Adam Lambert’s Star Power from an industry perspective 35 iTunes Royalties for Artists and Labels, Arbitron April 27, 2009 at 12:28 pm

 

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My colleagues and I don’t think Finalists receive any upfront percentage of iTunes sales revenue (see below)…

I’ve discussed some of the issues of royalties and agreements in previous posts (which can be found on my blog as well); generally Artists don’t receive revenue (except their initial advances) until the record label recoups their entire investment (and that’s what Dina is talking about when she mentions cross-collateralization below).  As mentioned, this is a complex industry area but since we’re in the Industry thread here is some insight into how the process works.

With thanks to and permission from Dina LaPolt, an entertainment attorney at LaPolt Law, P.C. in Los Angeles, here is a breakdown on iTunes revenue and royalty data from her article “Taking a Glance at Other Income Streams in the Music Industry,” reprinted with permission:

Pursuant to the iTunes agreement with the record labels, the iTunes share of income is $0.29 cents out of each $0.99 download.

The following sets forth the way in which many of the record labels in the U.S. pay third parties with respect to each $0.99 download  assuming that the recording agreement allocated the artist an “all in” royalty rate of 15% (i.e., which includes a producer royalty of  3%, leaving a “net artist” rate of 12%):

Artist iTunes Royalty (with wholesale markup)
$0.99 download single song price to the consumer
less         $0.29 to Apple
left          $0.70 x 130% (wholesale markup)
x 12% (net artist net rate) = $0.1092 cents per download Producer iTunes Royalty (with wholesale markup)
$0.99 download single song price to the consumer
less         $0.29 to Apple
left          $0.70 x 130% (wholesale markup)
x 3% (producer rate) = $0.027 cents per download.

Artist iTunes Royalty (without wholesale markup)
$0.99 download single song price to the consumer
less         $0.29 to Apple
left          $0.70 x 12% (net artist net rate) = $0.084 cents per download Producer iTunes Royalty (without wholesale markup)
$0.99 download single song price to the consumer
less         $0.29 to Apple
left          $0.70 x 3% (producer rate) = $0.021 cents per download.

Although not widely practiced, there are some labels that take this further by first deducting the mechanical royalty from the $0.70 cents prior to calculating the iTunes royalty which is then paid to the artist and the producer which results in a lower royalty rate as follows:

Artist iTunes Royalty (with wholesale markup)
$0.99 download single song price to the consumer
less         $0.29 to Apple
left          $0.70 less a digital mechanical royalty of $0.091 cents
left          $0.609 x 130% ( wholesale markup)
x 12% (net artist net rate) = $0.095

Artist iTunes Royalty (without wholesale markup)
$0.99 download single song price to the consumer
less         $0.29 to Apple
left          $0.70 less a digital mechanical royalty of $0.091 cents
left          $0.609 x 12% (net artist net rate) = $0.073

With respect to mechanical royalties paid for digital distributions of musical compositions, although this may change in the future, record companies in the U.S. have been using a notice of compulsory license when notifying music publishers of their intention to offer digital downloads of musical compositions. This  ‘notice’ usually lists the record company, the recording artist, the name of the musical composition, the identity of the songwriters and music publishers, and the expected distribution date of the ‘digital phonograph delivery’ of the song. These compulsory licenses are typically referred to as “DPD Licenses” and they are paid at the maximum statutory rate which is currently .091 cents for songs under 5 minutes or 1.65 cents per minute if the song is over 5 minutes. For recordings produced pursuant to contracts entered after 1995, the law prohibits a controlled composition provision of the artists’ contract from discounting the compulsory DPD rate, so even if there is a controlled composition clause in the contract, the singer-songwriter should receive the entire .091 cents.”

Dina also mentioned, “Note that it is a little different for the American Idols kids in that they will make nothing until all income streams (i.e., recordings, merchandise, touring, sponsorships, etc) are recouped because everything is cross-collateralized. Of course when Adam wins, his agreements will all be re-negotiated and this is one of the key points that we (if our firm represented him) would insist on (ie., no cross collateralization).” Thanks again Dina.

This concludes the Entertainment Industry Masterclass for the day :).

With respect to duets, as Leona is another Simon Cowell Artist there’s definitely synergy but as mentioned there are a lot of considerations re timing, material, vocal blending as mentioned and other issues. With respect to covers, from a royalty perspective it doesn’t make a lot of difference; as you’ve seen above the digital mechanical royalty ($0.091) applies to new songs or covered songs, the label basically receives the same amount, and so does the Artist. It’s more a creative than a business decision (although there are considerations about publishing, that’s a discussion for another post).

Best, Michael

This is a follow-up post  from April 27, 2009 at 10:58pm:

Hi everybody! Have you wondered how Adam would have sounded singing “Kiss From a Rose”? Thanks to Chris and Shane from Upright Cabaret, you can! Search the video site for “Adam Lambert : Kiss From a Rose at Upright Cabaret”. Seal is one of my favorite Artists, and Adam’s performance should make him proud.

For tomorrow’s voting, I finally found a great post, The Soul Patrol, How To Win Manual-Applied to Adam. Check it out, it’s concise, organized and excellent.

With respect to covers and “being current,” it all depends on the cover and where the song fits in radio stations’ playlists (the Arbitron list of radio formats is in a previous post). A lot of people think the “Tracks of My Tears” recording could easily be re-released, “Mad World” has AC (Adult Contemporary) potential, etc. Artists have charted with covers many, many times… a friend had great success with “Let It Be” on the soundtrack of the movie “Across The Universe,” and that song is from 1969!

As we’ve discussed, it’s really about the business… if enough fans want to hear a song, radio stations will play it. As far as AI’s image, while it’s seen more as Pop/Top 40 than AC, there’s no reason songs can’t cross over (including Country) with the right arrangement, producer, and promotion, and they have. What you may be referring to is that if right after the season a cover of a song from the show is released, it may come across as “we just heard this.” But of course not all songs on a CD will be released as singles. So I don’t think it’s a problem, particularly for Adam… if his CD has a few covers people who remember his AI performances but didn’t/don’t know how to use iTunes they will be happy to hear them again (perhaps another reason the iTunes tracks come down after the finale).

Best, Michael

One Response to “Adam Lambert’s Star Power from an industry perspective 35 iTunes Royalties for Artists and Labels, Arbitron”

  1. [...] my blog post 35, with thanks to Dina LaPolt, an entertainment attorney at LaPolt Law, P.C. in Los Angeles we broke [...]

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