Ask Ms. Uduak: Revenue Streams in Artist-Record Label Agreements
Posted on August 1st, 2010 by Ms Uduak
The most common question I get from Notjustok.com readers is about revenue sources that stem from record label agreements. It is an absolutely exciting time to be in music, especially as a Naija artist, given the digital revolution. I also believe the Naija music industry has an opportunity to carve out a model that can be more equitable to both the artist and label versus the models we have in the West. Having said that, let’s jump right into it!
How Does the Music Industry Make Money?
To discuss revenue streams from record label agreements, artists we must have a fundamental understanding of how the music industry makes its monies. Music industries make money primarily through: 1) sound recordings (track record you hear on Itunes or actual physical album) and 2) music compositions (written songs artist performs). The two methods above have many layers that generate numerous streams of revenue for both the artists and label.
Sound Recordings Streams of Income
- Advance: Assume NEJEI is a record label. Assume Sinzu is signed with NEJEI. Sinzu wants to produce the African-American album. Under the NEJEI record label contract, NEJEI would give Sinzu an advance (from thousands to millions of Naira/Dollars/Pounds etc.) that covers the costs of Sinzu’s recordings so he can produce his album. That money is not free. Sinzu will have to repay NEJEI from the sales of his album. I address this below. So, advances are a source of income for Sinzu and NEJEI.
- Record Royalty: In addition to the advance, Sinzu “can” make money through a percentage of his album sales. This is referred to as royalties. I say “can” because Naija is still slow on royalties. The percentage depends on Sinzu’s bargaining power. For example, Sinzu has never released an album, yet his name is known nationwide in Naija; and to some extent, albeit in smaller circles, in the USA & England. He has a solid following and that translates to a higher bargaining power. So he could bargain on the higher end of the typical 12-18% in the Naija market. If he is ultimately sitting on top of Naija’s music world, it can be up to 20%.
- Advance Recouped: NEJEI, as a label, must recoup its advance and other expenses given to Sinzu to produce his album, it’s business. For artists in general, this is where it’s tough and money management goes a long way. Once your 12-18% royalty comes in, you have to pay NEJEI back. By the time NEJEI subtracts all advance fees such as money for personal care (rent, transportation, food etc.), marketing and promotions, video production, tour support, recording costs etc. it adds up and for majority of artists, even on big labels, it is more of a wash or at times, they still owe the label money. Borrow wisely.
- Copyright: A quick note here on copyright specific to sound recordings. NEJEI will want the copyright to Sinzu’s sound recordings. For example, Sinzu signs with NEJEI. NEJEI guarantees it will put out Sinzu’s first record with an option to renew the contract up to 5-8 options. This means, if NEJEI chooses, it can have Sinzu put out 5-8 album under this agreement. NEJEI owns the copyright to all albums because Sinzu contracts its away.
Music Compositions
Now let’s look at music compositions (the written song an artist performs). Typically, in most western music markets, someone else writes the song(s). If Sinzu wrote all 20 of the songs on his album, I believe he did, he would earn money for the written songs in addition to the monetary scheme above. As you can see, if an artist writes and performs his/her work, he/she earns more than an artist who just performs.
Historically, record labels were not aggressive with wanting a share of the publishing rights (the written songs) and touring. Now, labels want it all because record sales are down. Here is the breakdown:
Music Composition Streams of Income?
- Mechanical license: When NEJEI coverts Sinzu’s music onto an actual CD or audio and sells it, it must pay him. In the USA it is called a “compulsory license” clause. The law requires a payment of 9.1 cents per track. So, Sinzu would make 9.1 cents for each of his 20tracks on his album. Sinzu, whether in the USA or Naija, owns the songs while NEJEI would own the sound recordings. Sinzu is giving NEJEI permission (license) to sell his songs. If NEJEI also negotiated with online distributors like Itunes and Amazon etc., to distribute Sinzu’s music, NEJEI will also have to pay 9.1cents per digital download i.e per track. In Naija, this is intriguing because artists are figuring and setting their relationships directly with Itunes etc. In the USA, labels now negotiate this part under a clause called a “Controlled Composition Clause.” It means they would pay Sinzu (writer and performer) and artist on their label, 25% less the full 9.1cents; than what they would pay if he was unsigned.
- Performance royalties: In the USA, if Sinzu’s music is played on a radio station like Beat FM or Nigezie (tv), he would not be paid for the sound recordings but he would be paid for the compositions. Many countries in Europe pay for both. A recent US law now allows record labels to make money off digital play of sound recordings i.e. satellite radio etc.
