This Article Originally Published December 1999


by Donald S. Passman

To discuss the range of real royalty numbers, we have to know how strong your bargaining power is. Broadly, I'll divide that into three categories: New Artist, Midlevel Artist or New Artist with a Bidding War, and Superstar Artist.

New Artist

This is someone who has never before had a record deal, or someone who has been signed but has never sold over 150,000 or so albums per release.

Midlevel Artist or New Artist with a Bidding War

Either (1) an artist whose last album sold in the 200,000 to 500,000 range, or (2) a new artist being chased by a lot of labels. When a number of companies are chasing an unsigned artist, it's not uncommon for the deal to look like a midlevel deal, and on occasion, even higher. I'm aware of one situation where an unsigned artist was offered over $1,000,000 for two albums. (Just so you don't get too jealous, that artist's records have only had mediocre success).

Superstar

Sales from 750,000 into the stratosphere. If your sales is between 500,000 and 750,000, your deal will be in between Midlevel and Superstar.

For your point of reference, a gold album is one that sells 500,000 U.S. units and a platinum album is one that sells 1,000,000 U.S. units. These sales figures are all certified by the RIAA (Recording Industry Association of America), an industry group comprised of record companies.

Royalties

Using these three categories, and bearing in mind that different record companies will have slightly different computations (meaning that these percentages will be worth different pennies at different places), the following is the current industry norm for royalties on United States album sales:

  1. New Artist Signing to Independent Company:
    9% to 13% of SRLP. (SRLP=suggested retail list price. An approximation of the price received by the retailer).

  2. New Artist signing to Major or Mini-Major Company:
    12% to 14% of SRLP.

  3. Midlevel Artist:
    16% to 18% of SRLP.

  4. Superstar Artist:
    19% to 20% or more of SRLP. Royalties over 20% are rare.
If your record company computes royalties on wholesale, you should roughly double the above figures. These rates are all for sales of analog cassette albums.

CD Royalties

Virtually all of the companies use a 25% packaging deduction for Cds and most companies discount the actual royalty rate itselfˇyou might get 75%-85% of the analog rate). Here's an example: an artist has a 10% royalty rate and the company is paying him 85% of that rate for royalties on CD sales on a $15.98 SRLP.

Here's the breakdown:
Retail Price    $15.98
Less 25% Packaging- 3.99
Royalty Base: 11.98
Royalty Rate x 8.5%
Royalty (rounded to penny) $1.01

Compilations

The royalties on your songs, if placed in a compilation album, are pretty much what you'd think they are. If there are 10 cuts on the album, and yours is one of them, you get one-tenth of your normal royalty. If you've done two cuts out of the ten, you get 20%, etc. This process is called Pro-Rata. It means that your royalty is in proportion to the number of cuts on the album.

The royalty on compilation albums that are licensed to someone else by your record company is usually 50% of the company's licensing receipts. for example, if a record company licenses your song to a TV-packaged album and gets six cents or seven cents per selection for CDs, and about four cents or five cents for cassettes, they pay you half (three cents or three and ahalf cents for CDs). But remember, in an all-in deal, your half also includes the producer's royalty!

The answer is that there is a strong custom in the industry (and indeed you can have the provision inserted in your contract just by asking), that sideman performances are freely permitted, on the following conditions:

  1. The performance must be truly a background performance, without any solos, duets or "stepping out."

  2. Your exclusive company must get a "courtesy credit" in the form of--"Artist appears through the courtesy of_______Records." Before I started in music I always thought they did that just to be nice.

  3. You can't violate your re-recording restrictions for any selection, even as a background performer.

  4. If you're a group, no more than two of you can perform together on any particular session. This is because your record company doesn't want your distinctive sound showing up on another label.

There is an exchange of correspondence between the record companies giving sidemen clearance in each specific instance, but this is usually just a rubber stamp process (unless one company is having a fight with the other about something unrelated to the sideman). After all, if one of the companies makes an issue of it, they won't have such an easy go the next time that the other company's artist shows up as a sideman on their label. The process is something like porcupines dancing carefully with each other.

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.




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