According to a recent article in the BBC:

>>>According to XTN Data, legal downloads are up by five per cent since last September.

The most popular legal download site is iTunes with 44% of the market. This is followed by Moscow-based AllOfMP3.com, which accounts for 14% of legal downloads, according to the report.

The Russian service offers entire albums for a pound, compared to 80 pence per track on most sites.

The IFPI regard the service as illegal and tried to have the site shutdown last year, but failed.

Napster, who re-launched as a legal service in 2004, took third position with 8%. <<<

http://news.bbc.co.uk/2/hi/technology/4875142.stm

Interesting. I wonder why they failed? If this service is as illegal as some claim, what made an attempt at closing them fall through?

because there isn't any real copy right laws in place in Russia. Allofmp3 could give them away if they wanted to. In the western world it's illegal. In their world it is legal.

The major labels around the world have been trying to sut the site down for years.

/E

Record companies pay an advance to an artist so the artist can record an album. The advance is to cover the cost of producer, studio time, mixing engineers, mastering etc. there might be something left for the artist to use for living costs and if the manager is lucky he may get a commission.

The record company will always recoup the advance before they start sending out any further checks to the artist.

So do the maths.

Artist gets $200k in and avance.
The artist will receive $2 per sold CD.
The first 100k sold CDs he see's NO CHEQUE for at all.
Starting from CD sale 100.001 the artist can see a cheque.

Some record companies will even claim packaging costs on the royalty. Up to 25% out of the artists royalty so and artist who has gotten a $200k advance will have to sell 125k CDs BEFORE the artist start generating a royalty cheque. The packaging clause in a contract is a scam that many artist managers are picking up on and some are successful in arguing against it.

A record company may sell a CD at whole sale price of $9 - $15 per CD to the stores. (I paid a major 3letter label �9.90 + VAT in wholesale for an artist whos website I run. That's $20+ wholesale price!)

The artist, who has managed to get the packaging clause dropped, receives $2 out of the whole sale price. The record company keeps the rest, claiming it is used for marketing. Normally a label budgets for x amount of sold CDs as a goal. Per CD around $1.50. So a goal of 200k sales they'd spend not much more than $300k in marketing.

So - say the label is selling the CD to the shops for $15 a pop.
100k CDs is $1.5 million.

The artist has had his $200k advance

Leaves $1.3 million to the label.

the label has spent $150k on marketing.

Leaves the label with $1.15 million

The label has also paid $2 per printed CD in mechanical rights.

Manufacturing a CD including jewel case and sleeve is about $0.4 per CD so deduct another 40k.

Leaves the label with a profit of $910k.

The artist may have gotten $400k out of the sales (inc mechanical rights) in total. the initial 200 has covered the recording costs. Leaves him 200k and the record company has made a profit of 910k.

Please tell me what is wrong with this picture?

More often than not will a label drop an artist who doesn't sell according to the goal. Sometimes they will even drop an artist who does reach the target but as they haven't sold more they still get dropped. They don't look at the profit. They look at what it has cost them to get it out there.

Let's do the maths again.

An artist who has a fan base and can sell upwards of 500k CDs on a release. Gets an advance of say - $400k. They get $4 per sold CD.

After having sold 100k CDs they start seeing a royalty cheque. This may turn up every 3, 6 or 12 months depending on the deal and whatever cut off date the label has decided on.

After 500k sold albums the band is paid $1.6 million in sales. The label has made $4.75 million, after marketing. Probably more. Still they decide to drop the band. Why? Too much royalty to pay out.

As for radio play and PRS, that can take as much as 2 years before the band see anything. If they have a publishing contract and an advance from that - they get a cheque. They also sign off 30-50% of the ownership of the songs to the publishing company AND the publishing will also recoup that. The chances of seeing anything is highly unlikely.

Most pop artists out there don't write their own songs. The composers get the PRS money.

