How to Record Part I - To Sign or not to Sign? - by Pat Drummond

Signing with a Major Record Company vs. Remaining Independent.
In modern country music, the recording process is an integral part of a successful career. For artists not signed with major companies the independent recording release is both an important source of income, an invaluable promotional tool and often a stepping stone towards a major contract with an international label.
It should be noted however that while many artists who choose a niche position in the market (ie. whose music is not necessarily mainstream) may never be of much interest to mass marketing companies, they may still maintain a profitable and viable recording career.

Section A. Signing with a Major Record Company
For artists generating above 15,000 sales the distribution wing of a major record company is an absolute necessity but, as a general rule, artists selling less than 7,000 units will not greatly profit from contracts with major labels. This is because the economies of scale do not allow the initial recording cost of the album to be defrayed at a rapid enough rate to expire before sales of the album are exhausted. For these artists a major record contract may result in large debt, ongoing financial difficulties and severe limits to creative freedom.

To understand the some of the issues surrounding a recording contract with a major, you should be aware that there are two main types of contract.
The first is a full contract where all costs of recording and video production are underwritten by the recording company and the standard costs of promotion are paid for outright by the company.

This might seem an attractive option initially but remember all costs of recording and video production are underwritten only and are 100% recoupable from the artist's royalties. This means that you will actually pay for the product..... even though the copyright in the recording is owned in perpetuity by the record company.
In the simplest terms, you will have to pay for it...but the record company will always own it and you won't see any royalties from it until your costs are fully recouped.

Q. How long will recoupment take? How long before I will receive any royalties?
There is no set answer but consider the following....
Although most albums are sold to shops for $19.80 incl. GST (representing revenue to the label of about $195,000 on 10,000 sales) the average royalty for a new signing on a full contract is only about $1.80 from each album. Since a high quality album would cost $15,000 to $20,000 to record, it does not take much of a calculation to realise that the Artist will receive no royalties from the record company until between 8000 and 15,000 copies are sold.
But it gets worse. This also presupposes that no other exceptional costs are incurred by the record company during the recording process for other promotional, video or tour support purposes. In a lot of cases there are other costs involved. In many cases artists are charged for graphics and photography either by the art departments of major companies at a rate comparable to what they would be paying if those services were outsourced or by third party operators contracted by the record companies.
This represents one of the great traps for debut signings. While all these charges may result in substantial extra revenue to the record company they are all recoupable from artists' royalties.

Q. Is there another alternative?
Yes, The other type of contract that majors offer, (although seem to be getting harder to obtain) is the P&D deal. (Production and Distribution)
This means that the artist pays up front for all production up to finished masters (and video if applicable) and then licenses the master to the record company, who manufactures the CDs and distributes them to retail outlets. In this case, the artist takes a far greater share of the financial risk so a much higher royalty than $1.80 can be negotiated. It should also be noted that in P&D deals, the master reverts to the artist after an agreed period ­ say 3 ­ 5 years.... and they own it in perpetuity. If an artist has the financial resources for the initial outlay this is often a far more advantageous option in the long term.
It also means that if you become unhappy with the company's support of your product or your album does not perform and is deleted; you can eventually extricate yourself and still have a high quality album to sell direct at gigs.
Distribution is the 'holy grail' for many acts and a principal reason why they sign these contracts, However, while distribution is often less patchy through majors; even they have a lot of trouble placing low volume titles uniformly across retail outlets. P&D signings should also be aware that their product will be in direct competition from 'in house' high demand Top 40 releases being carried by the same sales representative who will be visiting retail stores. He only has so much time to present new product and niche market material is sometimes given scant attention against recent high profile releases.
As you can see from the above estimates, it is only where the artist is selling above 10,000 units in the Australian market that a full major record company contract is of much use to him. However, this equation may change if the artist is also the sole composer in which case a similar amount in royalties will be returned to him in publishing; making it possible for him to consider a major contract if he realistically anticipates sales in the 5,000 to 10,000 range.

