserved only for the artist. These new contracts are multiple rights agreements—sometimes referred to as “360 deals”—and likely include the following additional provisions, which make the label a partner with the artist by sharing nontraditional income:
• The label will require ownership of the official website of the artist, including the right to sell advertising and the artist’s merchandise on the site. And although the label will own the website, costs to create it will be charged back to the artist and will be recoupable. If the artist is able to share the income generated by the website, the manager will be required to negotiate that as part of the recording contract.
• Income earned by the artist from touring and merchandise sales must be shared with the label. The amount of this percentage varies, depending on the label, and is an important negotiating point for the manager and the artist’s attorney.
• The newest contracts give the label a license to use artwork created for the album for other products.
• The creation of ringtones, voice tones, and ringbacks for the label’s promotional use are contract requirements. The new artist will also be expected to agree to the use of their image as computer wallpaper. The promotional use is not necessarily linked to an artist’s album project, and because it is used for promotional purposes there will be no royalties paid.
• Labels seek to sell more music electronically and are interested in increasing the number of outlets that will sell the artist’s recordings. However, as the manager will find in the contract, revenue from electronic sales of recordings is significantly lower than for the standard physical CD. As the label sells more albums online, the overall units-sold royalty income to the artist will decline.
• Contracts being offered by labels continue to include a required deduction for packaging and they create a reserve for returns for sales of singles and albums online. Online sales have no packaging and music sold online is not returnable, but expect this provision to be included in the contract.
• When an artist’s recording is licensed for a use for something other than a sound recording, perhaps for use in a performance DVD, the artist can expect to earn 12% of the net earnings produced by the license. Net earnings means the income after all expenses are paid. Previous contracts offered to artists set the net income sharing with the artist at 50%.
• The manager should also be alert to the number of recoupable expenses to the artist, and to watch for an increase in the percentages of recoupment to the label of things like the cost of a video. For example, independent promotion costs had been shared equally with the label in the past, but labels now shift a greater percentage of that to the artist in the newest contracts.1
Most 360 deals take a percentage of the artist’s income in some or all the areas of touring, merchandise sales, song publishing, and sponsorships. The manager can make a significant difference in the amount and sources of income that become part of an artist’s recording contract.
An example of how a 360 contract can work, Atlantic Records offered a recording contract to an artist with these deal points:
• The label will give the artist a traditional advance to induce them to sign the contract.
• When the artist releases his or her first album, the label will have an option to take 30% of net income from touring for a payment of $200,000.
• The label will give the artist 30% of the earnings from the album, which is twice the amount of profit sharing most labels permit.
• The label will have the privilege of approving the artist’s tour schedule.
• The label will be permitted to approve who the tour manager is and who the merchandise sellers are, and they can set the salaries each makes.2
As labels seek to find ways to improve their profitability, contracts offered to new artists will continue to include creative ways for labels to participate in the earnings of the artist. However, as artists and their managers track the value of new media developments, more income opportunities become available and they are now demanding more income for the use of their talents. For example, artists are seeking higher fees for licensing music videos in which they are featured. As Billboard notes, there are more wireless and online outlets that feature video as website content than ever before, and artists want to participate in the revenue that is generated (Bruno, 2005). Google, Yahoo!, YouTube, MySpace, AOL, and others generate massive amounts of Internet traffic to their websites, and record labels have found ways to profit from it and artists seek their share.3
A CHANGING MODEL FOR MAJOR LABELS?
As labels seek ways to cope with the decreasing sale of recordings, the emerging model is one in which new artists are signed to label contracts as “brands,” but will continue to be managed by their own independent representative, their artist manager. Among the concerns by labels in taking the complete management of an artist’s career is the fiduciary responsibility managers have with their artists. A fiduciary relationship is defined as follows:
Confidence placed in someone else regarding a transaction or one’s general affairs or business. The relationship does not need to be formally or legally established but can be based upon personal or moral responsibility due to a fiduciary’s superior knowledge and training as compared to the one whose affairs are being handled.
