July 10, 2020

Most Artists Sign Bad Record Deals – Here’s why

Most artists sign bad record deals

It is a dream for many an artist to carve out a successful music career. But the music industry is one of the toughest industries to break into.

If want to be a lawyer, a doctor, or accountant, the path is pretty much clear and straightforward. But the music industry is a totally different animal and the path is usually unclear.

There is an abundance of musical talent but only a handful of resources and established record labels to handle all that demand.

Take Idols, for example, every year hundreds of thousands of aspiring musicians turn out to compete for the ultimate grand prize. But not many record labels are lining up to sign up all that talent.

But most record deals are “bad” and most artists (especially new artists) may not even be aware of this.

Don’t get wrong though, the word bad in this context means unappealing. Record deals are not created equal and so I won’t be speaking for everyone.

Stick with me now, I’ll show you why most artists sign “bad” record deals.

Too many middlemen

I understand that as an artist, you might be too concerned about your craft and creating the best music possible.

But it helps to pay attention to business matters too; this is your career after all.

I believe I have touched on this topic in the previous posts but not in detail, so this is the perfect opportunity for me to do so.

When you sign a contract, there’s usually a catch. Nobody is going to hand you a record deal if there’s no incentive for them.

Say an Independent label signs an artist; in most cases (especially in this day and age) the label is “Independent” on paper.

For example, DJ Black Coffee owns Soulistic Music which is supposedly an Independent record label. But Black Coffee’s self-titled debut album (2005) was released via Kalawa Jazmee Records. By then, Kalawa Jazmee had a solid label deal with Universal Music long before Black Coffee came into the picture.

The screenshot is taken from Discogs

As you can see from the above screenshot, that’s four different labels, namely Soulistic Music, DCC Records, Kalawa Jazmee Records, and Universal Music – all handling one album and artist. 

Commercially, the deal is good for the artist because of the massive exposure (Black is a household name now), but bad financially (I’ll explain this shortly)

But it gets interesting. Let’s say Black Coffee signs you to Soulistic Music which means your album will also go through the same channel before it gets released (Soulistic MusicDCC RecordsKalawa Jazmee and Universal Music).

And all these labels have to get a piece of the profits from your album sales before you can get paid!

That’s not even lucrative for the labels (Indies) but as an artist, you are worse off.

By the time Black Coffee got to album number three (Home Brewed), he had a direct deal with Universal Music and album number four (Africa Rising) was distributed by Soul Candi’s Subsidiary MESH SA.

Black Coffee Home Brewed Album
Black Coffee Africa Rising Album

I do not have the terms and details of the agreement but I’m pretty sure that by then Black Coffee and Soulistic Music were getting higher royalty percentages on the mentioned albums.

Too many small labels (the Indies) simply act as middlemen and leverage the infrastructure of the major record companies.

But to be fair to these labels, it’s expensive to produce records, market and distribute on your own.

And in most cases, small labels do not have the resources to do so.

It’s a numbers game

Let’s look at another hypothetical case but from a financial standpoint.

If a CD is sold to the retailer at a wholesale price of 50 ZAR including VAT, and the retailer decides to sell your album for R100, it looks attractive, right?

But the problem here is that royalty payments will be calculated based on the wholesale price, which is 50 ZAR and not the retail price.

The 50 bucks has to be split across all labels but you still have to be paid too. Say your royalty percentage is 6% that means you will receive R3.30 per album sold. For 25000 units sold, your royalty cheque equates to R82500.

But not so fast, it’s not that simple. That’s the gross amount.

Remember I said everyone has to get paid first? On paper, it seems like you will get R82500 but there are plenty of expenses that need to be deducted first.

Do it your way

If you were to do everything independently, you would need a reliable music distributor and pay them a percentage of not more than 25%. Your remaining share would be 75-80% which you can re-invest in your artists, marketing et cetera.

This is how your numbers would look like:

50 ZAR – 25% (distributor fee) = 37.50 ZAR

37.5 ZAR is your gross profit. If you were to sell 25000 units independently that would amount to 937 500 ZAR (R37.5 x 25000 units = R937 500)

When you have a direct pressing and distribution deal, the margin is usually higher. Of course, expenses will be deducted but you have more room to play around with your profit.

But everything comes at an opportunity cost.

Progress is often slower as an independent and funding your own music career will cost you a small fortune.

Final Thoughts

Some might argue and say but artists make their money and living from gigs anyway and not royalties.

And I don’t dispute any of that.

But the point of this article was to show you that record deals might seem attractive when you’re looking from the outside until you’re inside.  

The grass is not always greener on the other side, so don’t expect to get into the music with hopes of striking it rich immediately.

Editor’s Note: This article was written for educational purposes and not to discredit any label or artist. If you are serious about your music career, I would advise that you also consult with expert professionals on legal and financial matters.