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Record Deal Royalties, Expenses, and Advances

How does the math of a record deal work? The answer can vary significantly depending on the leverage of the artist and label. But I'm going to go through some math using numbers from an actual recording contract from a popular record label. The contract is from... the 21st century. It doesn’t seem that this artist was very popular when they signed. (From my research, it seems like the deal described in this post is a commonly-used structure for newer artists signing with popular labels and it is similar to the types of record deals that Donald Passman describes in his book, "All You Need to Know About the Music Business". Also, I made a post about the math behind record deal advances and recoupment. The purpose of that post was not to show all of the math of a record deal. It was to show how much an artist would potentially keep from a $100,000 advance and how much their music would have to generate to pay it back. This post does include additional label expenses.) Record...
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How Do Record Deal Advances & Recoupment Work?

If a recording artist signs a record deal and receives an advance, how much of that advance would the artist get to keep and how much money would their music have to generate in order to fully recoup that advance? Here is a scenario: a new artist signs a record deal with a major record label and receives an all-in master royalty of 18% and a $100,000 advance. An advance is a prepayment of the musician's share of the royalties. Typically, the record label will pocket the artist's share of the master royalties until that share fully recoups the $100,000 that was advanced. The way lawyers get paid can vary, but some of them may take 5% of the advance, so that would leave the artist with $95,000. Artist managers typically take 10 to 15 percent. If this artist has a manager that takes 15% of that $95,000, then the artist would be left with $80,750. Advances are not loans. They are considered taxable income. So if state income taxes, federal income taxes, and FICA taxes take a combin...
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Record Deal: Royalty Splits vs Expense Splits

Are major label record deals designed so that most artists won't earn any master royalties from them unless they receive an advance? Record labels have normalized taking the vast majority of the master royalties. Major label artists often get less than 20%. The discrepancy is exacerbated because labels have also normalized recouping a disproportionately high amount of the expenses from the artist's share. Here is a simplified example to illustrate the effect of this. An artist wants to record an album but needs a record label to help to market it. A record label wants to market an album but needs an artist to record it. The cost to record an album is $50,000 and the cost to market it is $50,000, so $100,000 total. Scenario 1: The record label puts up $80,000 and the artist puts up $20,000 to cover $50,000 in recording expenses and $50,000 in marketing expenses. The label and artist split the master royalties 80/20. Both parties would break even when the album generates $100,000...
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