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Copy of Independent Record Labels Vs. Major Record Labels

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Brianne Boles-Marshall

on 1 October 2014

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Transcript of Copy of Independent Record Labels Vs. Major Record Labels

Independent Record Labels Vs. Major Record Labels
What to Choose?
Trying to start a music career, but don't know where to turn?
This product presentation was designed specifically for the independent musician, giving data, advice, and facts about the music industry on an independent level as well as on a commercial level. This research will prove that working on a smaller label can be more beneficial to a musical artist than working on a major label
On the other side...
Why sign with an independent label?
Cost Efficient
Artist keeps creative rights
Main Focus is music, not revenue
Let's start with the numbers!
Cost Efficiency
Based on entrepreneur.com's data on starting an independent record label, the average start up costs can range anywhere from $10,000 to $50,000 depending on size.
According to digitalmusicnews.com the average album sells around 10,000 units its first month. so, lets do the math!
According to the average cost of an album on itunes, one of the biggest distributers of music around the world, the price of our control album will be $15.99.
So, the start up costs for 'Example' Records will be $30,000, since this amount is a happy medium between $10,000 and $50,000.
If Example Records were to sell 10,000 records constantly their first twelve months (Since their revenue is accounted for annually) they would make approximately 1.9 million dollars; $1,918,800 to be exact. Now we are going to subtract operational costs along with the start up cost:
Recording advance: $15,000
Tour support: $2,100
Mastering costs: $934.96
Marketing: $13,433.23
Advertising: $2,067.50
Publicity: $5,153.34
Manufacturing: $16,581.04
Artwork / photos: $200
Misc: $587.71

Total: $56,057.78
These are the average costs to produce an album independently according to knowthemusicbiz.com, but we'll just go ahead and round up to $60,000. Add $30,000 from our start up and our new number is $90,000.
Let's not forget income tax: $1,828,800 * 34% = $621,792
$1,828,800 - $621,792 = $1,207,009
As one can see, even with the income tax, Example Records has still made quite a lot of money. Now we split this amount ($1,207,009) between the example records staff.
In one average independent contract, profits are usually split 60% to 40%. Leaving the artist with $482,804. Now it's the artists' duty to distribute this money between the band members, business and personal managers, and the producer.
Each band member will get about 10% of the profit. so, for an average five piece band, each individual will be left with $48,280.04 not calculating income and social security taxes.
Keep in mind that only 120,000 units were sold during these calculations. Bands signed to large independent labels have been proven to sell over 600,000 thousand units (Paramore, The Black Keys, Gym Class Heros, NeverShoutNever etc.) so if we take the number calculated collectively for the artist ($428,800) and multiply it by five, we get approx. $2.4 million dollars paid to the artist alone. This is how successful the independent music scene can be.
So what will happen if we take the same formula and apply it to a Major Record Label business model?
Based on bbc.co.uk's article titled "The million dollar contract" the average advance given to an artist is 1 to 2 million dollars. So let's start with 1.5 million dollars.
Using the idividually conducted research on itunes, the average album has approximately 5 (we will use 5 songs) to 15 songs...That leaves the question, "How much does it cost to make one single?" Let's do the math!
Writing camp: $270,000
Songwriter : $15,000
Producer : $20,000
Vocal Producer: $15,000
Mix/ Master: $10,000
Marketing: $1,000,000
Total: $1,330,000
This is the average amount spent to produce a single according to npr.org. So, we take this number and multiply it by five.
$1,330,000 * 5 = $6,650,000
so now, with all of the calculations being done to produce and manufactor the album. Let's say that 'Bigshot Records' Sold exactly as much as example records; 120,000 units a year. How much would the artist make? well let's find out!
Let's start with our base price, $15.99 at 120,000 units per year. Bigshot records makes the same amount; 1.9 million, so for the band, they've paid their debt back; but unfortunately, all of the money spent by the label is going to have to be paid back also.
Also, the label supports touring, merchandise, and royalties, so the label will be taking those profits also. These are the average revenues, also based off of npr.com's database.
Merchandise: $21.99 each *120,000 = $2,638,800
Touring: 50 states; 3 shows for each state at $10,000 a show in ticket sales = $1,500,000
Royalties for airplay: 120,000 requests at $20 each play = $2,400,000
Total: $6,538,800
So, in total, bigshot records has made $8,457,600, but let's calculate the federal income tax, and since major labels are usually corporations, they are taxed twice a year. This leaves them with 7.7 million dollars.
The average Major label contract for a newly signed band or artist has a split percent of 98% to 2% (Also at npr.org) so this leaves our band with $155,755.16
So here, in our same formula, Each artist in a five piece band gets 10%, leaving each individual with $15,575.51 (that's $1,297.95 a month).
Our business and personal managers both get 20%, gaining the amount $31,151.10
Finally, this leaves the producer with $15,575.
Now we know that based on an average model, and independent artist can make three times as much money for approximately 120 times less money then a major artist spends on an album.
How creative are major labels exactly? Why do they want the rights to your creative freedom?
Hit songs are especially important when it comes to keeping a major music corporation running efficiently, so it is the executives job to produce as many hit songs as possible, but the problem with this is that there is little to no room for creative thinking; even to the point where there are mathematical models to predict whether a song is a hit or not.
This is the model known as the "Hit Equation". In this model, there are twenty-three features that contribute to what makes a hit song. some of these include loudness, tempo, danceability, and beat variation. Below is video showing the hit equation evolving over time.
Since mostly everyone who listens to music evolves their musical tastes over time, mathematicians have also created a new ridge regression algorithim called the "Learning Machine". This allows the Hit Equation to evolve and eventually recognize the new trends in music.
So with the application of these equations released on every single song produced by a major label, there isn't much room for creative ingenuity. Creative freedoms are sacrificed for monetary gain.
To conclude this presentation, I will present and explain the process included in making my product; a three song mini album that was independently composed, designed written and produced.
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