Good Article to Keep you Independent

Promotional costs include designing and printing promotional and packaging materials for recordings; press kits and Web sites; and advertising, radio promotion, videos, public relations and mailing costs. Some or all the costs for packaging, video production and radio promotion may be recouped from artists’ royalties, depending on contractual agreements.

Distribution Costs

The record companies decide on the suggested list retail price (SLRP) of each format. The SLRP helps stores to determine the discount price they charge customers and helps performers determine the price to charge to fans at gigs and by mail order.

The price at which distributors buy from recording companies (distributor wholesale price) is also set by the record companies. This is commonly 50% to 55% off the SLRP. If the volume is high enough, the discount can go to 60%.

The price at which stores buy from record distributors (store wholesale price) is determined by the distributors. This is commonly 55% to 65% of the SLRP. Stores return unsold product at 100% of their cost.

The price at which record stores buy from record companies that own their own distribution warehouses is approximately 75% of the SLRP.

Potential Profits

How do these costs relate to a million selling album?

At common discounts, record companies receive approximately $10.00 per CD ($16.95 SLRP). Thus, projected record company gross income is ten million dollars.

Out of this the record company will spend approximately $625.000 in manufacturing costs; approximately $1,000,000 in promotion (another $1,000,000 will be charged against artist royalties); $1,780,00 in royalties to the artists (at 14% of the SLRP of $16.95, less packaging); and $600,000 in publishing royalties (at 75% of statutory). After subtracting $4,005,000 from its ten million gross income, the record company has a gross profit of $5,995,000. It will recoup its million- dollar advance to the artist and its promotional costs.

This excerpt is from Diane Rapaport's new book, A Music Business Primer, published by Prentice Hall. Copyright 2003 by Diane Rapaport. The book is available on Amazon.com and at major book stores. www.dianerapaport.com

How Record Companies Make Money and many other articles, tips, and other info can be found in the Music Biz FAQs section of the site for TAXI: The World's Leading Independent A&R Company.