- Ringtones: This is a new concept both in the USA and Naija markets. Gongo Aso by 9ice, for example, was a big hit back in the day. In the USA, for the Gongo Aso master tones i.e. a snippet of the full track, 9ice would have to be paid 24 cents for his track. In Naija, artists with hit songs negotiate with companies like MTN on such rates. In the USA, labels demand 40% of profits from ringtones. They spilt that with the artist giving them either 25% on the low or 50% on the high. Watch out for labels that even want your voice tones. For example, if your fans want to purchase your voice saying “What it do?” Many labels in the US now want a percentage of this.
- Synchronization Royalties: Assume Emem Isong, top Nollywood producer comes to Sinzu and says, “Hey Sinzu, I’d like to have your track ‘Under G’ synchronized (background music) in my film, ‘Bursting Out.’” If Sinzu agrees, he is entitled to a payment from that synchronization. So, Sinzu makes money from the song (the written part) on the film, the sound recording, record sales etc.
- Merchandising: This is a big area for Naija artists to make money just like they do shows. It still remains largely untapped. Generally speaking, artists in the USA license their name to a merchandise company who then produce their merchandise items (t-shirt, posters etc.). The artist makes money whenever that merchandize sells. NEJEI would want about 25-30% of that cut. Artists typically will want to prevent NEJEI from getting a cut from merchandise sales.
- Touring/Live Performances: I am not sure Naija artists tour Naija as it is. It is way too expensive to do so and most labels, even the big ones in Naija, will have a hard time footing such a bill. If they did, 12% of the cut is what is typical out here in the West. The bulk of the money then is made out of shows. The percentage the label gets for shows is open to negotiations. In extreme cases it could be as high as 50%.
Now go make it happen!
Cheers,
Uduak
NOTE: Disclaimer- this article is for information purposes only and does not constitute an attorney-client relationship with Ms. Uduak. If you want Ms. Uduak to represent you for your legal matters, contact her directly to discuss your legal situation and fees for her representation.
Ms. Uduak Oduok is the founder and principal attorney for UDUAK LAW FIRM. She is also the President & CEO of Ladybrille Media Group, Inc. She has over seventeen years combined experience in the fashion and entertainment industries and will be answering your NOT JUST OK basic Business of Music Questions. Have a question for Ms. Uduak? Send an email to uduaklaw@gmail.com with the subject heading “Not Just Ok Music Question.”
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- Ask Ms. Uduak: NotJustOk Diss Song + Music Performance Agreements #Promoters
- Ask Ms. Uduak: How do I Promote Myself as an Unsigned Artist?
- Ask Ms. Uduak: How to Negotiate an Artist-Manager Contract (The Manager)
August 2nd, 2010 at 3:16 am
@Vena- Thanks.
Cheers,
Uduak
August 2nd, 2010 at 4:21 am
Very helpful insight… Cheers..
August 2nd, 2010 at 6:42 am
I just have a question.,,WHY IS IT THAT WE HAVE OLDER FEMALE ARTISTE THAN YOUNG BLOODS LIKE MO,CHEDDA COS I SING TOO AND IAM 19.AND Y IS IT HARD TO GET A RECORD LABEL DEAL WHEN U NEED IT COS U KNONW U CAN DO MORE IF WE CAN GET ONE THAT WILL SIGN YOUNG ARTISTE LIKE THE UK LIKE CHRIS BROWN,CASSIE AND OTHERS PLS HELP US COS ITS NOT JUST OK.I HAVE MY PROMO CDS BUT NO PROMOTER AND RECORDING DEAL.PLSSSSSS HELP…
August 2nd, 2010 at 9:51 am
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August 3rd, 2010 at 12:56 am
Very interesting reading Uduak, how i wish all those Nigerian artist can read this. they believe a label is a money spinner. Once they hear a record label, they believe all their issues are solved. The want a house, want a car and want money to feed themselve and family. But once you tell them the money is recoupeable, they go like, "WHICH KIN RECORD LABEL BE THAT". I
If a label does all you want where do you expect him to get his money back? They expect that to be a bad debt. I think that answers "Nadi Babajide" questions. A lot of up coming artist (the good ones) dont get records deals because the artists are not enriching themselves with information like this. If they were they wont be asking for unrecovarable millions!!!
August 3rd, 2010 at 1:58 am
This shit is completely useless in the naija music industry.ur talking about advance recouped and mechanical royalty.A lot of this crap doesnt apply to naija!
August 3rd, 2010 at 2:35 am
@Qwerty Poju, statements like yours especially when dealing with a very important issue like this is simply unattractive. You should really take the time to be in the know. Being in the know means you should be familiar with Nigeria's Copyright Act of 1970 & 1988 and its subsequent amendments in 1992 & 1999. Visit http://www.nigeria-law.org/CopyrightAct.htm to learn about your country's copyright laws. This is a start.
