By T. Perry Bowers
I used to think life was a magical dream. When I was young I believed there was a guy (behind a desk, smoking a cigar) who would make life all better for me. All I had to do was find him. I had a morsel of talent and I thought magic cigar guy would take care of everything. He would wave his magic cigar and his marketing machine would make my band a household name overnight. The record advances would never end. I was always just one meeting away from being a superstar on MTV.
I didn’t think I needed great demos. Instead I believed someone would see our genius before it was even realized. They’d say, “wow, that kid has potential” even though the music I was producing was mediocre at best. I thought if I could just get a record deal it would be enough for me. At least it would validate what I was doing to my friends and family. They’d think I’d made it if I had a real contract with a record label. Maybe I would get to meet some bigwigs and have a shot at making a “real” record. I could go on tour and warm up for a big band. (We would get to meet them!) At least I would have some excitement in my life — even if it was the worst financial decision I could ever have made.
I understood how record deals were done back in those days but I still would have signed one. In the nineties deals were done like this (and still are to large degree): The band gets an advance, maybe one hundred thousand to five hundred thousand dollars. Sounds like a lot of money but you have to make a record with that money. Maybe each member could pocket a little bit for themselves, but the majority goes in producing your first record (the only record that matters). You might sign a five record deal, but if your first record doesn’t sell well, or maybe doesn’t even get realized, your band is dropped from the label.
Then you have to pay back that advance, plus whatever other money the record label spent on your band (anything from caviar dip to hotel rooms to tour bus rentals). You pay it back with about seventeen points (of profit). Points are percentage points. So what this means is you have to recoup all the money that was laid out, with only 17 percent of profit going to the recoup. In other words, the record company is banking eighty three percent of the money that is coming in and this doesn’t count towards your expenses. If you’re lucky enough to pay back the advance (very few bands actually did this) you still only get seventeen percent of the profit as long as that record was selling.
Here’s an example: If your band got a two hundred and fifty thousand dollar advance and the record company spent another two hundred and fifty thousand on your marketing campaign you owe the record company five hundred grand. Let’s say your record sold a hundred thousand copies at ten dollars each. That’s a million dollars gross revenue and five hundred thousand dollars profit. Of that five hundred thousand dollars, only eighty five thousand dollars would go towards paying your debt (17% of 500K). They put four hundred and fifteen thousand dollars in their pocket (83%). And you are still in debt how much? Four hundred and fifteen thousand dollars. Wow.
If you have a good lawyer, you might be able to cut a better deal with a record company, but this is how they like to structure things, very heavily weighted on their side. I understand why they make deals like this. Betting on a bunch of inexperienced musicians in their twenties is a very risky business. Many bands break up before they even release their first record. I’ve had bands complete a record in my studio only to break up before their release party. Add in drugs and the inherent emotional instability of artists and you have a recipe for disaster. A typical first record deal is a loan with terms as bad as if you had three bankruptcies, fraud and a prison term for extortion on your credit report.
My advice: get some leverage before you sign any contract with a record company. What do I mean by leverage? Sales. If you’re already selling records, t-shirts and tickets, you have a business. If you have a business, someone will want a piece of it and they will be willing to pay for it. If they have to build your business from the ground up however they will charge you handsomely to do this. Statistically the likelihood of your band ever seeing a dime of the profit from a business the record company had to build is next to nothing.
So build your business first. Don’t wait for magic cigar guy to do it for you. If you wait, you’ll be waiting forever. Or if you’re lucky enough to get a record company to invest and build your business for you, you’ll be waiting years to see any of your money even in the extremely unlikely event that you sell millions of records.