Indie VS Major

By, Wendy Day (www.WendyDay.com)

Independent Release

Anyone with proper financing, good music, and thorough music industry experience could choose to put out music independently. With the financial beating that most indie distributors are taking (the economy is in the toilet, in case you live under a rock), and ease with which one could upload and sell music digitally, it is easier now more than at any time in the history of music sales, to go independent.

With an indie release, the owner of the music has the ability and control. He or she controls where to market, promote, and advertise; what music to release and when to release it; what music to make; the image of the artist; the market, region, and territory; how much money to spend and where to spend it….basically all aspects of the project.

Since releasing the CD is most likely one’s sole occupation regarding music, the decision of when to release the music and how long to work the project becomes contingent upon the demand in the marketplace instead of a decision based on other releases within the indie label. The single can be worked for 12 weeks or for more than a year. The release of the album can occur after the first single or after three or four singles and numerous mixed CDs. The duration of the marketing plan can stretch from a few months after release to a year and a half after. The market climate and demand for the music will dictate the length of the project. The set up for the project can be two years prior to release or three months prior. The label decides based on the reaction of the potential consumers in the marketplace.

The team hired to work the project can be made from the available people most qualified to work the project. Outside consultants and promoters can be hired, and if they aren’t working out well, they can be replaced in a timely fashion without damaging the project. If the consumer isn’t reacting to a single or a style, an indie label can re-release a better suited single, or respond to the marketplace with a remix. An indie label is like a jet ski in the ocean able to turn easily, whereas a major label is like an ocean liner. It takes a long time and a wide space to turn an ocean liner off its programmed course, while a jet ski can turn on a dime.

Let’s look at the financials:
If a CD sells for $10 wholesale through an indie distributor, and there is an 80/20 split in place, the indie label receives $8 for each sold CD and the distributor keeps $2 per CD. For 100,000 CDs sold independently, the indie stands to make $800,000 in gross revenues. If the CD is being sold through chain stores, such as FYE or Best Buy, there will be an additional $2 in price and positioning that goes to the chain out of the label’s share.

The cost to press CDs fluctuates depending on the volume and where the CDs are pressed. Cost can range anywhere from 38 cents a CD to 75 cents a CD, or close to $1, if the distributor supplies the pressing (that is called a P&D deal for pressing and distribution).

Because the indie label is seen as “the underdog,” they often get reduced rates for advertising, promotion, pressing, production, recording fees, etc. And because the indie labels usually have less financing than a major label, their target market is usually a smaller area and the project is spread slowly as finances become available from sales of the project. Touring is more difficult because of the reduced funding, and it’s rare that a major publication or a major television or cable show covers an indie artist. If seeing your artist hand out an award at one of the award shows, such as the Grammy Awards, is important to you, it’s doubtful that will ever occur for an indie artist. Securing video play at M-TV and BET is also next to impossible these days.


Major Label Release

Major releases are an “advance” game. The key to financial freedom for an artist is to secure as much money upfront as possible, and then to deliver the album for as little as possible and keep the split. This advance game was far easier to play in the 90s when the labels were flush with cash and could easily be talked into cutting big checks upfront. Those days seem to be over as major labels are hurting financially. Artists have also learned to deliver one or two hit radio singles so they can secure as many shows as possible performing the hit single(s). The major labels responded with 360 Deals—a way of eating into more of the artists’ share of the income.

Once an artist is about to be signed to a major label, the accountants and financial folks do a spreadsheet analyzing the possible sales potential for that artist. Once that figure is attained, the labels never offer more to the artist (even though it’s almost all recoupable) than is feasible for their risk tolerance. In today’s economy, for a newer artist, that figure can be anywhere from $125,000 to $350,000. For a more established artist, that figure is often $1 a CD based on the sales of the previous CD. [Most contracts allow for an advance of 66% of whatever royalties were paid out for the previous release—but since few artists ever recoup, I have never found that formula applicable.]

Once the album is recorded, the label decides where in their multiple release schedule the artist fits. If the album has numerous hits and promise of strong sales, the label may put the artist into the release schedule sooner than if they feel the release is just mediocre. This is often the opinion of staff members who are far away from the streets and have little clue about what’s hot and what’s not. The consumers aren’t fickle and out of touch, the gatekeepers at the labels are. I have seen artists sit for many, many years at major labels just waiting to come out. The artist has no income while sitting still.

Once the artist is on the release schedule, it’s difficult to change that date. It’s costly for a major to make changes (see jet ski versus ocean liner analogy in the Indie Label section). Once the single is in the pipeline, it’s usually a done deal. The major label works the single usually 3 months ahead of the album’s release date with the intention of dropping a second single and the album at the same time. Because there are other releases in the major’s pipeline, this schedule must be adhered to tightly, and change from the plan is rarely possible. Major labels release hundreds of projects each year, and each release is just one of the cogs in the wheel that make it turn. Except for the superstar releases, no release is more important than any other. Everything is based on sales potential and possible income. Nothing is based on art form or community service or value to humanity. Since all of the major labels are publicly held corporations with stock pricing and trades as their focus, the bottom line is the focus.