Also know Nigeria is not in an isolated world of its own. We have relationships with other countries and the international community as a whole. Their laws(Copyright laws) are extended to Nigeria via reciprocal agreements and treaties. It is your job, if you will make such statements that mislead and inaccurately misrepresent the facts to artists,espeically emerging ones, to know the law.
This means you need to familiarize yourself with the fact that Nigeria is a part of Berne Convention 1886, The Universal Copyright Convention 1952, Rome convention among several treaties and international agreements with respect to Copyright. What does it mean? Your job is to find out if you will make statements like yours above.
That the country and music professionals within the industry do not necessarily enforce certain aspects of the law; or focus on their rights where they are cheated out of money etc. does not mean we don't have such laws. Finally, get familiar with organizations like Wale Ewedemi's Music Industry Association and the COSON (Copyright Society of Nigeria) http://cosonng.com/about.html that are working hard to see enforcement of some of the basic copryight laws on the book, among many perogatives.
Again, no wahala if it doesn't jive for you. But when you make really unattractive inaccurate statements like the one above on topics that directly affect people's livelihood, it is not cool and the law and you need to know that.
Cheers,
Uduak
August 3rd, 2010 at 2:40 am
Indeed. I would print the article and have potential artists read it so they understand what they are getting into before signing them on my label. All of my legal clients, to date, whether in music or otherwise know they cannot be passive participants when they come to me.
If you start educating your artists, they won't feel slighted or what have you because they will understand what they are getting themselves into.
Cheers,
Uduak
August 4th, 2010 at 9:45 am
Wow,this music business is sure complicated,the more reason our 9ja artists should attain a good level of education.
August 4th, 2010 at 9:50 am
thanks for the info uduak
August 11th, 2010 at 8:36 am
To be honest Miss Uduak , you're like basically the real reason i get on Notjustok .. Every Piece from you is worth the read and highly enlightening .. As an artist i just wanna save this on my laptop and keep studying it .. Thanks a lot , Your article and breakdown of the whole psquare , mi BET/American tour was really cool too .. Keep up the good work … WANLAV …
August 11th, 2010 at 5:22 pm
Thanks Tizi.
Lol! I get on NJO to enjoy the fresh new music and emerging artists. I am always excited to see the newest artist on the block.
Thanks for the kind comments.
Cheers,
Uduak
August 11th, 2010 at 9:05 pm
What she’s said so far only applies in countries where the artists’ and producers’ rights are respected eg the UK, US, Canada maybe even South Africa. There are really no record labels in Nigeria because there’s no tracking of the distribution of sales… We have “Music Companies” posing as labels that strike deals with “Marketers” which is why every artist from 9ice to Tuface has a music company so they can deal directly with the Marketers.
This sounds descent until you realise that these Marketers do not give full account of the exact number of sales. In the US Neilsen Soundscan tracks each unit sold at every CD store once the cashier scans the CD through the Barcode READER. We have very few music stores in Nigeria, just Hawkers which makes it difficult to track sales.
In conclusion, until we can track sales centrally, we still will not operate a proper Record Label in Nigeria.
Thanks
August 11th, 2010 at 10:50 pm
@Playback genius, arguably yes you would be right. Indeed the tracking of distribution of sales has been a major issue in Nigeria’s music. Piracy has obly compounded the issue. However, the very structure you seek are now being implemented as many, including industry professionals and the government, realize they have a vested interest in protecting their intellectual property rights, artists musical works.
Case in point? January 2010, PMAN (Performer’s Musicians Employers’ Association of Nigeria) endorsed a Music Distribution Network agreement with Lafrique Pro Media.
What was the core of the agreement? L’afrique is a recognized leader in tracking, management and identification technology and the agreement essentially established a formal distribution system in Nigeria for music products. The tracking system you speak of. In addition, under this deal, a more structured database that permits easily tracing the works of musical authors will ensue. Obviously this takes time to implement.
Nevertheless, as indicated before, it is indeed an exciting time to be in the industry. I will also add the recent news of the World Bank’s pledge of $30million US dollars to Nigeria’s music and film industries with a focus on building some of these infrastructure and addresisng piracy in Nigeria’s music industry, among other tasks.
Finally, I’d argue that a lack of a structured tracking system, to me, does not detract from the article which is meant to give arists and label owners a general overview of how the music industry makes money in Nigeria and globally. Artists In Nigeria do get advance fees from record labels, even if you do not consider the labels true “record labels.” Royalties are not a terminology common in Nigerian music terminology. Nonetheless artists do have to negotiate and earn monies from their compositions and from shows etc.
