Rap Coalition

A HOW-TO RESOURCE FOR RAP ARTISTS, PRODUCERS, & DJs. Since knowledge is power, here is your best defense to succeed in the urban music industry...

Wednesday, March 15, 2006

The Money In The Music Business

Publishing is where the money is, in the music business. It is the ownership of the words and music of a song, and it is the thing that can bring in income for your grandchildren—it is LONG money. Although publishing can be quite cumbersome to understand, the most basic principle is that when an artist puts pen to paper or makes a beat, that artist owns the publishing. It's that simple. Whoever creates the words or music in a song, owns those words or music.

I think publishing is like real estate. When you make a song, you are the owner of that property. If there is demand for that property, it has value in the marketplace. Sometimes you sell off a piece of the land for money (but you NEVER give away your land for free, right??) and if someone else wants to use your property, they have to pay you rent to use it.

There are a multitude of ways to get paid from publishing, ways to split publishing with other folks (those who helped write the song, and those who did not), and a ton of ways that artists get screwed out of their publishing by others who recognize the value. One of the main ways to get paid from publishing is through “mechanical royalties.”

Mechanical royalties are the payments that Congress stipulates labels must pay based on copyright ownership and publishing ownership. These payments have nothing to do with recouping, but everything to do with who owns the publishing. Right now, that rate is about 9.1 cents per song.

When you sign to a record label and release your CD into the market commercially, that label has to pay mechanical royalties for every copy that sells. Since The Lox have been so publicly outspoken recently, let me use them as an example here. In 1998, when the mechanical royalty rate was 7.1 cents a song, Bad Boy released The Lox’s “Money, Power & Respect.” To date, they have sold 753,688 CDs of this release, according to SoundScan.

Since I do not have a copy of their contract with Bad Boy, to be as fair as possible, I am going to assume they had the least favorable terms in their deal, meaning they were to be paid at 75% of this mechanical rate, and only for a maximum of 10 songs (labels stipulate what your maximum is, whether 10, 11 or 12 songs per CD no matter how many you decide to put on the CD, and whether you get paid at 75%, 85%, or 100%--it’s a part of your deal to be negotiated, and the terms depend upon how much leverage you have in the deal). The math is easy: 7.1 cents per song x 10 songs x 75% = $.5325 per CD. So, when you multiply that total by the number of CDs sold: .5325 x 753,688 the total mechanical royalties for Money, Power, & Respect are roughly $401,338.86. The Lox are angry because they gave up the right to collect that four hundred thousand dollar check. They feel cheated because they feel they had no choice at the time and have chosen to speak about it publicly now.

On the radio recently, Sean “Puffy” Combs argued that they did have a choice and that they chose to be down with Bad Boy knowing the consequences of their contract. He further went on to surmise that they did not understand the business after all these years. In my opinion, it’s not that they don’t understand it, it’s that they don’t like the end of it that they are seeing at the hands of Puff.

Mechanical royalties are only one of a few ways artists get paid from publishing. There are also sales royalties and performance royalties--which are not administered by the record labels, and pay the artists every time their song is played on the radio, video, or live. The money is paid based on the percentage of ownership of the song. So if the artists owns 100% of the song, they get the whole check. If the artist owns just the music, which is half the song, then he or she gets half the money. If the artist owns the music with a sample in it that claims half the song, then he or she gets a check for 25%. This can amount to a nice chunk of change, especially when you consider that the song “Money, Power & Respect” was played at radio close to 200,000 times since its debut. Whoever owns the publishing for that song would collect that money.

Performance Rights organizations consist of ASCAP, BMI, and SESAC (which is still quite small). They police the radio stations, clubs, concerts, TV, etc (any place music is played or broadcast), all of whom pay a fee to play the music which the performance rights societies collect and split amongst their members based on the amount of times a record is played. Although the formulas change annually based on play, a Top 10 song played on commercial radio can earn a check in the hundreds of thousands of dollars range.

So why do artists give up their publishing? There are as many reasons for that as there are situations. Some labels ask that the artist sign over 50% of their publishing in order to be down with the label. To be down with a record label as hot as Bad Boy, No Limit, Death Row, or Cash Money was in the 1990s, that can be a difficult decision for an artist to make. They may figure it is worth losing 50% of their publishing to be with hottest label on the streets because that association may sell more CDs than if they owned 100% of the publishing at a less hot label. I have seen numerous artists give up 50% of their publishing to their label, and then sell or give away the remaining 50% because they are broke, or because that is the price they feel they have to pay to get away from the label down the road, as is the Lox’s case.

Before his untimely death, Notorious B.I.G. told me he sold his remaining 50% ownership in his publishing to Puffy just prior to the release of his first album. If that is true, the proceeds from that publishing today would account for millions of dollars. The investment Puff would have made buying that remaining 50% (Bad Boy already owned the initial 50%) would have been recouped in a matter of a few months, but would have affected Biggie for the remained of his career if they did not renegotiate (I believe they did renegotiate just prior to his death). It appears that the Lox had to give up the remaining 50% of their publishing to Bad Boy when they wanted to leave the label years ago. I called Puffy’s office numerous times for a quote for this story, but my phone calls were not returned.

In the 13 years I've been in the urban music business, I have heard so many times, artists say that they don't care about losing a song or two because they can always make a ton more. That's stupidity. It's undervaluing one's ability. That's like saying it's OK to rob me of my cash, because I can go to the ATM machine and get more money. Wrong!! It's never right to rob someone. The "I can make more" defense immediately goes out the window when the creator sees someone else make hundreds of thousands of dollars off a song. Every time!! So why not protect yourself in the door?

The best way to protect yourself is to learn as much as you can about the business, have experienced trustworthy advisors on your team like a manager and entertainment attorney, and understand what it is you are giving up before you make that kind of decision. When you are young and broke it’s easy to say you are willing to give something up to be down with a certain company, but when you find out years later what it is that you actually gave up, you might be really angry to learn that it amounted to someone else making millions of dollars while you made pennies.

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