If a project takes off and does better than anticipated, it’s difficult for the staff to focus on that project because there is another release coming through the pipeline that needs their attention. Staffs at major labels work what is easiest since they work multiple projects at a time, and numerous releases each quarter. They have quarterly forecasts and budgets to meet, and the focus is on the bottom line at all times. There are numerous departments at a major label, and whether they work well together or not is often based on the cheerleading skills of the A&R person overseeing the current project. First week sales numbers are crucial within a major label and if the release makes numbers less than expected, the project is immediately shelved and focus shifts to the next project in the pipeline.

The staff is in place at a major label and it is rare that they use outside consultants except for radio. If a label has a weak video department or a weak publicity department, the artist just deals with that. Until an employee is fired or hired away by another label, they are often at that label for the duration. Politics are rife inside of a major label, and often moves are made based on politics rather than what’s best for the project.

Because the releases are similar to an assembly line approach, if the major label drops the ball on a good project, that’s seen as collateral damage and focus shifts to the next project to make up for it. They see artists as suppliers of the product they promote, not as creative people with dreams, ambitions, and hopes.

If the singles react well at radio, and if the CD reacts well at retail the first week (good first week sales are 75,000 to 150,000 for a new artist, and 125,000 to 300,000 for a more established artist. Breakeven for a newer artist is usually around 300,000), the label will often dump more money and effort into the project before moving on to another project, in an attempt to build a superstar for the next release of that artist’s music.

At a major label, artists continually have to achieve expectations to secure the next level. This means, radio spins must achieve a pre-conceived level of BDS spins for the artist to get a video. The video must achieve a certain level of success in order for the label to offer tour support (money to help the artist tour). The first single must achieve a certain level of radio spins to get a second single, or sales must be at a certain SoundScan level to warrant spending money on a second single. The point is that these levels of achievement are based on research or actual sales rather than feedback or acceptance from the streets and consumers. This is why there is no longer artist development at the major labels.

The major labels are able to flex their power and get major placements for their artists: touring, retail, endorsements, radio spins, video play, appearances at BET, M-TV, talk shows, and major publications, etc. Indie labels are rarely able to do this. Also, major distribution takes precedent at retail stores over indie distribution, making it more thorough and easier to get CDs into stores through a major.

Let’s look at the financials:
If a CD sells for $12.41 wholesale, 80% goes to the major label and 20% goes to the major distributor owned by the major label. That $9.93 goes to the major label and the major label accountants begin to go to work recouping what was spent on the project.

The standard record deal is for 12 to 15 points. So when an advance is $250,000, that means it’s an advance against a royalty. A 12 point royalty actually means the artist is entitled to make 12% of the retail sales price of each full length CD, minus some “standard” deductions, AFTER recouping (recouping is paying back all of the expenses from the artist’s 12%). So, for example, if a CD sells for $14.99, a 12 point royalty would mean the artist was entitled to $1.80 a CD….now, most major label contracts have all sorts of reductions in their contracts (it’s a pennies game) to give them more income. So that $1.80 per CD gets whittled down to about $1.00 a CD. Then, the recouping begins. If an artist sells 250,000 CDs, then that $1 a CD royalty is used to recoup the monies spent on promotion, recording, the advance, etc. So the $250,000 goes to repaying the expenses. It costs between $250,000 and $1,000,0000 to properly market a CD in today’s economy, so you can see how rare it is for an artist to recoup. In fact, the artist’s account is almost always in the negative—meaning more money was spent on the project than the artist was able to pay back from his or her $1 per sold CD.

This is why I called it an “advance” game. Rather than making money on the back end, the artist will most likely begin renegotiating for the next release. By now, he or she has caught on that there is no real money on the back end so they will try to get as much upfront as possible. The major label will try to advance as little as possible, but what they are really advancing is money coming in from the sales of the recent album, costing the label virtually nothing out of their own pockets. It’s an “advance” game. The artist keeps securing advances, going further into debt on the backend (thanks to recouping).

All labels, indie or major, have to pay artists, by law, mechanical royalties which are about 9 cents per song based on publishing ownership, up to 10 or 12 songs per CD. If an artist has more than 12 songs per release, that pennies-per-song total reduces based on a mathematical formula. This is why ownership of publishing is so key. Most major labels take (or buy) 50% of the publishing when an artist first signs his deal, so they are entitled to keep half of the mechanical royalties out the gate. If an artist is in financial straits (and most are) they may sell another portion of their ownership. It’s not uncommon for an artist who has been sitting on a major label waiting to come out for years to only own 25% of his or her publishing by the time the album drops.

Artists have no control over when their album comes out, what songs make it to the release, or their own image or sound. Contractually, the major labels own all aspects of an artist from their website, to their music, to their image and likeness. In rare extreme cases, the labels have even owned the artists’ names.

Epilogue:

There are pluses and negatives to being signed to a major label or with being independent. What’s ideal for one artist may be a career killer for another. One thing is for certain, to navigate through the murky waters of the music industry, one needs a strong team and guidance from trust worthy experienced people. Seek out the best folks you can to guide your career…. You only get one shot!! Talent alone is not enough to succeed. In fact, talent seems to be the least important skill to have as an artist these days…maybe that’s what’s wrong with the music business…