(sponsored by the AMM Music Group)
Based on very decent sales in Germany - other countries have similar costs (but scaled to the sizes of these markets).The assumption behind those figures is that the musician is locally known or extremely promising, but not established yet.
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Studio cost and advance for musician |
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Basic minimal administrative expense |
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very variable depending on company size and structure, mainly personnel costs for meetings, sales meetings, planning.lawyers etc. .. calculated for a large company |
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Radio , TV and print promotion |
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on the low side |
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Video clip and presentation video |
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(for 2 clips) |
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Photos and other PR materials |
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Cover design |
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can be lower for smaller companies etc.. |
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Print advertising campaign |
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(music magazines, some teenie magazines some general interest magazines etc.) very variable - but could range from anywhere between 60,000 to 1 Million |
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Point of sales advertising campaign |
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Radio- and TV advertising and co-operative campaigns |
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can be much higher - or smaller |
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Posters and tour support |
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Total basic investment: |
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of which 185.000 can be shared for several countries, since they are the basic album recording and video investments |
Lets assume that the album sells about 100,000 copies - which should (if the timing is right and everything is happening exactly at the right time) also mean that the album reaches a middle chart position sometime during the first year of sales for a few weeks minimum.
In this case the income and costs will look like this:
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Income from sales |
1,300,000 |
taverage price to retailer in Europe at US-$ 13.00 |
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Income from radio airplay |
20,000 |
about 1,650 broadcasts at US-$ 6.00 per broadcast (this would not apply in the USA, since the record company/label does not get anything from US-aiplay) |
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Total income: |
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Manufacturing |
- 130,000 |
110,000 units (since promotion copies etc. have to be made .. and there will be about 10% over-manufacturing, because some CDs will be returned |
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mechanical royalties to composers and publishers |
- 130,000 |
some might go to the performing musician if he is also composer on some songs |
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Royalties to musician |
-10,000 |
can vary a lot - but assuming 10 % of PPD (US-$ 13.00) minus the advance paid - the advance being the costs of recording and at least half the video .. the royalties would be 130.000 - but half of the video and the full cost of the record master tape are deducted, so the musician get only US-$ 10,000.00 as payment |
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Distribution cost |
-350,000 |
manpower, wharehousing, sales - administration, transportation etc. based on the calculations of pure distributors about a 27 % of the sales income is cost of these factors. |
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Miscellaneous charges |
-10,000 |
internal administration, accounting etc.. |
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Interest on investment |
- 70,000 |
10 % interest payment on investment plus some financing costs |
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Total costs: |
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Income: |
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First year profit/loss |
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Operational income (if the second half of the video cost is seen as cost) |
The investment is not recouped completely so far - but will make a
small profit with the sales in the following years. But this
investment is not interesting - unless the album can be sold in very
good numbers in other countries too.
About a third to 50 % of the well-marketed albums with budgets like
these only reach these numbers. Another 25 % of albums with this kind
of marketing budget will not even sell these numbers - and about 25%
will sell much better. In a case as this example, the real money will
be made by the rights in future uses and further sales. It will be
OK, but not great.
If the next album by this artist is selling twice as many copies
at the same investment in marketing - or the next album sell at least
as many with a much lower investment in advertising and other
marketing expenses, the overall project could become profitable -
even if it is limited to one country as large as Germany.
If the artist can be established, then additional income can be
generated from the use of the songs in compilation albums.
So farit is clear that everyone will make a bit of money from his work or investment, but not a lot - in contrast to the usual opinion of music journalists. Actually, the musicians who worked on the album for a flat fee have typically made a good income for their time, the star and the record company did make almost nothing.
If the album has a chance to be sold in other countries, then it will definetely make money - but it will make decent profit margins like in any other normal activity - and not the excessive ideas of profit that people think is being made in music.
As can be seen, the risk is rather high - it is not as risky as films (where you hardly make any money if the film does not really hit big in the movie theatres and the investment in marketing is extremely expensive too), but still quite risky. The success chances for albums with marketing budgets of this size is considered currently to be about 25 to 30 % with high quality musicians that can actually play live.
Success means in these cases that the albums reach more then 200.000 album CDs - and in these cases they are very profitable as can easily be seen.
On the other hand most albums are released with much smaller budgets (for marketing) or with good-looking but incompetent musicians as stars. In these cases the chances for an economic success are normally considered 10 % (often at a lower level though) - but personally I would rate the chances in these cases as even lower - probably about 5 %. People only loose a bit of money in these cases - but they can almost be sure to loose it.
To have a chance to have successfull project in Pop, Rock or Hip-Hop means serious business.
If a product is not competitive with the best worldwide, then it should not be there on the market under todays circumstances. For new musicians or amateurs the best way to test their potential is to just do their album on their own and try to sell it at concerts. There are some companies that will also handle such projects - but most of them will not tell the musicians the real situation, instead trying to convince them of their great potential - just to make a few bucks as convinience record labels. These always end as financial disasters (mostly for the musicians).
By the way - these values are the results of statistics of the IFPI chapter Germany and a private study of our company about the marketing expense and the chart positioning and approximate sales figures for new album CDs in the years 1997 and 1998. Some data sources are confidential - and most are commonly available by tracking announced marketing campaigns in "Musikwoche" and "Musikmarkt", correlating them with the media advertising buying prices - and checking the results of the campaigns. (the latter data are not commonly available).
The overall situation is one of the reasons that record companies are pressing for several things today:
MPEG-Audio is absolutely welcome - but only if musicians
and their partners can be protected. against theft.
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Author: Alex Merck
Last Updated: 27.December 1998