Legal-Loan Sharking; How Majors Used to Rob Artists

In the Wake of New "360 Deals," A Reminder of Perhaps the Most Unfair Major Label Practice Should Prompt Further Independence

By Amir Said (Sa'id)

Music, easily one of the most important components of American culture, is everywhere: radio, t.v., the internet.  So you'd think that recording artists, the bedrock of music itself, are well-paid. Think again. Sure, some of the A-List recording artists score fat royalty checks, (in addition to huge concert/show paydays). But the overwhelming majority of recording artists (the the B,C, D-list, and even some A-list artists) never see a royalty check throughout their entire recording career.

The reason why most recording artists never see a royalty check is because the music business is (and has always been) a legalized form of loan-sharking. The comparison of a bank loan is the most popular analogy of how paydays to artists work in the music business. The idea is that a record label loans money to a recording artist for the purpose of creating new art. When this new art is marketed and sold, there is a split in profits between the label and the artists. The split is typically 88-93% for the label, and 7-12% percent for the artist. In other words, artists routinely sign a deal that gives them a base rate of 7 to 12 cents on the dollar. Throw in a 5 cent royalty for each song that an artist writes on the album, and a recording artist can earn up to 40 or 60 cents per album.

But slow down, it's important to remember that the masters of this newly created art belongs 100% to the label, (unless some proportional agreement is made to stipulate otherwise, which of course is extremely rare). Though the artist is entitled (supposedly) to a cut of the returns, there is no split in ownership between the labels and the artist! And as such, it is the label's right to withhold royalty payments, or rather apply them to the debt of the artist (all monies the label spent on the artist) until it is resolved. When an artist has repaid his entire budget they are said to be fully recouped. But typically, artists never fully recoup. And thus, it's very common that artists wind up owing their label indefinitely.

This is why the bank loan analogy that many people use is grossly inadequate. Indeed, a bank loan for consumers with the most despicable credit scores is more favoring than the loan terms that recording artists routinely agree to in a standard recording contract. For example, when a person with absolutely flawless or appalling credit receives a car loan, they gain 100% total use of a new/used car. For all intents and purposes, the car belongs to them. At anytime within the agreement, this person can refinance or actually sell the car. Moreover, at the end of the agreement—usually no longer than five years—the car belongs to them free and clear. In the old music business, recording artists almost NEVER own their work, even after the initial agreement that they entered in is long over. Even worse, the only actual right to use that artists retain of the music that they create is the right to perform it at concerts and such. They can not however resell it, without the permission of the label that they're signed to.

Editor's note. "In order to make better business decisions now and in the future, it's important to understand the history of the music industry's business practices in the past." — Amir Said (Sa'id)

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