CMU Trends Labels & Publishers

Trends: The cost of recorded music

By | Published on Friday 29 May 2015

Sound Desk

Ben Osborne reports on Scotland’s Wide Days conference, and a session exploring the costs of releasing an album in 2015.

Scotland’s Wide Days conference began as an occasional evening session a decade ago. The offspring of an irreverent club night, it’s intention then, as now, was to bring leading music industry figures to Edinburgh to impart their knowledge to Scotland-based musicians, labels, promoters, venues and anyone with an interest in music.

Topics discussed at this year’s convention included a session looking at the Brazilianisation of the music industry, where the dominance of the top 1% is squeezing the “musical middle class” out of existence, and a debate on whether Scotland needs an export office which also deconstructed the creative economy. But despite the weight of the topics under discussion, it was a refreshingly irreverent, entertaining and youthful event, geared as much towards helping aspiring artists as established pros.

The session that particularly caught our eye put the spotlight on the costs of creating recorded music in 2015, looking at what kind of investment is required to put out a debut album in 2015 from the perspective of a self-releasing artist, an independent label and a major.

The session began with Lorraine McCauley, whose band The Borderlands self-released their debut LP in 2012. The band were inspired to make the record after recording an initial EP and taking it to a distributor, who, “loved it and said why don’t you make an album?”

McCauley admitted that band members were living on a shoestring at the time, but were motivated to put out a full album and so pooled their resources.

As you’d expect from any self-releasing artist, the project required the band to provide a lot of time without payment, and to call in a number of favours along the way. But McCauley tried to account for both the time and in-kind investments, in addition to the actual hard cash that was spent.

“To break down what the commitment looks like, the pre-production stage starts with songwriting”, she began. “It’s hard to cost that out. I’ll think about a song for months before it comes out. But I budgeted for four days work per song and there’s ten songs on the album. So, if you’re on minimum wage that’s about £2000”.

One of the band members provided rehearsal space for pre-production, saving £5599, and another band member worked in a recording studio. “We were the lucky that one of the perks of his job was that he could record his own projects when the studio was closed. So that meant he was the producer of the album, as well as being on it”.

Though because they could only use the studio when it wasn’t being hired out to paying acts the band “recorded in the middle of night. Or we would get up at five in the morning and go in before work. We did that on and off for a year and we all aged a lot – but we got it done”. All in all, McCauley reckons that the total recording costs came to £12,449 of in-kind payments.

But there were, of course, other administrative tasks to be done. Having worked as a project manager, McCauley took on these management duties herself, which included coordinating the band for rehearsals and recording, organising the promotional campaign, and registering songs and recordings with collecting societies PRS and PPL. All of which came to about £5000 at minimum wage rates.

Beyond the in-kind investment, there were, of course, actual financial costs for things like mastering, CD pressing and a three month promotional campaign. “We didn’t have the cash to pay for this, so we set up a Pledge Music campaign which raised £2500”, McCauley explained. “Though we had to pay Pledge 15% of that, which meant we ended up short. So we put in some money ourselves, which we recouped from sales of the CD”.

The band also spent £1200 on making a video, a considerable expenditure that differed little (as we shall see) from the per-video costs that occur with the independent label model. Most of the things needed for the video were actually provided by the band for free but, McCauley explains: “The money was spent on props and the video makers. Everything else we borrowed or collaborated on. The clothes were our own and we got hair and make up from volunteers”.

Finishing off the maths, McCauley reckons that “if we were to put the total costs together it comes to about £26,000. That means each track cost about £2600. And based on album sales to date, if we’re counting our in-kind costs, we have so far lost about £16,000”.

Luckily McCauley’s second album has been given funding by Creative Scotland which should help next time around.

But given the personal investment on LP number one, it’s not surprising most artists would still prefer to release their music with a record label; a recent IFPI/Unsigned Guide survey found that 70% of unsigned UK artists still wanted a record deal.

