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Chapter SIX

The Money Paths: Royalties

Traditionally, producing, pressing, promoting, and distributing music has involved huge upfront costs, more than an individual artist/band can spend. So you, the artist, look for someone who can provide these services more economically than you could do on your own. That someone you turn to is a record company, and it is the record company that pays for making your music into a sellable product. The company is the financial risktaker that gets the biggest return.

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Some people think of records companies as bankers, other say investors, and the companies do perform many functions which involve them spending their money on your behalf, such as A&R, radio promotions, retail promotions, tour support, accounting, legal, and merchandising. What we can all agree upon is that your relationship with the company is bound by a contract that sets the rules for the relationship.

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Record companies act like general contractors in the building industry; you contract with him to build your house and he supplies products and services to create the house. Many general contractors get these products and services from sub-contractors who specialize in plumbing, electrical, or driveway products. He pays these people and puts a little on the top for himself (sometimes called interest) and lumps all these sub-contractor charges together and charges you one big fee.

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Now let’s look backwards at the money path from the customer/fan buying one of your CDs to you, the artist and see where the money goes.

 

There are several additional places on the royalties money path where you can put more money in your pocket. Chapter 10 discusses these areas and possible solutions.

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