If you’re signed, you may be wondering, “Where’s my money from the record label?” The root cause is that the artist doesn’t understand how record labels make their money and when they receive it from DSPs and distributors. This causes a problem for the artist, leading to frustration and even audits or lawsuits.
Artists shouldn’t have to wait around for advance checks due to how the money flows in this industry. All I can say is I understand both the artist and label perspectives.
Income Time Period: 90 Days
It takes 90 days after release for a distributor to start issuing the label royalties. Payment also depends on whether you released at the beginning, middle, or end of the period, and the minimum threshold for payment from the distributor. This is part one of how artists get frustrated.
Revenue Allocation: Debt to Income Ratio
30% Profit
24% Payroll
21% Tax
5% Operating Expenses
20% Project Debt - Artist
A typical 80/20 deal looks like this. 20% of the cash flow is going to the artist’s debt; however, it's only 20%. This is part two of why the artist gets frustrated. It’s simply because they now have to rely on show money to keep up with the pace of their career. An artist who didn’t do a 360 deal with their label will be less worried because they have control over their merchandise and brand deals.
Advances
Marketing and Promotion Expenses: $15,000
75% Artist Advance: $10,000
25% Producer Advance: $1,000
Every three months, a payment will be made on the debt. Marketing and promotions debt will be taken care of first before all advances unless stated otherwise in producer agreements. So you can clearly see why the artist is frustrated. Unless the initial records were big enough, there is no chance they will ever recoup.
Momentum
If there is a decline in momentum before the expenses are paid back, chances are the artist will never recoup. If there is an increase in momentum before the original expenses are paid back, then the label will put more money behind a song to increase its exposure, adding to the debt until they reach the cap on the budget. This causes the recoupment schedule to be extended, ultimately resulting in an unrecouped budget for the initial life of the artist's career span of 10 years.
Quick Recoup Budget Structure Never Works for Major Labels
100% Revenue - All in expenses = Profit
This model is only meant for mom-and-pop labels. This may be the formula you are using to run your labels now. However, as a bigger label, you have staff to pay, and recouping quickly is not an option.
When Do I Start Getting Royalties?
In two years, maybe, if everything goes to plan and your songs did well enough to keep steady revenue coming in.
When Can I Get the Next Advance?
If the label decides it is worth pursuing another contract with you or your time period for the first single is up. With these terms, your debt rises when the first single debt is unpaid, and the label says, "We need another one."
I Could Just Do Shows to Make Up the Difference, Right?
If the song has declined already and nobody cares about seeing you, then the shows will barely keep you above water, causing you to go broke.
Here’s What I Suggest
Stay independent as long as you can, don’t rush the process, and consistently build yourself up. Eventually, you will adopt an allocation structure like the one mentioned above, and you won’t have to depend on the major label to be your saving grace.
Check This Out!
If you're a music creative or executive looking to build your label or publishing company in 60 days or less, grab the 60-Day Record Label Course and get it done today! You’ll gain the ability to get real funding, avoid contractual pitfalls, and keep the middleman out of your pockets. Click the link below to get started now! If you’re skeptical, grab the free guide, "10 Ways to Increase Your Record Label Profits," which comes with a free split sheet download.
Pacing Your Growth Independently
You’ll stay independent.
Increase your cash flow.
Control your fanbase for more revenue.
Never rely on an advance.
Seek investment from private investors or banks.
Ultimately sleep better at night because of it.
Rushing to Get the Advance
You’ll fall into the trap of the shiny advance.
You may only last 2-3 years max unless your management is skillful and crafty.
You’ll have more money stress along with the stress of upward growth.
Conclusion
If you haven't received any royalties yet, just know it's not the label alone. There are a lot of factors contributing to your unearned cash flow. By understanding these factors, you can better navigate the music industry and take control of your financial future.
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