Music industry veteran Alex Knight of Brighton’s FatCat was up next discussing his budget for a debut album campaign. “I start from how many albums I think we can sell”, he explained. “Taking into consideration who the artist is, what they’ve done already, and what I consider to be pessimistic sales projections”.

For the band in his case study, Knight calculated potential sales of 6000 units in total. Based on that he considered how many physical units the label should manufacture and what that would cost. Working out at £10,000, this was a considerable start. “Pressing CD and vinyl is not cheap”, he noted. “The reason being that you have to have value in your product. Coloured vinyl, or a gatefold, is not a pound a time. It’s £2-3 a unit. But it gives you value”.

The label also contributes pre-production costs, including the artist’s advance, which even for small indies can be considerable. Then there are recording costs, which in this case came to £10,000, not including additional artwork and mastering expenditure.
And with the finished product ready, there are still further costs that are required to start generating sales, including creating videos, photos and press materials. For this release FatCat funded three videos at £1500 each.

“You need to create videos for your acts”, Knight said. “Plus photos, and have teams for online PR, print PR, international PR in France, Germany etc. And we have to have a radio plugger, at £1500 per single, to get tracks taken to radio”.

FatCat is also hands-on when it comes to tour support, helping fund the costs of gigging because “bands need to tour to promote sales”. Other costs include distribution charges, mechanical royalties paid to the band’s publisher, producer fees and royalties, and providing incentives to retailers, something FatCat – which began life as a record store in Covent Garden – understands well.

“Retailers need incentives and quite often, if you want to put a significant amount of units into a store, they may ask for a format that is exclusive to them”. For example Rough Trade asked FatCat to create a unique clear vinyl Honeyblood twelve-inch, which was available exclusively in the retailer’s stores.

Back to the maths, Knight concluded: “My pessimistic sales projections come to £50,000 but my costs are £101,000, or £8687 per track”. And that doesn’t include the additional cost of £28,000 for the US office’s campaign. Which might pose the question, why would a record company invest in a new artist in this way.

But the label is banking of future opportunities, of course. “If you’re starting with a debut band you don’t know what the sales are, so you start low. And you may need to invest more heavily than on a second or third album. With a debut record you’re trying to get the act’s head above the parapet, so you get key press, key radio and get the band established on the live circuit. Hopefully on the initial album tour they get to a position where they can sustain themselves touring in the UK, Europe and the USA”.

So if the debut LP campaign is successful, some of the costs disappear when you move onto the second and third LPs. And of course there are other income streams that can pay a label’s initial investment back in one swoop. “One or two sync deals in the US or UK can radically change how much of a revenue stream is coming in. That won’t change the cost per track, but it will significantly change the money coming in”. Still, it remains a risky business, for artist and label.

Lester Dales, of Dales Evans Chartered Accountants, has gained a thorough knowledge of the workings of major record labels, having worked for both labels and artists signed to majors – although the majority of his clients are on the artist side. “Major label costs are grouped into four broad areas: A&R, marketing and advertising, in-house costs and variable costs”, he explains. For majors, A&R covers what we’ve listed as pre-production and recording costs above.

Like independent labels, before a major signs an album deal they’ll consider targets and the level of income they hope to generate, based on the artist, genre and other variables. The wider company’s market share, global reach and better access to cash flow might make the major more optimistic about the potential of a new artist than an indie working could be with the same act.

Lester’s case study focused on a fairly large signing, with an advance of £150,000. “A lot of people would be very happy to receive an advance of that size, but typically an artist signing to a major will have a manager, who they pay 20%, plus there are legal fees, accounting fees and, remember, the band will want to take a wage. I’ve based my figures on an eighteen month album cycle. So if there’s four members of the band they’re going to get £15,000 to £18,000 a year each”.

Major labels will usually provide tour support too, recognising the promotional value of gigs, and can usually afford to make a bigger contribution than indies. In his example, Dales put £85,000 in the budget – but cautioned that this money “doesn’t come free. The artist has to repay it through artist royalties, and these days labels will often expect a percentage of touring profits, merchandise sales and website profits too, to reduce their risk”.

