Something for Nothing

In the good old days, a record label took about 85% of the pie and the artist got 15% (if they were lucky). However, the label was responsible for paying advances, recording fees, distribution, promotion and marketing costs.  Essentially they were a bank giving a loan to the artist.  The label took all the risk and, by their logic, were entitled to the lion's share of revenue that resulted from album sales.

In today's digital world,  Artists and labels are using digital distributors to get their content on the digital music services.  But the tables are turned.  The distributor is earning 15-25% of the revenue.  In some cases, it is a flat fee for service.  (For those albums earning less than these flat fees, it is arguable that distributor is actually receiving 100% of the revenue.  But that's a subject for a future entry.)

And here's where the squeeze play is happening.  Many labels are not really labels.  They don't have a marketing, promotion or PR department.  Therefore, digital distributors are being asked to provide more and more marketing services for their meager revenue share.  Some distributors are trying to upsell marketing services as an add-on.  But with these services, many artists still expect to pay no upfront costs and for such fees to be recouped from royalties.  

There are several flaws with such requests:

1. Digital distributors are already spending a lot of money getting the albums to their worldwide networks of music services.  The overhead for such companies is very large.  The costs involved are very substantial and are barely offset by the distribution percentage.  Our company is small by comparison and I can assure you that our investment per album is very significant.
2. To front marketing costs would mean that the distributor is taking 100% of the risk for their 20% distribution fee.
3. If an artist is unwilling to spend even $500 to market their artist, what does that say about their confidence in their product.  What business is expected to launch and succeed without a least a little capital expenditure.
4. To recoup a modest marketing campaign of $1000, an album would have to generate over 700 track downloads.  I can tell you from experience that we represent many albums that do not generate even this small amount of sales.  In such a case, the distributor is left holding the bag.

Distributors are not set up to be finance companies.  The conventional model of big labels acting as a banker and assuming all the risk does not apply to digital distribution companies.  If a content provider were willing to make it a 50/50 deal, I am sure that most distributors would be much more willing to take a bigger risk.

Finally, I'd like to quote one of my favorite musicians, Billy Preston:  "Nothin' from nothin' leaves nothin'/You gotta have somethin'/If you wanna be with me..."