(Legal-Explanations.com, 2010)
Although Jay-Z, Madonna, and others have signed with Live Nation to manage all aspects of their careers, many labels have concern about the inherent conflict of interest created by a business relationship that includes a fiduciary responsibility like that of an artist manager. Most large labels seem content to participate in the earnings of their new artists but wish to leave the management to someone else.
ARTISTS WHO RECORD FOR INDEPENDENT LABELS
Independent record labels often serve musical niches that the majors do not seek, but they can also give developing mainstream artists a place to prove their commercial viability before the manager presents them for a recording deal or a partnership with a major label. When an artist demonstrates the ability to connect artistically with paying customers, the manager has a very strong position from which to negotiate a contract with a major label. The contract with the label can be for the leasing of a master recording to the major label—either an album or a single—or for a full recording contract with the label for the development of a new album project.
From a sales perspective, few independent labels have the resources that permit them to compete for consumers at the level of the major labels. As a result, they approach their business very differently, and the artist manager approaches his or her profession on behalf of the independent artist in a different way, too.
Unless they are very large companies, independent labels typically cannot afford a staff to promote a recording to radio. Nor can they afford advertising, videos, video promotion, and price and positioning at retail. They rarely have money for tour support. Compared to the 500,000 units sold for a moderately successful major label project, a successful recorded music project for an independent label sells in the range of 100,000 to 250,000 units. On a regional basis and with a close eye kept on budgets, an independent label can create income for itself and its artist—always remembering that it cannot and should not try to compete on a national level with large labels unless or until its regional success is ready for national exposure.
The manager by necessity is very involved in the independent album project, which is key to generating income from the sale of recordings. Much of the “marketing” for an independent recording involves coordination by the manager of the artist’s activities to promote the release of the project, and the resulting publicity and performance dates. Some independent labels help support the project with their staff publicists and with street teams, e-teams, and web promotion. Most of the sales of recordings are the result of live performances, with the sale occurring either at the venue or at local stores on days surrounding a performance (Hutchison, 2005, 310). The growth and potential of online promotion and sale of independent music is explored in depth in Chapter 7, where we looked at the manager’s work for the artist using new media.
It is difficult to appreciate the amount of effort required by the artist manager on behalf of an artist releasing a recording on an independent label without looking at an example. To support a very active touring schedule, Grammy winners and platinum-selling artists Take 6 released an album, Feels Good, on an independent label, which they own. Industry veteran and artist manager Chris Palmer spent months planning for the release of the recording and created an immensely active schedule of public appearances and meetings with the media to promote it. He was managing in an environment that had a very limited budget, a small management staff of two (including himself), and a few contract team members for Internet and promotional support. Periodically, he provided members of the artist’s team with updates of the activities he was coordinating in his “Marketing Report.” His report covering a 60-day period shows the enormous amount of planning and continuous follow-up and coordination necessary to execute a marketing plan for an independent label. The Marketing Report is reprinted with special permission in Appendix A. Some major labels and large independents handle these activities on behalf of their signed artists but very often, as in the case of Chris Palmer, it falls to the artist manager.
In all of the dealings that the artist manager has with the record company, it is important to remember that the label is in the business of selling recordings. The key word here is “business.” And when the artist is signed to a label, they become an asset, much as any other item of value listed in the company’s annual report. Assets are managed to the financial benefit of the company until they no longer have value. In the case of artists, when their recordings are no longer selling, they are no longer an asset, and the company ends the business relationship. The joy of the shiny new recording contract and promises of stardom—will eventually become a visit by a label representative from top management with the message that their business with your artist is over. Sometimes the label will deliver the news personally to the artist, but it often becomes the regrettable duty of the artist manager to be the messenger.
Through it all, always remember that this is business, and that selling recordings and associated products drive the bottom line for the record company.
THE ROLE OF RADIO IN THE RECORDING ARTIST’S INCOME
Many of the traditional forms of promoting the artist are relatively straightforward. For example, when an artist appears in a town for a live performance, there is publicity through the media, regional fans are contacted via email, music is played on radio, advertising is purchased, tickets are sold, the performance sells seats, and the artist sells recordings and merchandise as a result.
