History of the record business 2/2 – The mondo bizarro of the musician contract

This is the best episode in this excellent series, absolutely worth listening.

Part Four–The 80s: Late Afternoon

Priorities of the record business changed from the music being the most important thing to money becoming the most important thing. The MTV and the CD emerged around this time.

All of a sudden single albums could make their record companies hundreds of millions of dollars. Exec positions on major labels become very powerful, earned millions.

But 8 out of 10 recordings are, profit-wise, failures. One is a modest success and one is a huge hit that propels the whole endeavour.

All the money was generated by a handful of albums, maybe 10 or 12 a year, out of thousands released. What used to be a pleasant surprise, became a necessity in the business. The industry became addicted to them. Business model was based on lottery. In the past how they solved this problem was: they “bought” lots and lots of “tickets”, spreading the net as wide as possible (ie signing up musicians diversely and widely). In the late 70s, when rec companies started to merge with one another to become more efficient, that changed. Things became more centralized, fewer players survived and got bigger. This resulted in less diversity in what kind of music is being recorded.

The music had to appeal to a widest possible range of people, otherwise the business could collapse. Rec companies turned their backs to the previous strategies that made them so successful.

Did the record profits change the relationship it had with its artists? Not at all, answers Harris. The record comps squeezed their artists hard during their most profitable period. Buying the music for as cheap as possible became the record company mantra. Don Passman, the author of All You Need to Know About the Music Business: when the downloading anarchy started, “the recording industry claimed that all the ‘illegal downloading” is hurting musicians. No, overall it’s the business model of the record industry is what’s hurting musicians.”

Record comp would sign artists EARLY for a long term, when artists know nothing about the business.

In standard record contract of the 80s and 90s the royalty calculation became byzantine, a “series of smoke and mirrors.” Let’s say a band gets fifteen-percent in royalty per each item sold. A series of deductions is then applied to that royalty rate that reduced it significantly. One of them originated in 1940s, the ‘breakage’ deduction, which is ten percent of the royalties. Then: the packaging deduction. When the CD came to the scene, the packaging deduction grew to twenty-five percent. Many artists were charged extra deductions on R&D on the CD itself, 20 years after the CD was invented. (!!)

Then! They took the ‘free goods’ off the royalty. The musician would not be paid for, say, fifteen percent of records given away for free, and that’s reasonable. But that was done by increasing the price on the other 85 percent of CDs to make up for it. The companies getting the same money, but the artists were not paid for the fifteen percent of the CDs.

It didn’t make any difference if you are a big artist. With all this, royalties were cut down for up to fifty percent. PLUS – the companies required for the artists to pay for the making of their own records. Artist is charged out of their royalty for the “cost of the recording”, which can include travel, producers, many marketing expenses (doing videos, eg).

Finally: the record companies insisted on owning the copyrights on those recordings, and that’s where the real money is.

Artists earned on average about seven percent of the total amount of money in the record industry. If their CD earned $1M, they only got $70,000.

Artists signed these deals because they had no choice.

George Michael wrote ‘Freedom’ in protest of his situation, and tried to sue his label, Sony Music, to void his contract. Song was a hit; he lost the suit. In the mid-90s the record industry was all-powerful, at the peak of its game. Yet, within few years… things would change dramatically.

Late nineties: Simple computer program concocted by a college kid with no commercial motives (he made it for his friends): NAPSTER. The record business went into the panic mode. Their monopoly disappeared overnight. The sales and profits started to plunge dramatically.

Part of the problem is of their own making. New format that industry introduced in the early 80s–the CD–turned out to be a big headache.

“Legend has it that heads of record companies got together to discuss the introduction of the CD, and one of them purportedly said ‘we are giving them a master’. They used to guard their masters like crazy, now they would manufacture them.”

But it wasn’t over for the rec comp until the invention of the personal computer.

Eventually they decided to fight downloading altogether. But early on there was a moment when the industry considered emulating Napster, not crushing it. They couldn’t pull it off.

Graham Henderson, who was part of the effort: “Billions were spent to convert ourselves into a more modern machine. They had to invent an intire new business line. What formats, contracts, art work… redefine everything. Kept finding impediment upon impediment.” (If Jo Blow purchases a song for dollar by a credit card, the credit card company would say OK, but we’ll charge you 50 cents on each of those—and things like that). “We were racing to get where people needed us to be.”

But record business eventually ended up deciding to use the protection of the copyright law to fight the downloading. It sued Napster out of existence, then started one by one to sue audience and fans. Damaging their reputation immeasurably in the process.

“The industry that once brought you the Elvis and the Beatles is now suing children. It’s hated by its customers, and if it doesn’t change, it will collapse.”

Part Five: Twilight

Final episode starts by interviewing teens who haven’t bought a CD since 2001… and explores where the recording business is heading, and what will inherit it. Will we head into the era in which live performances will be the main source of income for the musicians, and the selling of sheet music for the creators? Does that mean more of us will take up instruments and enjoy music in a more participatory manner? Remains to be seen.

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