Other label expenses during the launch album campaign include £45,000 for three videos. And as for the recording of the record itself, “I put in a healthy recording budget of £100,000 that will cover recording, demoing, mastering and producer’s fees”. In all, the total cost of the A&R stage comes to £390,000. All of which the label hopes to recoup from artist royalties linked to digital and physical album sales – apart from the video budget, which will often be recouped 50% through artist royalties and 50% through any income that the video itself generates.

Then there are marketing and advertising costs, which include photo shoots and any costs associated with media appearances, such as paying for crew, accommodation, equipment hire, make-up and so on. It can also include trips abroad, so costs per trip can be anywhere between £500 to £2500.

Other promotional costs include PR, radio plugging, social media and advertising. A lot of these services tend to be done in-house at the majors; some of the bigger labels do continue to use agencies for marketing and PR work, but they use their in-house teams more and more to make savings. Marketing costs can vary hugely – particularly depending on what kind of advertising is bought – but either way, they will usually be significant for a major label campaign.

The third strand of expenses relate to other in-house costs, such as the sync marketing team, who work in “an area of income that everyone hopes they can benefit from. With a major label, because of the international set-up, a UK act can benefit from sync teams in New York and LA who are in front of the people using music in TV and film”.

Some majors have their own in-house distribution divisions, which can bring costs down considerably, though these savings “don’t always wash down to the share of income the artist derives from the record”, Lester noted. But nevertheless, when it comes to overall costs, getting recordings to market is often “considerably cheaper for a major than an independent which, in certain territories, will often have to work with a distributor owned by a major”.

CD manufacturing, as a percentage of the retail price, is usually cheaper for a major than either self-releasing artist or independent labels because of economies of scale and buying power. “I see costs of 70p to £1 [per unit]. Major labels will always try to keep the cost of production down and minimise the number of inserts and cost of packaging, to further control expenditure”.

Nevertheless, assuming an initial run of 30,000 CDs, the cost to the major of prepping, releasing and marketing a debut LP is a massive £530,380. “It’s in a different league to the other two”, Dales observed, comparing his figures to those of McCauley and Knight. “But you’re looking at a worldwide release, with a back-room commitment from a large organisation with staff working on hundreds of releases. In a way they’re feeding a machine and their expectations are high because they’re investing more money”.

As noted with the independent release, the costs are often higher on a debut LP because the marketing challenge is greater and all important touring activity won’t yet be self-sufficient. But Dales noted a flipside. If a debut record does exceedingly well, the artist expects to go into bigger and better studios and spend more time on a record. And they expect to go into more territories. So a major label’s costs can also go up on a second release. “If you chose to concentrate on getting into the US, it can suck an awful lot of the money out very quickly”.

“By the second album the label are going to be looking to spend less on tour support,” says Dales. “But they may be happy to commit more to marketing. If the project does take off, the benefit of being on a major label is they immediately have the money to grow an artist’s career. The other side is that if the first LP does not meet expectations, you may never get to make the second record. I’ve been in situations where an artist has renegotiated their advance down to stay with a label. But generally speaking, the harsh fact is you may well get dropped”.

It’s no secret that the biggest challenge for everyone releasing recorded music today is dealing with the shift from physical and digital, and more so from downloads to streams. While for a time it looked like the download market would be singles rather than albums driven, in the end digital album sales became big business, which meant labels that had always assessed their risks on debut albums based on the projected cost and sales of second and third LPs, could still plan according to the same set of assumptions as in the CD age.

But as we shift to streaming, the returns from an album will change because – even if you are optimistic and assume ad-funded and subscription based streaming services will eventually deliver revenues on par with CDs and downloads – those revenues will inevitably come in over a much longer period of time, rather than predominantly in the months that immediately follow release. And while the streaming market is still maturing, it’s harder for labels to predict what income they can expect and when.

But with streaming starting to outperform downloads in some markets, and likely to become a key and then the key recorded music revenue stream, artists and labels will need to adapt their projections. Though, for the foreseeable future, it seems likely the costs of releasing a debut album will remain significant and inline with current budgets.