Traditional commercial radio has helped promote the sales of music through airplay, but shrinking listening audiences continue to reduce the amount of influence airplay has on consumers. For example, listeners between 12 and 24 years old have cut their radio listening in half, and nearly half now learn about new music from their friends (Webster, 2010). It is becoming increasingly difficult to determine the measure of influence radio has in music sales but it continues to be a necessity for the promotion of an artist’s recordings. Although the role radio has played in the promotion of an artist’s career may seem obvious, the way radio uses that relationship is not so obvious. In this section, we look at traditional terrestrial radio, what the priorities are for radio and its owners, and how the artist manager can use this information for the benefit of the artist’s career.
The business of terrestrial radio
It is important to understand what business traditional radio is in, and what business it is not in. Radio is not in the business of selling recordings, promoting careers of artists, selling concert tickets, nor working to assure a healthy music business. With the exception of promoting a concert and selling tickets, none of the activity surrounding an artist contributes to the profitability of the radio station and is not important to its business other than for its own promotional value. What is important to the radio station is its number of listeners. Veteran radio programmer Lee Logan once said that the business of radio is to build an audience to lease to advertisers, and that is as succinct as one can put it.
Let’s look at the first part of that statement. Radio builds audiences. The purpose of the entertainment you enjoy on radio is to attract your attention and keep you tuned in. Even though radio audience measurement company Arbitron continues to show that talk radio is the most popular radio format in the United States, over 80% of the remaining radio stations program some form of music to entertain its audience (Arbitron, 2009). In order to build a particular station’s audience, the program director—who makes all decisions about everything that goes out over the air—seeks music and on-air talent that will keep its current audience and attract new listeners.
Now, to the second part of Lee Logan’s statement. Advertising rates are based exclusively on the number of people who listen to a radio station, so the larger the audience that the programmer can build, the more the station can charge for its advertising, and the more money the business will make. For example, in Los Angeles, Arbitron audience ratings for station KZLA continued to decline from 2.1% share of the city’s radio audience to a rating of 1.7%. The result was that the station replaced personnel and changed its format from country to a contemporary hit format. Why? They switched formats because a change of 1/10 of 1% of the audience share in Los Angeles is worth 1 million dollars of advertising revenue per year for the station owners. KZLA ownership felt they would draw a larger audience share with a different programming format. The same principle applies to commercial radio stations everywhere, although the financial impact depends upon the audience size of the radio market.
The point of this is that the artist manager must understand what is important to commercial radio. In order to get anything done through someone else, you must understand what they need. In the case of radio, they need growth in their audience share. As a result, programmers are very careful to play music that will keep current listeners and attract new ones, and they will program their stations to be predictable by meeting the listener’s expectations when they tune into the station. If the manager’s artist is too different from those whose music is being played on the station, this conservative nature of most programmers means they will not schedule the artist’s music for airplay.
Most music will never be heard by a commercial radio programmer or music director without aggressive one-on-one promotion by someone skilled and experienced in getting it done. If the artist is signed to a major label or a large independent, or is managed by a company with a radio promotion budget, the companies will have a staff that promotes recordings to radio. Programmers will know that there is a significant promotional effort behind a recording, and it will be apparent that the artist’s recording is intended for mass commercial marketing. It is easier to get the consideration of a programmer under these circumstances than if the artist is new and is on an independent label with no affiliation with a major.
This is not to say that the new artist the manager just signed will never find their way to radio. A continuing classroom exercise by the author examines the Billboard Top 200 sales chart and finds that for most business quarters except the fourth, 20% to 30% of the artists who are in the listing of the top 50 selling albums are relatively new artists. Considering the number of veteran sellers of hit recordings who crowd the top of the sales and airplay charts, these observations show that there is opportunity for a new artist. We liberally define a new artist for this purpose as one who has been active with his or her first commercially viable single and album over the last year or 18 months.
