Record Label Economics

Have you ever known someone who justified stealing music by the argument that CDs only cost a dollar apiece to manufacture, so the artists and record companies were making insane profits on the remaining nine or fourteen dollars? Via¬†Scott Wagner, here’s a fascinating article that blows that argument out of the water.¬†(EDIT: 8/5/2011: Broken link removed)

The article breaks down costs a record company incurs in producing and promoting a recording. The figures in the article are an actual record company’s production budget for a project; though this (in all likelihood) was not in the Southern Gospel genre, the ballpark numbers appear to be comparable. Factor in the fact that, as I’ve been told, most Southern Gospel recordings sell under 10,000 units, and many sell less than 5,000, and you will be amazed that any record companies stay open.

Granted, established artists can cut the production budget significantly by skipping the marketing costs, but that is typically because the marketing to establish them as an artist has already been done by a label. There are exceptions, but most of today’s prominent independent artists (Chuck Wagon Gang, Dixie Echoes, and, till recently, Hoppers) were label artists in the past.

It’s a fascinating article, well worth a read.

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15 Letters to the Editor

Southern Gospel Journal welcomes letters to the editor. We will post the most thoughtful and insightful submissions. Ground rules: Don't attack or belittle groups or fellow posters, or advance heresies rejected by orthodox Christianity. Do keep comments positive, constructive, and on topic.
  1. I buy a lot of my music through their digital stores. For example, Crossroads Music dot come and just recently, I bought DECLARATION by The Booth Brothers through their online digital store.

    I assume the artists still make a profit even though the cost is cheaper for me, the consumer?

    • Yes, the artists still get royalty, at least so long as you’re getting it from a legitimate store – and the two you named are both certainly legitimate, as one is a record company and the other is the artist themselves.

  2. How can I get my Word Press avatar to who up?
    brightman73 at yahoo dot com

    • Via, but I will say that it is displaying for me.

  3. The cost of producing a CD gets expensive in a hurry. After you pay for the mechanical licensing, and leases (if not using your own original tracks), and then paying for the recording time, the mixing, the mastering, the duplication…….it gets expensive. Especially for local amateur groups like us. We just finished our first CD and we are hoping to recoup the costs by year end….hopefully. People that have never done it do not know what all expense goes in to it like you said Daniel. Great post!!!

    • Yes, that post definitely is worth a read. And note that all the expenses you’ve incurred are before you start factoring in promotional expenses that labels also do.

      • Yeah, I know Daniel. That is amazing. Like you and I both have said, unless you see articles like this or have experienced the cost of making a CD first hand, it is hard to grasp the cost. People think that you can just get a CD done for nothing and the only cost that you incur is the $1.00 per CD but they would be badly mistaken. LOL!! Great job Daniel!

      • True! And I’m happy to have input from an independent group here on their expenses, too.

    • One thing that has continually frustrated me about mech licenses are the fees tacked on by some licensing organizations. The most recent example I’ve experienced is a company that refuses to license less than 1000 units.

      When you’re honest about paying royalties, they turn around and rip you off by adding fees that the law does not require you to pay.

      In this case, I only owed for about 37.5% of the song, having paid the rest to a co-publisher. It should have been a little over $10 to cover the 300 CDs, but I’m having to pay more than three times what the law requires me to pay.

  4. Yeah I found it interesting that the article barely mentioned mechanical licensing. (Unless they are including those in the production costs.) It will cost $15K just for the production of a CD – not including royalties. A 10 song CD with a 1000 print run has over $900.00 in royalties alone…

    • Tell me about it Chris! LOL! We just finished doing a CD with 11 songs. At $0.09 per song per copy, it adds up quickly!!!! And like I told Daniel, the leases on soundtracks are expensive as well. Anywhere from $150 to $200 per song. Then if you have any original songs, you can get a track done for them by Nashville musicians through Daywind for about $800 per song. We only ordered 500 mechanical licenses until we see how well our CDs sell!! LOL!

  5. Leasing of tracks, when the tracks were recorded with union players, can get you in a lot of trouble. The labels do not own the rights to the intellual property rights of the musicians that played on the original recordings (even though many labels think they do…it would not hold up in a court of law) Legally the musicians must be paid again as if they have never been paid previously…if the music bed is to be used on a project, or by an artist, that was not on the original union contract. I have a license with the local union in Nashville, and if I leased a track I could lose my right to book players. Be aware, this is a fine line you walk when leasing tracks. If the tracks you lease were originally on a Muscians or AFM union contract, you could be in serious legal problems if they decide to pursue the case.

    • I would observe that at least one of the major studios uses non-union players. So it is worth asking that question before leasing.

  6. The Eddie Crook Business Seminar on Wednesday during NQC at the Crowne Plaza Hotel will enlighten everyone on the myths of SG budgets and promotions.
    The registration is $150 but you could learn how to save thousands.

  7. Great article!
    Ironically I was just doing some math this week on what a independent group would have in 1,000 CD’s.

    If they go with a typical budget (recording package) of today, around $15,000, plus mastering, mechanical licensing, photography, artwork and duplication you’re looking at around $18,000 – $20,000. (in most label’s dreams..but for the sake of numbers)

    That is $18 to $20 per CD IF you wind up ONLY selling 1,000 units.

    You will need to move 3,000 units to get that down to $5 – $7 per disc to recoup the amount above.

    Record labels do not recoup their budget on the majority of all artist signed where the label signs the artists and “pays” for the record!