Reprinted from "Musician Magazine", Jaunary 1992 THE NEW DEAL The Rules Young Bands Need to Know by Matt Resnicoff Alan and Dann just wanted to start a band, and for all the right reasons: After years spent in Los Angeles playing other people's music, they felt twingest of self-neglect. Studio time isn't cheap, but they had connections and they had songs. They started a group they called Giant and soon they had demos on every music executive's desk in the city. Well they hadn't been just playing around L.A. Until a little over a year ago, Alan Pasqua and Dann Huff were highly regarded session men with the reasonably secure, low risk schedules most musicians only dream of - and with too much going for them musically to be content as studio hacks. But they were still a new band and needed a push like any other. A&M Records appeared to know a good thing. The rest of Giant's tale sounds aphoristic: Money from the record company started pouring into everything necessary to promote the group's debut album "Last of the Runaways". They toured with Heart, did MTV videos for three singles and got one into the Top 10, made a sound showing in album- oriented rock radio. Giant couldn't have asked for much more wind beneath their wings, especially on their virgin flight. There was only one thing weighing them down - they didn't sell records. It's easy for them to talk about it now, because their studio education is their saving grace (like mom always said, "Go join your rock band, just so long as you have something to fall back on"). Huff had actually moved from Nashville years ago, hoping to break into L.A.'s exclusive studio cadre, and he's since moved back; Alan now resides in quiet Santa Fe. Giant is currently seeking a new label association. Giant was designed and delivered as a Top 40 band. A&M could afford the concomitant startup charges, equipment, videos, travel; even if the band took in a grand a night, its road expenses amounted to 10 times that every week. Without a major label behind them, Giant could not have even made a shot. As it worked out, Giant was never paid any money by A&M after the intial advance; they ended up owing money to the record company for all A&M's efforts on their behalf. What happens to a new band's money if they're fortunate enough to get a record contract? There are best, worst, and mediocre-case scenarios. The fate of the Knack is a perfect example of the changing climate in a very imperfect industry: The band estimates its hit 1979 debut "Get the Knack" sold 3 million copies. The biggest difference between 1979 and now is video, one of the only recoupable promotion expenses. As Knack guitarist Berton Averre explains, "Videos represent part of what you owe the company - just like the album budget. Whey you see a band on MTV with three videos from the album, at, say 75,000 bucks a pop, that's an extra $225,000 they have to make back before they're in the black. So when we made our album for $17,500 in 1979 - and even in those times that was ridiculously small money - we were in the black that much quicker because there was that much less to pay back. Young bands today should understand that every dime spent - the album budget, paying for the producer, paying for videos - isn't being given them. That is their money that's being spent, and until that money is paid back to the record company, they don't see dime one off sales." Though the Knack's members had individually earned several hundered thousand dollars by the end of 1980, Averre often tags statements about earnings with "as band members", which points up an important distinction about where money from the music really comes from and how it's split up. If Ozzy Osbourne makes a record, he's the artist. Let's say Ozzy records the Mac Davis Songbook - Mac's the writer. Ozzy gets record royalties; Mac gets mechanical royalties, or publishing money. Here's what's important: Mechanical royalties are not against sales. You get mechanicals if you sell one record. There's a logic to it. It's not Mac Davis; problem whether Osbourne spent $10,000 or a million dollars to make that record; it's certainly not fair for Mac's money to be recoupable against Ozzy's budget. That's why mechanicals are paid to the author/publisher from the jump. "Songwriters in bands usually make money long before the rest of the musicians", says Averr. "Let's say you spent $100,000 on your album, on videos and other promotion. The band owes the company $200,000 out of their first profits; that comes out of record sales, not out of publishing royalties. Say there's two writers in a band of four: The bandmembers will be splitting record royalties equally, but the writers make the money off the publishing. So while the band - the four of them - are paying back throughout the first year their album is out, and haven't seen any profits because that money is all going back to pay off the $200,000 - the writers are getting their royalty checks." Jazz componser/keyboardist Wayne Horvitz, whos band the President sells fewer records than the Knack did, will gets mechanicals off 1989's "Bring Yr Camera". Wayne laughs that he'll proobably never see royalties off the disc because it won't sell enough copies to cover expenses incurred during production: a budget of $40,000, which included