What the illegal download has an effect on is the profit margin with the record companies. Very few artists sell enough to recoup the advance but the label may still be going on a profit on the artist. Still the label is looking at their diminishing profit and to cut cost will drop the artist and/or start spending less on advances = less quality recordings, less on the packaging = ugly CD covers, not be too keen on removing the packaging clause from the deal and so on. The end result is that us consumers don't get a quality product for the same money the shops and labels had us pay when the labels were running on a high profit margin.

Itunes has revolutionised the entire industry. It's no longer the label who decide what song is the single release. The music buyer can do that by buying single tracks of the album. Any random one they like and not what the label pushes at them. So even if ONE track sell enough on itunes to cover the advance, the marketing, the mechanical rights etc. The label looks at the big picture and see that they lose money on the other tracks that do not sell.

Itunes video gave the artist a second revenue stream. I believe the top list of downloaded music videos on itunes are videos recorded in the 80s and early 90s. Says a lot who the real music consumer is. The 40 somethings, or the "50 quid guy" as he also was called.

About 1 artist in 10 is profitable for a label. Another 2 - maybe even 3 break even. Leaves 6-7 artists going on a loss.

Some labels will sign artists they know will go on a loss as they can use that for tax write off's.

Now, don't get me started on the touring business.....

/E - have written songs that are recorded and released, been signed to a publisher, manage a band and run websites for other bands + is an old roadie.

You lost me after the first "do the math". Sorry.

And still I tried to make it simple.

Trust me, there is a reason why entertainment lawyers cost a fortune and are worth their weight in gold. An artist should never ever sign a contract without having a good lawyer go through it with a fine toothed comb. And the lawyer has to be independent of the label.


/E

Emma, that was complicated but thanks for provided the detailed breakdown. I get the general drift even though I still don't understand all of the nitty-gritty details.

Your one question - what's wrong with the system? - was summed up well by your last post. That is, it's very complicated and requires very detailed examination by an independent lawyer, something that a new artist doesn't always have.

Thanks. And yes, you are right.

A lawyer is something that can be factored in to the advance and the record company pays for your lawyer - just make sure it's one that doesn't work for the label! Too many bands have done that mistake with both labels and managers and years later screaming they got scr*w*d.

Anyway - the point I was trying to make is that very few new artists will stand a chance making a living on their music with the illegal downloading. If they can't get a deal with a label who does the backing and marketing what can they do? And labels will be less keen to sign new artists if they can't sell them.

The illegal downloading isn't affecting the wealth of those who already made their fortunes before downloading turned in to a problem.

Oh - and how come CDs turn up on P2P networks long before they are released? Most often it's the journalists on the mailinglists. SOmetimes it's even the record company execs who have trusted a friend with a copy, who trusted another friend, who trusted another friend... and so on.

Or it's the courrier who pulled the CD and ripped it while he was taking it to the record company.

Or it's the recording studio who runs an FTP they never change the password on and who's had it hacked or who use them same access codes for all their clients, because they couldn't be bothered getting a sysadmin in to set up a VPN.

Or it's the band who haven't worked out that yousendit.com and similar is NOT a good idea to use when shipping files between eachother.

Sheer stupidity is most often the reason why a CD ends up on P2P before it's released. And a hefty portion of "lack of respect for other peoples intellectual property"

/E

OK, I am going to dip my toes in this hot water.

I see it as a gamble. The Record company hands over 200k with no guarantee they will make a penny.

You yourself say that 6-7 out of 10 bands make a loss/break even but they still get their 200k advance, correct?

You make it sound like the artists get nothing for the first 100k sales. BUT they got their advance.

If they chose to see this as the first of many payments and blow it all on blow and hookers (or cribs) then thats their fault. If the album tanks, then its theirs and no one elses fault.

I agree the unscrupulous contracts is unecthical and should not have a place in any industry.

But to say they are hard done by, seems a little rich, 200k is a lot of cash for a lot of people, even split amongst a band. Considering it takes maybe 3-4 months to make an album.

The allofmp3 issue; I would argue the RIAA or whoever should, and probably are, more interested in sites that pay zero royalties. Deal with lesser contributors later IF there is any case.