The business of satellite and online radio
Satellite radio is a subscription service in Canada and the United States that gives users a vast array of entertainment on special radio receivers designed to deliver their programming. The service offers scores of music channels, many of which have deep playlists that include new music. There is opportunity for new artists to find a place for their music on satellite radio, but it requires an experienced radio promotion person to reach the gatekeepers.
Online radio, in its range of offerings from web feeds from standalone stations to sites like Pandora, also provides opportunities for artists to showcase their music. The advantage of online music stations and subscription services like Napster is that the listeners have the opportunity to immediately purchase and download the music they are experiencing.
There are two kinds of “charts” that the manager should understand—sales charts and airplay charts. Billboard publishes its Top 200 each week, which is a ranking of the top-selling album recordings in the United States, but does not include sales data to support the ranking. The publication includes the weekly chart that ranks the position of the recording based on sales, but it does not show actual sales data. The sales data is proprietary information that is available only to those companies that subscribe to the data services of SoundScan. Each time a recording is sold in the United States at a retail store or online, SoundScan captures the information and reports it to its central data assembly location. The seven days of sales that make up the Top 200 chart end at Sunday at midnight EST, and the sales data is reported early the following Wednesday morning to SoundScan clients. As a point of reference, there is no company anywhere other than SoundScan that compiles verifiable and actual sales data of recordings.
The other kind of chart the manager should understand is an airplay chart. Whereas the Top 200 shows the sales of albums, airplay charts show the number of times a single has been played on commercial radio. A number one song is the single that receives the highest amount of radio airplay for a seven-day period. (A number one album is the one that sells the most within a seven-day period.) Billboard magazine publishes airplay charts each week in its magazine, which is a guide showing how often songs are being played. Similar airplay information is compiled by another company called MediaBase, which is published each Tuesday in USA Today and through other publications and websites.
Airplay charts are convenient guides to radio programmers so that they know what songs their counterparts in other cities are choosing to play most often. Radio programmers have wide and varied duties at the radio station and making decisions about which music to play, and which music to stop playing is just a part of their responsibilities. To the programmer, the airplay chart is used as a reference, or barometer, of how songs are performing elsewhere. The research, experience, and understanding a programmer has of the local radio market are perhaps the most important criteria in the music selection decisions.
College radio in recent years has picked up considerable competition from the Internet as a source for filtering new and interesting music. However, it still has enough reach and impact that the manager of an artist should not overlook its influence. In the 1980s, college radio was the source for music that was overlooked by commercial radio because it was generally viewed as being outside the mainstream. The alternative music format began at college radio and now has its own commercial format following (Calderone, 2005). Because college radio is noncommercial, it has limited resources to market and promote itself. The traditional programming of college radio is to offer small blocks of time during a broadcast day to introduce audiences to a broad array of music that defines the adjective “eclectic.”
The size of college radio audiences is often much smaller than the commercial counterpart. In a midsize southeastern U.S. city, the suburban university’s college radio station has 2,000 unique listeners each week. Its competition at a nearby urban university has a weekly audience that is nearly ten times as large. By commercial radio standards, this is still a relatively small listener base, but it can be an important promotional avenue for the artist building a fan base and who is on tour playing at venues appealing to college students.
SPONSORSHIPS, ENDORSEMENTS, TELEVISION, MOTION PICTURES
Among the things that an active and visible recording career can provide is access to other ways to earn income and to exploit the talents of the artist. Sponsorships and endorsements are offered to an artist when the target market of a brand are the same as the artist’s, or the target market of the artist is one that the brand seeks to have as its customer. The manager and sometimes the agent will be able to negotiate a sponsorship or product endorsement on behalf of the artist.
Endorsements are made through those who control the commercial messages for the specific product, such as product brand managers or the person who handles the product account at an advertising agency. It will take a little research on the manager’s part to determine who that person is, but they will be the one to decide whether the image of a product benefits by associating with an artist. And this applies to local or regional products or services, not just national brands.
