TABLE OF CONTENTS
FROM CHAPTER 7...
Basic Concept: Royalties
My brother-in-law, Jules, is in the used car business. He's famous throughout the West Valley because he'll trade cars for anything. At one point, he traded a car for a silver tea set, a set of golf clubs, and a mule. (Honest.) He then traded the mule, along with a stained-glass window of Daffy Duck, for an English bulldog named Rosie.
About that time, my wife and I were looking for a dog. It was before we had children, and we wanted to test our parenting skills on something that wouldn't use drugs if we failed. In trying to decide what kind of dog we wanted, we used to take Rosie for outings on weekends, and in a perverted way we began to think of her gnarled face and drooling as cute. Anyway, Jules decided he was going to breed her, and we wanted a puppy. So I helped by finding a stud dog, through a sophisticated referral program - the Yellow Pages. I called a place named Royal Family Bulldogs, which conjured up images of pampered dogs reclining on velvet pillows in a castle. Well, it turned out to be a dilapidated house in Pacoima, the most impressive feature of which was its bulldog smells. But Royal Family had a huge brown stud named Winston, who was a champion. So Jules hired Winston, and Rosie got pregnant.
About this time, Jules decided he wasn't interested in the headaches of small puppies. So he enlisted the help of his friend Corky. Corky's deal was that she would take care of Rosie and the puppies, and when each dog was sold, she'd get half of the sales price. Thus, if a dog sold for two hundred dollars, Jules would get a hundred dollars and Corky would get a hundred dollars.
So what does this have to do with records? Well, your record royalty is very much like Jules's share of the bulldog proceeds. In the case of records, the artist (like Jules) turns his recordings (pregnant Rosie) over to the company (Corky), who then sells the finished product (puppies). For each record (puppy) sold, the artist gets a piece of the proceeds, and the company keeps the rest to cover its costs and make a profit.
Basic Royalty Computations
The division of proceeds between the artist and record company is a bit more complicated than the puppy deal. In
fact, up until a year or two ago, this process was more complex than NASA's formula for getting the Space Shuttle home. But
recently, in a surge of Why can't we all just get along?, most companies shifted to a much simpler system. You get off easy–I had to learn all the complicated crap. (At the end of this
chapter, I'm including a section on how it used to work. That's because (1) there are a lot of older deals written this
way, (2) there's a few cranky hold-outs, clinging to the old
system, (3) I spent hours writing that section and hate to see it go to
waste, and (4) I thought you might need it some night if you have trouble sleeping.)
To follow the next part we'll need to use a little math. Don't worry if numbers aren't your strong suit - I'll keep it simple and go slowly. I've explained these concepts to my cousin, David, who has to take off his shoes and socks to count to twenty, and he understood them.
Here's how it works:
1. The artist royalty is a percentage of the wholesale price. The companies also call this price the published price to dealers (PPD to its
friends), or sometimes Basic price to dealers (BPD).
Each royalty percentage is knows as a point, so if you have a 10%
royalty, you have 10 points.
2. You multiply your royalty percentage times the wholesale price to find out the number of pennies you'll get. Here's an example (using easy math numbers):
CD wholesale price $10
Royalty rate x10%
That part's simple enough, but here's a few wrinkles:
Royalties are paid for each record sold. Why do I emphasize the word sold? Well, the companies give away free goods, also known as special campaign free goods. This started when the companies wanted to push out large numbers of a particular artist's album. To get the stores to stock more if it, they gave away 5% or 10% of all records shipped. Originally, these were short-term deals (a few months), but they've evolved into a near-permanent arrangement.
These free goods are a very real discount of the price. Because these freebies actually cost the record company, they don't bear royalties.