the musician's and engineer's pay and Horvitz' personal advance. Those divisions were all determined in negotiations, so that if only half the budget went into the recording, Horvitz couldn't pocket the remaining $20,000. "The advance is very modest by pop standards," he notes. "It's also very good compared to what people I know get if they go to a small European label". Horvitz, who records for Elektra's prestige division Nonesuch, is adamant that he really likes his deal. Though the label passed on his more improvisational projects, they did sign, had him produce and made an admirable effort to promote a pop-oriented record by his wife Robin Holcomb. He'll get a producer's fee as part of that budget, which is comparable to those for his own albums. Her artist advance comes in around the same place as his does for the President: a couple thousand bucks. If a record comprises all his tunes, he gets a couple of cents per sold record. Wayne makes most of his money producing and performing with other artists, plus commissions, an occasional solo show or duo with Bill Frisell in Europe - in other words, if his career centered on his identity as a major label recording artist, he'd still need a day job to pay his phone bill. "Let's say Bring Yr Camera sold 8000. My royalties are 50 cents a record, against all my expenses. When 8000 records are sold, I start seeing royalties, because $40,000 has to be taken out first. But imagine how many records have to sell before they start making money: much less than 8000! They don't get 50 cents a record, they get six bucks, or whatever they sell it for wholesale. That's the whole scam of royalties. Long, long before you see any royalties, they start making back money. I'm not saying they get rich; they may in fact lose money. If they can sell 10,000 records and have pulled in $60 or $70,000, that doesn't mean they made money at that point, because they have other expenses that aren't recoupable, like manufacturing, their staff, phone bills. But my point is, they're not out there losing their shirt if I only sell 5000 copies. They're hardly happy, but they don't need to sell anywhere near the amount I do to start making my royalties." Luckily, Wayne's songwriting royalties - his "mechanicals" - come in twice a year from his sub-publisher in Europpe, where jazz airplay is heavy and judiciously tallied by companies which take a cut for their trouble. Publishing deals bank on the short-term needs of poor young musicians. Say a new band's album is about to come out, and there's, as we say in the trade, a lot of "pump in the business". The band might be approached with a proposal: "Here's $200,000 and we end up with half of your publisher's share" - which is 25% of the whole pie, because a song is split between the writer's share and the publisher's share. "They're gambling," Averre says. "Their $200,000 advance is just like a record advance. That's not a bonus; he first $200,000 of publishing money you make pays that back. They're saying, 'Look, you haven't made a successful record before so you don't have money, and its's going to be mine to 16 months before you see any profits off this album. So here. Buy that sports car, pay off your credit cards, live like a rock star. What we're counting on is your're going to be a huge star and sell seven million albums and we're going to make a lot of money off that $200,000 investment." The choice this poor young musician therefore has to make is between living comfortably now and accepting the possibility of trading away greater riches in the future. "There's two schools of thought," Averre says. "One is that if you believe you have a hit, you're giving up a lot of money for what seems like a good amount of money now. That does not happen to be my thinking. I feel if $200,000 given me today is a bargain compared to how much they're making two years from now....If I sold myself cheap for giving them 25 percent of my whole publishing pie for $200,000, that means I'm making a shitload of money down the line! So if you're offered a comfortable, good advance, it seems worthwhile to take it." Again, the Knack didn't have to wait for that because of their uncharacteristally rapid sales. "We lived on a modest salary until we knew money was going to be rolling in, because we didn't have house payments or drug habits, so we waited and kept 100 percent of our publishing. Most people aren't going to be in that position, especially nowadays. Now you have records that literally stiffed, then a single comes off a movie and makes it a hit and before you know it the album's top ten. So record companies don't give up on albums that quickly anymore. The notable popular successes now are those who've slugged it out. Guns N' Roses - that album was out for a year and a half and all of a sudden their ship came in. When that happens the other companies go, 'Oh, I guess we shouldn't have given up on so-and-so after three months!' Hanging tough and getting by is the rule." Like young pro baseball players on a roll, new bands tasting success will only grit their teeth for so long as the muckity-mucks call the shots. If a debut pushes the company toward the black side of the ledger, the bargaining power shifts during renegotiations. "When the Knack were signed", Averre