What then are the advantages of a major contract?
There are, of course, substantial intangible benefits that might accrue to an artist signing with a Major. Often the prestige of being signed with an international label may inflate the artists live fee and the networking that a signing with a major often provides may bring significant long term benefits.
If a major record company wholeheartedly 'gets behind' an artist they can be real benefits. Although it is unfortunately true that some majors just throw a lot of money after an act and drop them if the project doesn't work out; others do work with them to develop their songs, image, PR and marketing and "nurse" new artists through the process with lessons on how to respond at interviews, etc.
However, it is a "partnership" and one side can't create success without the full support of the other. Additionally, a major record company will often be able to make the recording available nationally through all the major retail chains which are often inaccessible to an independent.
If the act is effectively marketed it might lead to international opportunities although it must be said that this is statistically rare in Australian Country Music...or any other type of Australian music for that matter!!

Section B. Remaining Independent
Independents will be able to negotiate similar deals often on studio and mastering time. They will then however have the added cost of graphics, film, manufacturing and distribution. Manufacturing will involve the striking of a 'glass master' from which the discs are then produced, although this is often supplied free of charge on orders over a thousand units. Shopping around Independents should find it possible to produce Cds for about a $1.50 per unit plus GST. The total extra cost should be about $1650.00 incl GST for a thousand units. Allow an extra $500 for glass mastering on smaller runs. This may be provided free on larger orders.

Graphics and Film separations are variable but about $2,000 -$3,000 might be a good mid range estimate. If you are friendly with Adobe Photoshop and Quark Express; and have an iMac or a Pentium II you can do much of this work yourself.
Added to this is, of course, is the cost of producing a clip, posters, press ads and any other marketing material but I have not factored these in here since they are very variable and many independents will simply combine gig and product marketing for point of sale. and although the arrival of new breed of digital videos cameras may in time see more videos produced by independents the vast majority of Independent product is not clip supported. One should be aware here however of the tremendous help TV shows such as the ABC's Landline are in providing essentially free production of clips for acts who allow those clips to appear on their show. Many shows will allow these clips to be used elsewhere if a production credit is given.

The Bottom Line?
All up the extra cost of independent manufacture will be about $5,000 at 2001AD prices. However, instead of receiving only $1.50 per unit [$3.60 per unit if all publishing is owned] in return, the artist it will receive $18.00 per unit less the cost of distribution. Currently the cost of distribution is $5.00 - $7.00 per unit therefore the independent artist can expect the return of about $12 per unit after distribution is paid. If the total investment in the album is $25,000 to $30,000 the artist could recoup his entire investment in as little as 2,500 Sales.
But it gets better. A substantial portion of your first 1000 sales will occur at gigs where, assuming a $30.00 price tag, you will receive $28.50 per unit in return. 1000 units sold in this manner will cover your entire investment. Since your sales will be a mixture of retail and direct sales, even an album with the high end studio costs that I have factored in here, (NB. many good quality charting independent studio albums are produced and mastered for $10,000 or less) will be recouped with about 2000 Sales.
Contrast this with the predicament of the signed act whom must at the end of the process buy his own product back from his record company for direct sales at shows at a cost of, standardly, wholesale -20%, ie. $15.60 per unit. The maximum the signed act can ever receive from direct sales is $4.40 per unit.
With good credit ratings Independents should be able to establish accounts with CD Manufacturers on 30 Days credit, enabling them to sell substantial stock before the manufacturing bill must be paid.
Add to this the fact that Independents can distribute as many copies of their album to broadcasters, journalists, festival organisers and venue managers as they like at a cost of $1.50 per unit ( less then the cost of a cassette) while in many cases signed acts face a $15.60 cost per unit above their often very small promotional allotment. This can be a major advantage to independents in gaining work and airplay opportunities. (It should be noted that many record companies now do provide a limited number of samples to assist the artist get work and there is a "special" price to artists to purchase stock for promotion (as opposed to stock which is to be sold) but this matter must be specifically dealt with by you or your management when a deal is signed.)

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