Did you miss the part about the advance paying for producers, studio time, mixing engineers, mastering, hotels (unless you actually live in the same city as the studio) travel to the studio and sometimes, the manager gets up to 20% of the top or of the net (if there is anything left that is).

I was just in a top North American studio for a week. Band had gotten a good deal on it and paid $7k for the use of the studio just to mix. That was CHEAP! On top came fees for mixing engineer which is another $5k - $10.

A top studio cost a couple of g-notes a day. A producer near enough $100k. A top producer more than that. (someone I know managed to get a producer that had produced and co written a couple of global hits that year for 80k and said it was cheap.)

It's all coming out of the advance - mate. Not out of the record company's pocket. The bills add up.

So 3 - 4 months of recording leaves the artist how much of the advance?

Don't think it all gets blown on blow and hookers.

Sure, you can do it cheaper. Find a cheap studio, record it digitally, self produce it, try to keep the costs as low as possible. Split the money between the band members and if you are lucky - you may get a tour that year that can earn you some income. Don't expect being paid while you're out there doing a PR tour. The record company might be paying your flights, hotels and feed you but you don't get paid. Not unless you want them to recoup their entire marketing budget as well as the advance. So there is a chance you could make ooooh, say $50k that year.

If you're lucky.

/E

yeah, i missed that bit.

I do love when the record companies are screaming about stealing from the artists, etc. Bull-S. It's coming out of THEIR pockets. Their business model is old and outmoded. It needs to evolve but they don't know how to do it whilst turning the megaprofits they have in the past. Going forward, it's a broken model. Consumers don't want to do business that way anymore. They can fight as long as they wish, but in the end if they don't do something first someone will come along and do it for them.

The United States Registrar of Copyrights has characterized allofmp3's music as "pirated":

You've pointed to the lack of information about allofmp3.com on RIAA's website as indicating that the RIAA at least tacitly acknowledges that allofmp3 is legal:

To the contrary, the RIAA is a member of the International Intellectual Property Alliance (IIPA), a private sector coalition formed in 1984 to represent the U.S. copyright-based industries in bilateral and multilateral efforts to improve international protection of copyrighted materials. According to the IIPA website, "IIPA and its member associations track copyright legislative and enforcement developments in over 80 countries, working with U.S. government, foreign government and private sector representatives. IIPA�s goal is a legal and enforcement regime for copyright that not only deters piracy, but that also fosters technological and cultural development in these countries, and encourages local investment and employment."

IIPA representatives have testified on a number of occasions before the U.S. House of Representatives Subcommittee on Courts, the Internet, and Intellectual Property regarding intellectual property theft in Russia. IIPA has repeatedly reported to the U.S. House Subcommittee that the Russian government should take steps to curb intellectual property piracy, which it estimates costs U.S. companies $1.7 billion annually. One of the "six critical steps" that the IIPA recommends the Russian government take is to "immediately take down websites offering infringing copyright materials, such as allofmp3.com, and criminally prosecute those responsible." Clearly, the IIPA does not believe that allofmp3 is legal.

IIPA has urged the United States to take actions to "mandate Russia compliance with international norms and obligations" regarding copyright enforcement. IIPA has urged the U.S. to: (1) Condition Russia�s entry into the World Trade Organization (WTO) on meaningful copyright law enforcement; (2) Designate Russia as a Priority Foreign Country (PFC) after the on-going out of cycle review by U.S.T.R.; and (3) Deny Russia�s eligibility for the Generalized System of Preferences (GSP) duty-free trade benefits.

Your supposition that RIAA has not taken any action against allofmp3 is incorrect. The IIPA report to Congress notes:

The emphasis is mine, but it highlights that it is much more difficult for RIAA to sue a Russia organization in Russia than it is to sue individual copyright infringers in the U.S. For that reason, the RIAA, through the IIPA, has pursued relief through diplomatic measures. While it apparently has not been very successful in those efforts to date, your argument that RIAA has somehow tacitly acknowledged that allofmp3.com is legal is flat-out wrong.

Thank you for pointing to the statement I was looking for (and couldn't find online). Based on this I will immediately stop using allofmp3.

Which russian law does allofmp3 violate?