recalls, "several companies wanted us and we were able to make a very good first-band contract, like $125,000 for the first album and $200,000 for the second. See, these things are contingent. Nowadays, a modest contract is about $200,000 with 50,000 for the producer and another 25 for the engineer-studio costs have gone way up. They will tie it to success. They will say in the contract, 'You're guaranteed $200,000 for the first album budget and $225,000 for the second; if the first goes gold, that 225 becomes 250'. But it's always budget. There are people in such a position of advantage that they're given multimillion-dollar contracts, and I have to assume that's bonuses; in most cases there are no signing bonuses. I mean the last album we made, this year, there was a very modest bonus for the band: living expenses. There's two possibilities: a fund and a budget. A budget is, they keep the money in their bank, you send in your studio bills and they pay them as they come in out of their $200,000. The desirable one is the fund, where they go, 'Here's $200,000. Put it in your bank, and if you're lucky enough to make the album for $150,000, the band gets to split the last 50.' "This time", he laughs, "the Knack got a budget." Okay, okay, here's the obligatory music-biz horror story, what Mary's Danish singer Julie Ritter classifies as "a textbook case of what should never happen." As she tells it, she's getting ready to leave for a tour. She's got no phone, no house, and she's rubbing her neck because she's been sleeping on her sister's floor. The Danish recorded for the Chameleon label before being picked up by the burgeoning new record division of Morgan Creek Pictures. "We liked their philosophy", she says. "They're very artist-oriented-every label will tell you that, but you can tell who's sincere. They were fed up with big labels, and they were smaller and released one record a month, and they got behind it in the hardest time, during that first month." Mary's Danish had signed with Chameleon for a one-off; they release "There Goes the Wondertruck" and were then free to look elsewhere. Then the lead singer who sang their one hit threatened to quit. Then the band received erroneous figures from Chameleon that they were moving 100,000 peices a week and used the information to embarass themselves during negotiations with new labels. Chameleon offered to resign the band with or without their lead singer - good will to reverse bad figures. But because of Chameleon's size, Mary's Danish found themselves playing in clubs adjacent to record shops that didn't carry their album. On a time-limit basis, they opted to wait for the company to hook up an associate-major-label deal that could provide the necessary boost in distribution, and in the meantime began preproduction for their next record. While waiting, they released a live album on Chameleon, who giltered dribs and drabs of cash into the band's pockets for living and recording expenses. They waited some more. Then everyone at Chameleon was fired and the label made plans to regroup in new York. Nobody in Mary's Danish paid rent for six months; litigation started, and Morgan Creek bought the record for $200,000. Not one member of the band saw dime one of that heap. These guys are what the industry refers to as a successful alternative group. "From the top down", says Ritter, "you don't make money on sales unless you sell a lot. People are spending ten times more on one video than we do on an album; it's a sick display. A friend of mine got a large budget for their band, so they went to England to record, put strings on the album - and they're a college band. So college radio didn't want them because they were too AOR, and AOR rejected them because tey still had their alternative sound underneath. Now they're in debt." When it comes to money, Horvitz observes, "People are weird. They say, 'You sold this, why doesn't the record company give you twice as much money?' Well, I don't enjoy waste; if its necessary, I'm happy to spend the money, but if it means that people are going to lay around more and eat up studio time, I'd rather be at home. People get into, 'Great we'll take a month.' Like I was saying to Peter Holsapple, who worked on Robin's record: Records take either five days or two months, and not much in between. For example, if you give it two-and-a-half weeks, you start trying to do the things you could do if you had two months, and the clock runs out. You're better off not getting obsessed about the time feel being back for one bar and just letting the music breath! Otherwise, you eat up so much time and the record ends up sterilized. "$40,000 is a very nice budget for this music," Horvitz continues. "I've made quite a few records for $800. One of the only ways you're going to make royalties is by getting the best product for the lowest budget. But I don't make any money off the President. Even with my advances, they're so few and far between that they can't count as a significant part of my income. Hell, I've had two advances in three years and they're only a few thousand dollars." Like friend, labelmate and downtown jazz start Bill Frisell, Horvitz moved from New York to Seattle, where living is cheaper and more emotionally stable. "I can get by", Wayne