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Inna in Violinna Music,

What are Royalties and how do they work with a major record label?

By definition, a royalty is a sum of money paid to an author, artist, composer, etc for each copy of their work sold or for each live performance of their work given. Today, I will discuss royalties given to an artist/band that has signed with a major record label and just released a CD.

In the beginning, the label pays up-front all costs for creating the recordings, etc. Then those costs are billed to the artist. The artist is then responsible for paying off these bills using the royalties they receive from sales.

Usually, the artist receives about 6-10% of the total revenues received by the record label upon selling products. (So for example, 10% of one $15 CD would be $1.50). Now, these CDs are usually sold in record stores or maybe a Barnes & Noble. The store typically keeps about 40% of the sales made and sends the remaining amount back to the record company. After that, the record company takes the 10% of what they got and pays it to the artist as royalties. (Same idea applies to selling on itunes. Apple will probably keep the 40% of the 99-cent song.) So in reality:

CD costs: $15

Store keeps: $6 out of the 15.

Record company gets: $9

10% of $9 for the artist is: 90 cents...So in reality, the artist gets about 90 cents for every $15 CD sold.

What if a CD doesn't get sold? It gets shipped from the store BACK to the record company, which is able to regain the lost money right out of....that's right...the royalties the artist receives...sometimes a portion of royalties are with-held in case a chunk of CDs get sent back due to poor sales.

Now, let's go back to the cash advance I mentioned above and in my previous blog. The record company bills the artist all costs from making the album. (..To pay the producer, recording studio fees, sound engineers, album artwork/printing, manufacturing, shipping, equipment costs, marketing, etc. These are some of the other people who were involved in making the CD besides besides the artist and they also have to be paid... ) The artist uses their newly received royalties to pay off these expenses. Because of that, in some scenarios, the artist ends up never earning a penny of their own and/or end up being in debt! (example: an artist can earn $150,000 in royalties but has expenses billed to them of $200,000. Now they're $50,000 in the hole.)

Nowadays, with so many people pirating music off the internet and many record stores going out of business, it hurts artists very much.