Also, with the keen interest in Nigeria’s music industry, mobile technology companies like MTN are tapping into music star power to create ringtones etc. This in turn means another stream of income for artists.
Either way you analyze it, an overview of how money is made in the industry is exactly that, irrespective of whether rights are trampled upon. There are many similarities and most importantly since many of our artists seek to enter markets outside of Nigeria; and of course market on the world wide web, they ought to have a working knowledge of how the industry works.
Cheers,
Uduak
August 12th, 2010 at 2:15 am
i wish many upcoming artistes would read this and learn.i have been fortunate to meet a lot of artistes and label owner.there are over 3million upcoming artistes in naija.i just guessed on that figure but sincerely we are many. how many labels do we have in naija to sign so many people? they would prefer ro sign already known names or people they have a personal relationship with……..or sometimes someone reffered by a well known person.if u are an upcoming artiste and u know u are good then u need to find a way to get your voice heard.then when the labels know what you are worth they will come after you…..funny enough you might not need them anymore when you realise how much u can make on your own.you will only need a good management team.above all let us all pray for favour from God to make our story unique like some artistes we know….e.g timaya who never did any radio promo for his first album.then work hard.
October 2nd, 2010 at 11:27 am
Dear Ms Udoka,
Top of the day to you, Thanks for your enlightenment. can you introduce or link us with any Gospel musical distributing company.
Farewell/Godbless.
Innocent
December 2nd, 2010 at 6:49 pm
This blog can certainly touch lives. Thank you for all you have composed on this. I will definitely keep on coming back to glance more of your work.
December 23rd, 2010 at 1:38 am
Hello am Mikolo, good and tyte Rapper,have been doing sins i was little and am still on it,i know the world is waiting for me,please link me up with any Record Label or any Sponsor that need a good Artis and i promise that you will never regret doing it,this is my number 07066630779 and for anyone outside Nigeria +2347066630779
January 16th, 2011 at 1:39 pm
I AM UNSIGNED ARTSITE WHO IS IN NEED OF RECORDING DEAL IN ANY COUNTRY
My name is Angel C
I am a Nigerian
I live in Lagos city, Nigeria
I am a young coming hip hop hard core and Rand B star
Which I can sing and rap very well.
I am in need of a RECORDING DEAL
I promise to be honest to who so ever that will sign me in any country and make him/her proud by bringing the best out of the bests. I get what is takes to be the best because everyday and night I learn more. I started learning music when I was 7 years old so as I grow up I realized that music is my talent that is why I break in. I thank god that people who hear my songs always love it because it sound good with pure clean lyrics like
I wanna be like that like feather that i' m gonna fly no matter the weather
Please be very free to contact me for enquiries on
FOR BOOKING CONTACT www.angelctheyounghero.com
www.angel c 131.com
Angelchiphop@yahoo.com
Angelchiphop@gmail.com
+234 7040954295 www.facebook.com/Asukwo Angel C
THANK YOU
FROM BOY ANGEL C aka YOUNG HERO
August 21st, 2011 at 8:45 am
Tanx so much 4 d info,Im a 17yr old upcommin rapper..after yrz of searchin 4 a record label in vane..i ve decided 2 start my own label 2 give young pple d chance 2 show d world we are truly 2morro leaders..d name of d label is SLEEK RECORDS.its yet unregistered..how can i register it,produce under it n find a distribut?do i hv 2 register my tracks..i need legal consellin my number is 07065022538..GOD BLESS U.
August 24th, 2011 at 7:51 pm
great issues altogether, you just gained brand new reader. What could you suggest about your submit that you made a few days in the past? Any positive?
September 13th, 2011 at 6:06 pm
Correct,tips’A real artist dose not beg to be sign,.yu are lik the sun,so the labels are the one that needs yu.sorry to say this ,am an upcoming artist too,but fuck the labels.
October 28th, 2011 at 2:19 pm
i need partners who are willing to invest in my record label
October 29th, 2011 at 3:22 am
thank you so much am a clissical pop nigerian artist that even the all american, usa,etc.wil dieing 2 see perform in their am hot,hit,burning on the inside of me.am music myself.i need a marketer pls here my 08064112393 and 08024761890
April 4th, 2012 at 6:51 pm
hw hard hv u worked to be noticed? sm upcomin artists raise sholder high without knowledging d important of participating in talent hunts. spend time and a little money on ur own 4 ur personal upgradeable before u could be located. nothing good comes easy.
entertainment is called show biz then why can't u show urself 4 ur musical skills 2 be noticed by labels who will bring u out finally.
tnx,
Ages Entertainment