says. The Danish isn't that sweet. "I've never made any money doing this," says Julie Ritter. "The big alternative station out here in Los Angeles, KROQ, was playing our song, and we'd be at clubs where kids would come up and say, 'You guys must have big houses' We were all living in a little apartment on Riverside Drive. We do own our own merchandinsing. The Red Hot Chilli Peppers made money for a million years that way before their gold record and MTV." Until that happens for alternative rock sensation Mary's Danish, all proceeds from the road will go into plane fares, hotel bills and reimbursing Julie Ritter's parents for wear- and-tear on the ice-box door. "I don't feel we're suffering, though," she says. "It's an investment. You pay dues. In the first years we paid them in clubs, and now we pay them by putting all our money into hotel rooms. We're building up capital for our overhead. "It's very difficult to live this way, but it's what I really want to do. Not to play martyr, but the perils are worth it, compared to getting a job in a bank." Nice alternative. "Especially alternative music - we're not thinking of buying houses. We just want to get a gig". ---------- ....A FEW THINGS TO WATCH FOR Contracts and advances for new artists have been getting better over the years. But let's face it - the major labels know the average young musician wil slither across broken glass for a recording deal, so they negotiate hard. That said, you don't have to agree to everything a label wants. Here are a few things to think - and argue - about. PUBLISHING: Most record companies will want to be your music publisher as well. you don't have to let them. Right now first time artists are getting richer publshing deals than every before and those advances are very important if you're just getting started. If you do sign with your label's publishing arm, make sure the deal is competitive and that they advance cannot be cross-collatoralized against your record royalties (otherwise you don't get any record royalties until your publishing advance is repaid. Not good). MERCHANDISING: You're thinking, "Hey-I wanna make a record. Who cares abot T-Shirts?" That's just what they want you thinking. But chew on this: Two years ago, the biggest money-maker for MCA Records was New Kids on the Block, who are signed to Sony's Columbia. The reason? MCA owns Winterland, the merchandising company that licensed and sold New Kids paraphernalia. The labels will try and tell you that they should have a piece of this since they're going to help break you, develop your image and design the logos and artwork that will be sold on your merchandise. Tell tehm you'll think about it after they show you what a great job they can do with your record. (You can tell them anything you want once you have a platinum record). ATTORNEYS: Hmmm...how to put this? There are many good entertainment lawyers. And may of the best contract attorneys tend to do a lot of work for the record comapnies as well as artists. This has sometimes raised the charge that entertainment attorneys don't negotiate hard enough when they are representing an artist - especially an unproven one - in contract talks with labels (LA attorney Don Engel has been a particularly vocal critic of lax standards within his profession). The lawyer who just got the biggest deal for a supergroup may not be the one you should hire. Be careful. THINK GLOBAL: The U.S. share of the world record market is shrinking and other countries besides the U.K. are becoming more important. Typically, new artists are expected to take a half-royalty outside of the U.S. (ie. if you're getting a 12 percent royalty, you'll get six percent for all records sold outside this country). Labels are willing to give estalished artists a bigger chunk of foreign sales, so at least try for it. PRODUCTION DEALS: You should be leery of production deals - that is, arrangements where you are signed to a producer, manager or attorney's production company and it is the production company that has the deal with the record company. It is an unfortunate fact of life that it's almost impossible get anyone to listen to you at a record company without an introduction and that the price of making those connections is sometimes one of these deals. They will sometimes cause you a lot of grief and always cost you a chunk of your income. Obviously if a top producer or manager wants to sign you to a production deal, you'll have to consider it. But you might also try telling anyone and everyone that you've been offered a deal: The herd mentality rules in this business and hearing that someone else wants you could get you a less encumbered arrangement. Generally they stink. AND FINALLY.... Don't forget that everything is negotiable. If a record company wants you bad enough, they will connsider all kinds of proposals. If you have good management and legal representation, they should help you examine and question all aspects of your contract. As the saying goes; If you don't ask, you don't get. -------------- More articles and information on the Music Industry can be found on MUSO-BBS on (818) 884-6799. Tonnes of Discussion areas, a Talent Registry for you to register your abilities, files, etc. You never know what contacts you may make. Give us a call today.