Carolyn Ballen from the Indie Music Forum offers some ideas that can be presented to a possible sponsor about the benefits that sponsoring an artist could be, including:
• An endorsement from the artist in the sponsor’s advertising
• The sponsor has access to a large following of people within the sponsor’s target market
• A logo presence via a banner or product demonstrations on the grounds of performances
• An ad in the artist’s CD
• Mentions about the product from the stage
• A logo on all printed materials, including advertising, and logos with links on the artist’s website
• Promotion of the brand in all fan club emails and other consumer communications4
There may be a temptation for an artist-songwriter to include a sponsor mention in his or her song lyrics, but radio programmers are sensitive to the use of this Trojan Horse–style commercial promotion and will likely not program the song.
Sponsorships can amount to a few thousand dollars for a local or regional touring band, but easily goes into the millions for major artists. Rapper 50 Cent agreed to allow vitaminwater® to sponsor him, and the resulting income exceeded $100 million.
Television and motion pictures can add an additional dimension to the career and income of an artist, which is often done with the help of a full service booking agency such as Creative Artists Agency or William Morris Endeavor Entertainment. These organizations have the in-house resources to represent the artist in both their music as well as for any acting opportunities that may be appropriate for the artist. Movies featuring acting roles by music artists Justin Timberlake, Beyonce Knowles, Ludacris, Queen Latifah, Tim McGraw, and many others allow their talents to grow beyond the stage of live musical performance. It is incumbent on the artist manager to encourage artists to develop in creative areas that can take advantage of the brand they have developed and draw from its value in other areas of entertainment.
There are also opportunities for artists’ recordings based on the successful model Disney developed, with its soundtracks and artist spin-offs from the television shows High School Musical and Hannah Montana. Both became multiplatinum-selling recordings with little radio support except through Radio Disney.
References
Arbitron. (2009). Format Trends. Retrieved from http://arbitron.com/home/content.stm.
Ballen, C. (2007). Looking for Sponsorship? Retrieved from Starpolish.com.
Bruno, A. (2005, October 29). Video Booms Online—But for Whom? Billboard.com. http://www.allbusiness.com/retail-trade/miscellaneous-retail-retail-stores-not/4555125-1.html.
Butler, S. (2004, May 7). The Publisher’s Place: Clause and Effect. Billboard.
Calderone, T. (2005). College Radio Grows Up; Nine Inch Nails Returns. New York Times.
Gordon, E. (2005, June 17). News and Notes with Ed Gordon. National Public Radio.
Hull, G. P. (2004). The Recording Industry. Routledge, NY.
Hutchison, T., Amy Macy, & Paul Allen. (2009). Record Label Marketing. Burlington, MA: Focal Press.
Leeds, J. (2006, December 11). Squeezing Money from the Music. New York Times.
Leeds, J. (2007). The New Deal: Band as Brand. New York Times. Retrieved from http://www.nytimes.com/207/11/11/arts/music/11leed.html.
Legal-Explanations.com, (2010). http://www.legal-explanations.com/definitions/fiduciary-relationship.htm.
Legrand, E. (2004, August 14). Global Music: European Indies Rise Up. Billboard.
Macy, A. (2006). Personal conversation.
Milom, M. (2006). The Impact of New Business Models on Artists. Music Row Publications, Inc. Nashville, TN.
Morris, M. (2004, September 25). Taking Issue: Good News for Artists. Billboard.
Owens, C. (2010, February/March). Artist Royalties from Gold Albums. Music Row, 30.
Palmer, C. (2006). Personal conversation.
Passman, D. (2009). All You Need to Know About the Music Business. New York: Free Press.
Satzman, D. (2003, February 24). Radio Ratings Service Again Under Fire for Methodology. Los Angeles Business Journal.
Webster, T. (2010). The American Youth Study, Edison Research. http://www.edisonresearch.com/home/archives/2010/09/the_american_youth_study_2010_part_one_radios_future.php.
1Milom (2006).
2Leeds (2007).
3The author extends an expression of gratitude to veteran entertainment attorney Mike Milom of Bass, Berry & Sims, PLC, and to Music Row publisher David Ross for permission to use some of the information in the previous section.
4Ballen (2007).