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Q: CD economics ( Answered 5 out of 5 stars,   2 Comments )
Subject: CD economics
Category: Arts and Entertainment > Music
Asked by: keikileo-ga
List Price: $6.00
Posted: 22 Feb 2004 17:25 PST
Expires: 23 Mar 2004 17:25 PST
Question ID: 309632
Can you tell me who gets the money when I buy a CD: retailers,
musicians, songwriters, record companies, etc? I want to know who
typically gets what share of CD sales so that I can understand who is
being hurt (and to what degree) by downloading and online music
Subject: Re: CD economics
Answered By: clouseau-ga on 22 Feb 2004 17:56 PST
Rated:5 out of 5 stars
Hello keikileo,

Thank you for your question.

A page at Bobby Says has an excellent breakdown for you:

Assumming a retail of $16.98, the costs are as follows:

Retailer $ 6.23 
Company overhead, distribution and shipping  $ 3.34
Marketing and promotion  $ 2.15
Artist and songwriter royalties  $ 1.99
Signing the act and record production  $ 1.08
Retail co-op advertising  $ .85
Pressing and booklet  $ .75
Label profit  $ .59
Total  $ 16.98

You might find the following article interesting as well:$$_breakdown.htm

The Ballad Of The Mid-Level Artist

By, Danny Goldberg

"...There are, however, still boilerplate formulas called ?packaging
deductions" (a 25 percent reduction from the CD list price) and ?free
goods" (15 percent). Putting aside the murky origins of such clauses,
the practical effect is straightforward: they reduce the value of a
point on a $16.98 CD to between 10 and 11 cents (a point is shorthand
for a royalty percentage). For the purposes of this article, I am
assuming a point equals 10 cents, and that the royalty rate for our
hypothetical mid-sized artist is l4 points, or $1.40 per album.

So let's take our mid-level artist, and say that she managed to sell
200,000 copies of her latest CD. How does the artist make out? Based
on a royalty rate of $1.40 per album, 200,000 CDs sold results in
earned income of $280,000. However, before the artist buys her mom a
car (or pays off her college loans), she first needs to deal with the
dreaded recoupment. If our artist received a $25,000 advance and spent
another $115,000 making the record, this $140,000 is deemed
recoupable, which means that the label can collect that amount against

Also, let's assume the artist received $70,000 in tour support
(recoupable) and another $70,000 in recoupable video and promotional
support (this is usually split between the label and artist). That
adds up to $280,000 in recoupable advances, thereby canceling out the
$280,000 earned by the artist on points from her CD sales.
Royalty-wise, it's a wash. (There's a holdback for returns of 15-20
percent, but royalties for these ?reserves" are usually paid out in 18
months minus any actual returns.)..."

The entire article is illuminating.

ASCAP notes the following on royalties - another interesting read:

"...A major source of income for many songwriters and music publishers
are the mechanical royalties due from the sale of CDs, tapes, records,
and downloads containing musical compositions.

Under the U.S. mechanical rate (known as the statutory rate) in effect
in 2002-03 (8 per song, but see the next page for further
explanation) a million-selling single would be worth a total of
$80,000 in combined royalties to the publisher and writer.

For an album, the above royalties would be multiplied by the number of
songs on the album. For example, if 10 songs were included on an album
and each received an 8 royalty, a total of 80 in mechanical
royalties would be generated from the sale of each album. Thus, if the
album sells between 1,000,000 and 10,000,000 copies, the combined
writer and publisher royalties for the album would range from $800,000
to $8,000,000. Mechanical royalties are paid by the record company to
the music publisher or its representative (frequently The Harry Fox
Agency), who then shares them with the writer. Simple, right? Wrong...
(better read on!)..."

Another page at ASCAP notes:

"...This overview is primarily concerned with some of the major
sources of songwriter/publisher earnings, but since many songwriters
are also recording artists, a brief mention should be made of the
contractual factors that affect income in the recording arena. Artist
royalties usually range from 10% to 25% of the suggested retail price
for top-line albums, with deductions being made for packaging costs.
For example, if a songwriter/artist has a 16% royalty, a 25% packaging
deduction, and sells one million CDs in the U.S. of a $17
suggested-retail-priced album, the basic calculations would look like

$17.00 CD Retail Price
x .25 Packaging deduction rate
$4.25 Dollar deduction
$17.00  CD Retail Price 
- 4.25  Packaging deduction
$12.75  Royalty base
x .16  Royalty rate
$2.04  Artist Royalty
x 1,000,000  Album Sales
$2,040,000 Artist Royalties

And lastly, I'll direct you over to a favorite site of mine, How Stuff Works:

How Music Royalties Work 
by Lee Ann Obringer

"...Making money in the music industry is tricky. Recording contracts
are notoriously complicated, and every big recording artist has a
small army of legal representatives to translate and negotiate these
deals. In this article, we'll look into the world of music royalties
and see how money is actually made in this industry..."

You'll find a great deal of good information in this very extensive article.

Search Strategy:

music cd cost breakdown
music cd artist royalty

I trust my research has provided you with the cost breakdown you
desired. If a link above should fail to work or anything require
further explanation or research, please do post a Request for
Clarification prior to rating the answer and closing the question and
I will be pleased to assist further.


keikileo-ga rated this answer:5 out of 5 stars and gave an additional tip of: $2.00

Subject: Re: CD economics
From: clouseau-ga on 22 Feb 2004 21:24 PST
Thank you for the rating and tip keikileo. Glad to be able to help.


Subject: Re: CD economics
From: snobo-ga on 31 Mar 2004 03:29 PST
just wanted to add a link to a very educating article written by
respected indie producer/musician Steve Albini:


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