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Why Rappers Aren't Millionaires

by Wendy Day - Rap Coalition

Who is the incredible bonehead who said rappers are
millionaires? Wrong, wrong, wrong! Because fans expect
their favorite artists to be richer than Bill Gates,
this puts an incredible amount of pressure on the
artists to appear wealthy. And it's not just the fans;
I can't tell you how many times I've been out with
rappers along with people who work in the industry,
expect the artists to pick up the dinner check or buy
bottles of Moet. I've even seen people cop an attitude
if the artist doesn't pay for everything. This is
small minded and ignorant because the artist is ALWAYS
the LAST to get paid.

Once an artist releases a record, the pressure is on
to portray a successful image to their friends,
families, fans, and people around the way. People
expect the artists to be well dressed, drive an
expensive car, etc. Think about it. Don't you expect
the artists "to look like artists?"

Sadly, when an artist gets signed to a label deal,
especially a rap artist, he or she receives somewhere
between 10 and 15 points (there are 100 points
in an album - 100%). What that means is 10% to 15% of
the retail sales price, after the record label recoups
the money it puts out (the advance, the sample
clearances, the producers, usually half the cost of
the video, any cash outlays for the artists, half the
radio promotions, etc.). All these amounts are
deducted from the artist's tiny share (10-15 points).
The artist has to sell a huge amount of units to make
any money back. Here's an example of a relatively fair
record deal for a new rap artist with some clout in
the industry and a terrific negotiating attorney:

ROYALTY RATE: 12% "All in deal" We're going to assume
that there are 3 artists in the group, and that they
split everything equally. We're also going to assume
that they produce their own tracks themselves.
Suggested retail list price: $14.98 less 15% packaging
deduction (usually 20%) $12.73 gets paid on 85% of
records sold ("free goods/breakage") $10.82 So the
artists' 12% is equal to about $1.30 per CD sold.

Let's assume that they are a hit and their record goes
gold (although it is rare that a first record blows up
like this). Bear in mind that in the year 2000, only
45 rap records sold more than 500,000 units out of
almost 1,000 releases. Of these 45 records, less than
10 were by new artists.

GOLD RECORD = 500,000 units sold x $ 1.30 = $650,000.
Looks like a nice chunk of loot, huh? Watch this. Now
the label recoups what they've spent. Half of the
independent promotion, half of the video cost, some
tour support, all those limo rides, all those out of
town trips for the artist and their friends, the
advance, etc.

-$50,000 half the indie promotion
-$ 75,000 half the video
-$ 25,000 tour support, trips, etc.
-$200,000 recording costs
-$ 70,000 advance

Still sounds OK? Watch... Now, a third of the $650,000
stays "in reserve" (accounting for returned items from
retail stores) for a year or so, depending on the
length specified in the recording contract. So the
monies are actually subtracted from $429,000 (the
other $221,000 is in reserves for a year and a half
the way accounting statements are figured). Now,
there's also the artists' manager, who is entitled to
20% of all of the entertainment income, which would be
20% of $650,000, or $130,000 (although many managers
do not commission the recording costs). Remember, the
artist is the last to get paid, so even the manager
gets paid before the artist.

So the three artists actually receive $33,333 each for
their gold album, and in a year and a half when the
reserves are liquidated, IF they've recouped, they
will each receive another $73,666. Again, IF they've
recouped. Guess who keeps track of all of this
accounting? The label. Most contracts are
"cross-collateralized," which means if the artist does
recoup everything on the first album, the money will
be paid back out of the second album. Also, if the
money is not recouped on the second album, repayment
can come out of the "in reserve" funds from the first
album, if the funds have not already been liquidated.

This is why almost all artists go into their next
album "in the red." From artists like DMX to Slick
Rick, they are always in a debt position with their
record label even though the label is making millions
of dollars per release. For example, on the Gold
album example we're illustrating here, at a wholesale
price of $11.41 per CD, 500,000 units would bring the
label a gross amount of $5,705,000.

Even after the reserves are paid, each artist only
actually made 21 cents per unit based on this example.
The label made substantially more. This example
doesn't include any additional production costs for an
outside producer to come in and do a re-mix, and you
know how often that happens.

So each artist in this group has received a total of
about $107,000 from record sales. After legal expenses
and costs of new clothing to wear on stage while
touring, etc, each artist has probably made a total of
$90,000 before paying taxes which probably took
another 28% to 33%, plus accountant fees. Let's look
at the time line now.

Let's assume the artists had no jobs when they started
this. They spent 4 months putting their demo tape
together and getting the tracks just right. They spent
another 8 months to a year getting to know who all of
the players are in the rap music industry and shopping
their demo tape. After signing to a label, it took
another 8 months to make an album and to get
through all of the label's bureaucracy. When the first
single dropped, the group went into promotion mode and
traveled all over promoting the single at radio,
retail, concerts, and publications. This was another
six months.

The record label decided to push three singles from
the album so it was another year before they got back
into the studio to make album number two. This
scenario has been a total of 36 months. Each member of
the group made $64,800 (after taxes) for a three year
investment of time, which averages out to $21,600 per
year. In corporate America, that works out to be about
$10 per hour. Think about this next time you see your
favorite artist drive by in that new car - I do.
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