|
by Donald S. Passman
After a record has had its initial run in current release,
it is known as a catalog item, meaning it's listed
in the company's catalog of available titles, but isn't being
currently promoted. Most record companies' catalog items are
now issued at mid-price, meaning a reduced price that's designated
to encourage consumers to buy older titles. Today, a typical
mid-price for a cassette album originally released
at $10.98 would be $7.98, and a CD originally released at
$15.98 would be $11.98.
Royalty
The royalty rate for mid-price is usually 75% of the U.S.
basic rate (7.5% if you have a 10% royalty). Note this is
a double whammy--not only is the royalty rate lower, but the
retail price on which it's based is also lower. The record
companies justify this because their wholesale price is lower,
and accordingly, so is their profit margin. Their thinking
is that the lower price will generate extra sales to more
than make up for the lost revenue.
Here's an example of a mid-priced cassette royalty computation:
| Retail Price: |
$7.98 |
| Less 20% Packaging |
-$1.60 |
| Royalty Base |
$ 6.38 |
| Royalty Rate |
-x 7.5% |
| Royalty (rounded to penny) |
$.48 |
Compare this to your royalty of 87.9 cents when this same
record is sold at full price and pray the companies are right
about the extra sales.
As you gain clout, you can negotiate a period of time after
initial release before a record can be released at mid-price
in the United States (usually 12-18 months), or perhaps even
a flat prohibition without your consent. This provision used
to be easier to get than it is today, because it's a relatively
recent practice to issue catalog items at mid-price.
In some territories of the world, mid-price is customary
for the first release, and there is little, if anything, you
can do about it. Presumably, your interests and the record
company's are the same, since they want to maximize their
profits in that territory. Thus, they won't put something
out at mid-price unless they feel the reduced price will promote
the sale of enough additional copies to justify the lower
profit margin.
Budget Records
The next step down from mid-price is Budget, which
means a record the company doesn't think it can sell unless
it knocks the price way down. These are the ones stuck in
bins (with a handwritten sign saying "Big Savings!") selling
for $4.98 or less for cassettes, and $9.98 or less for CDs.
The contractual definition for budget records is one with
a price of less than 65% of the top-line price, but sometimes
there is no mid-line defined and the contract says everything
under 80% of the top-line is a budget record.
Budget Royalties
The royalty on budget records is usually 50% of the top-line
royalty rate, or 5% in our 10% example. With some clout, you
can hold back budget records for a period after initial release.
Because being on a budget line is a statement about what the
company thinks of your career, you can usually get a longer
holdback than you can for mid-price. For example, in the United
States, the company might agree to wait 18 months to two years
after initial release. Again, foreign markets have their own
peculiarities, and there will be little you can do unless
you're a major artist in a particular territory. As your muscle
increases, you may be able to get a flat prohibition against
budget, at least during the term of your agreement. And, if
you can't get the right to consent to budgets after the term,
a compromise is to say they can't do it as long as your account
is recouped. The idea is that, if they've lost money on your
project, they can do whatever they want to get even, but otherwise,
they must keep you off the budget line.
Record Clubs
Record Clubs are mail order clubs which you join by agreeing
to buy a certain number of records. Royalties for record clubs
sales are usually half of the top-line royalty rate, but not
more than 50% of the company's net licensing receipts from
the record club (remember that these sales are licensed to
record clubs, who manufacture and distribute the records).
With a little clout, you can get a straight 50% of the company's
net licensing receipts.
Donald Passman is a Los Angeles-based
music attorney with the firm of Gang, Tyre, Ramer & Brown.
Specializing in music business law for over 20 years, his
clients include major publishers, record companies, film companies,
managers, producers, songwriters, and artists such as REM,
Janet Jackson, Quincy Jones, Tina Turner and Green Day. On
a regular basis, we will be excerpting from Mr. Passman's
best-selling book, "All You Need To Know About The Music
Business."
From "All You Need To Know About The
Music Business" by Donald S. Passman. ©1991, 1994, 1997
by Donald S. Passman. Reprinted by permission of Simon & Schuster,
Inc.
|
