I have owned my own business since 1999 and was in corporate America prior to that. If I learned anything of value in my professional life, it's the importance of a business plan with a budget. A budget means both where I spend money and where new money comes from.
One thing I believe a lot of new artists and their families fail to understand is the importance of budgeting and treating your career like a business. To add to that is where to get new money and where to spend money at each level of the process.
First of all, geography, music style, and age of the artist will dramatically affect the budget. Include a band in the formula, and now you're multiplying the budget expenses over more people. But for the sake of this blog post, I'll just assume we're working with a solo artist. (plus, it's closest to reality for me recently)
Let me clarify a few possible myths about the MONEY part of being an artist. I honestly think many artists and families of artists think that there's this lottery that they'll win if they get signed by a label. It's an honest presumption since what is covered in the media seems to reveal Brinks trucks of cash available to buy life's finest. I can assure you that it just isn't true when you're just starting out.
I'll break this into smaller bites.
MYTH: When I get signed, I'll be making some serious money.
FACT: Almost all signing bonuses are advances toward future revenues earned by an artist. So in simpler terms, it's a loan against your future paychecks. It may be cash at the moment, but you still have expenses you're responsible to pay for as an artist that won't be paid for by the label. So that pile of money you may get as an advance needs to be carefully set aside to cover future expenses you will have to pay. Things like attorneys, accountants, managers, coaches, etc. are all guaranteed expenses that you will have to pay for at some point.
Another harsh reality is that most label deals aren't the guarantee of a long career either. So just because you're signed to XYZ Records and given a nice check up front doesn't mean they will EVER launch your career. It is a hard reality that many artists get signed and "shelved" by labels. The label signs them (just like a pro sport team would sign a rookie player) and after spending time in a studio with them, they may elect to NOT release the music and just let the contract expire. Several artists have experienced this. So, the assumption you are on the money train is absolutely not true.
MYTH: I can just post music online and let that build my career. It's inexpensive.
FACT: In order to make money, you MUST spend money. Too many artists are relying on free internet to build their career when in reality it takes investing in quality studio recordings, videos, marketing promotion, live shows (including travel expenses), original designed merchandise inventory, and a whole list of other expenses to properly get you out and exposed to fans and industry folks. This takes a budget.
MYTH: I can sell music on iTunes and other sites and make good money.
FACT: The sad reality is that even major labels now are looking at alternative ways to make income from an artist because record sales are simply not going to make the investment back. The same applies to an independent artist trying to make it on their own. The reality is that an artist will only make a living when they travel and perform and any merchandise sales they can sell along the way. Record sales is usually a losing revenue battle for at least two albums, unless one song sparks and blows up (again the lottery thinking).
The term "360" deal is used a lot in the industry nowadays and it refers to labels offering artists a contract that is 100% inclusive of all revenue streams being shared by the label and artist. It used to be that the label only shared in a portion of the income an artist brings in. Now the 360 deal means the label gets a piece of every possible income an artist can make. For example, concert ticket sales, merchandise, public appearance fees, licensing deals, etc. It's not really a good model for an artist, but in today's competitive marketplace where there's a huge surplus of talent and very few labels able to get radio play for artists and help book the best venues and gigs for them cause of their roster reputation, it's usually in the artist's best interest to consider it. The label will spend millions in promotion to get an artist recognized, and it's that budget which needs to be recovered as quickly as possible and with digital music sales hard to capture (due to piracy) and people not buying physical CD's as much, labels want to tap into other areas an artist generates revenue so they can make their money back quicker.
MYTH: Royalties and record sales make some serious money.
FACT: In the industry about 20 years ago, maybe this could be more realistic. Today, however, royalties are very hard to obtain since radio (the major payer of royalties) is such a different animal now. Companies like Ascap and BMI or SESAC are intended to be clearing houses for getting royalty checks. The problem is in the reporting of those and who does the accounting and issuing of the check. I've talked to several managers and former artists who are still battling to get their rightful royalty checks from years of inaccurate or unreported music plays and sales. It's a dirty industry and many labels play legal games to keep your money in their pocket. I'm not jaded personally, but having read and heard first hand how many have been kept away from their money, I find it important to know this up front before cutting any deals. Make sure you understand how the splits of revenue happen and who gets what piece of the pie and when.
So, in all, you have to be serious about your expectations in the music business. Treat a career just like a small business and you'll be better off in the long run. Don't look at it as placing a $2 bet on a longshot horse at the races. Think of it more like investing in a college education with the hopes that a good job down the line will pay off those student loans and set you up with a stable career. This is especially true for parents of young artists desiring to see them be successful. I can honestly report that we have already invested enough money to have put Spencer through a four year college and well into his graduate degree at this point in terms of actual monies spent on his career. We are in debt as a result, but we also know it's like any business we have started, it takes time, investment, and hard work to get taken seriously by an industry of fickle fans and slick executives looking for a naive artist they can exploit.