RIAA Accounting — How Labels Avoid Paying Musicians - An anonymous reader writes "Last week, we discussed Techdirt's tale of 'Hollywood Accounting,' which showed how movies like Harry Potter still officially 'lose' money with some simple accounting tricks. This week Techdirt is taking on RIAA accounting and demonstrating why most musicians — even multi-platinum recording stars — may never see a dime from their album sales. 'They make you a "loan" and then take the first 63% of any dollar you make, get to automatically increase the size of the "loan" by simply adding in all sorts of crazy expenses (did the exec bring in pizza at the recording session? that gets added on), and then tries to get the loan repaid out of what meager pittance they've left for you. Oh, and after all of that, the record label still owns the copyrights.' The average musician on a major record deal 'gets' about $23 per $1,000 made... and that $23 still never gets paid because it has to go to 'recouping' the loan... even though the label is taking $630 out of that $1,000, and not counting it towards the advance. Remember all this the next time a record label says they're trying to protect musicians' revenue."
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It's been a while. I've been busy lately, but this story posted on /. this morning and I had to comment on it. It's a subject near and dear to my heart, because my stepdaughters are damn fine singers, and the oldest has a burning desire, despite my best advice, to try out some time for American Idol.
I've long known about the accounting techniques employed by the record labels to gather revenues unto themselves. The first reference I can remember was with the band TLC, in the mid 90's, filing for bankruptcy after an album of theirs reached 11 million copies sold. Ultimately each of the 3 members of the band took home some $35,000 per year after all the expenses incurred for an album that we can conservatively estimate had $110 million in gross sales, and had reported somewhere in the neighborhood of $3.5 million in debt. While a good chunk of that was unrelated to the music business, a good chunk of it was debt to the label. So where did all this money go? Some went to the retailers who sold the albums. Some went to promoters, and that sort of thing. Some of it went to management and attorneys. $105,000 went to the band. And a huge chunk of it went to the record label.
I can hear you saying, "But Ares, didn't you say earlier that there was a big debt to the label?". Yup. That's how the accounting works in that business. The label gives the artist an advance of, say a million dollars, which they expect to get back as the album is sold. Here's the catch. They don't expect it back out of total gross sales, they expect it out of your cut of the sales, which incidentally is significantly smaller than their cut of the sales. If it seems like they're taking money from both ends, its because they are. If it seems like it should be criminal, its probably because it should be. The only thing saving that particular business model is that both parties agreed to it, even the one who gets screwed by it. The sight of a million dollar record deal is enough to give most people glassed over eyes without even reading it. They take the deal because its the only way to get into a label. Everyone with a deal with a label does it.
Before the internet and personal computers, the only way for talented musicians to release records involved major record labels. If you wanted the world to hear your music, you complied. Nowadays, all you need to record and distribute your music is a computer with some audio software and an internet connection.
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