Advanced Label Economics II: Digital Distribution

Posted by  mark

Please read post “Advanced Label Economics” below, before reading this post.

Digital Distribution
Approximate breakdown of dollars for a “typical” download:

$9.99 Customer pays digital store for an album

(digital store keeps $2.99)

$7.00 Digital Store sends to digital distributor
(digital distributor keeps $1.05)
$5.95 Digital Distributor sends to Label
$1.00 Label sends to songwriter/publisher (mechanical royalty)
$4.95 gross margin
The digital distributor makes sure that 100’s of platforms around the world have our music, and provides us with a single payment and most important a single accounting by track of all payments each month. Not all digital stores pay based on downloads. Some digital stores are subscription based; some are based on ad revenue. Some are downloads and some are just streams. In some cases we receive much less than we receive for typical download.
Our gross margin is about $4.95, nearly the same as a CD. We generally receive the money 60-90 days after the sale. Advantages are that we don’t have to carry excess inventory in our warehouse to be ready for demand, place extra inventory in stores in order to ensure enough visibility, or wait for returns. We also don’t have to worry about whether the product is in stock at the store.
The downside is that there is no packaging which might include information about our website, our other artists, or biographical material about our artist to help the consumer become more familiar with the artist. Downloading also means that consumers can pick and choose tracks. For our artists, who work on creating an album, this is generally contrary to their artistic vision.
With digital distribution there is still a need to buy “shelf space” which is more like an ad on a page of the digital store or an email blast to the store’s customers. There is also still obviously a need to pay for PR, advertising, and marketing.
As music has become digital, the transfer of it in bits and bytes through digital platforms like iTunes, Amazonmp3.com, mp3.walmart.com, Sprint, Verizon, LaLa, Shockhound, eMusic, Zune, or any number of other sites seems to be the future. We also like our own digital branded store. But…we hope CDs stay around for awhile.

Advanced Label Economics

Posted by  mark

I’ve taught this many times (at Loyola University, University of New Orleans, Ben Franklin High School, SXSW, Cutting Edge Music Business Conference, and more), but decided that tonight I would put it down on “paper”.


Our “typical” CD Production Costs:
$15,000.00 Musician Fees (does not include our artist)
$10,000.00 Studio/Engineering/Mastering
$ 4,000.00 Producer
$ 1,500.00 Photography
$ 1,000.00 Graphic Design
$ 500.00 Liner Notes

Profit Advance to Artist
$ $$,$$$.00 In addition, we pay a profit advance to the artist on our label. If a project makes a profit we split the profits with the artist, but the artist keeps the profit advance regardless.

PR and Advertising Costs
$ 7,500.00 Press, TV, & Web Publicist
$ 3,000.00 Radio Publicist
$10,000.00 Advertising (print, web, radio)
$ 7,000.00 Buying shelf space at retailers (both brick and mortar & online)
$ 6,000.00 Mailing promotional copies of CDs to press, tv, web and radio

So, before we sell the first CD we “typically” have committed to spend $65,500.00, plus we have advanced the artist profit that we may or may not make.

Here is the breakdown of a $15.98 CD at retail:
$15.98 Consumer pays store
$10.30 Store pays distributor (Store covers its overhead with about $5.68/ CD margin)
$ 8.00 Distributor pays us (Distributor covers its overhead with about $2.30/ CD margin)

Of the $8.00 per CD that we receive we spend approximately:
$1.25 for manufacturing
$1.00 for mechanical licenses (payments to songwriters & publishers)
$0.30 shipping

That leaves us with approximately $5.45 per CD of what is called gross margin. We generally receive this money 90-120 days after the CD is sold.

That means that our break even is $65,500 in costs divided by $5.45 per CD gross margin = 12,018 CDs.

That’s where you come in.

What are You Doing to Offset Saved Energy?

Posted by  mark

Things You Can Do To Offset Energy Saved At Project30_90 Festival This Weekend

1. Leave your lights on all weekend
2. Leave your doors open and your AC on (set it to 60)
3. Every time you think of something you need, jump in your car and go get it
4. Leave your car running unnecessarily
5. Use your big oven to toast a single piece of bread
6. Ask for triple plastic bagging of your groceries
Leave your suggestions in the comments!
FYI, I fully support Project30_90 and saving energy.

Have A Crazy Cool Christmas (Coming 11/10/09)

Posted by  mark

Kermit Ruffins‘ first Christmas album, Have A Crazy Cool Christmas. Coming November 10, 2009. Ho Ho Heaux.

CLICK ONESHEET TO ENLARGE.

Preorders may be made now at www.BasinStreetRecords.com

Email bulkpricing@basinstreetrecords.biz for info on bulk pricing.

We will celebrate the release at the Blue Nile in New Orleans on Friday, November 27th. See you there!

Nagin’s Fault

Posted by  mark

This video by the Globe and Mail describes the emptiness that exists in an area of the lower 9th ward 4 years after the devastation caused by the incompetence of the Army Corps of Engineers and the Levee Boards. The fact that people are living in this emptiness is the fault of Mayor Nagin.


He had an opportunity after the storm to put a system in place that would incentivise people to move out of some areas and additional incentives to move into other areas. There could have been efforts to concentrate populations into 6 to 10 square blocks and make other areas of 6 to 10 square blocks into parks.

He decided that to get reelected he needed to allow everyone to rebuild wherever they wanted, although it was obvious to everyone that there was no way to support the large footprint with police, fire, water, power, etc.

So now we have blocks with 1 or 2 families living in them.

I am not suggesting that the entire lower 9th, or all of lakeview, or all of gentilly should have been off limits. I am only suggesting that within the lower 9th, or lakeview, etc. that there had been an effort to concentrate the population that wanted to stay in those areas so that people could live in something that looked like and felt like a neighborhood.

By the way, I have a train that runs straight behind my house. (If you watched the video link above, you know why I added this comment).