music morsels scott turner June 2006 

The Economy Expert

Scott Turner
Last month, I mentioned that I would attempt to show people how the record business is a penny profit industry. Even though the figures I'm going to use relate to the late 60's when 12-cut albums sold at about $7 retail, I believe that the same facts would relate to the present.

It all started in an A&R meeting when a producer mentioned that somebody asked him how a 33¢ piece of plastic (the pressing plant cost) ended up costing seven dollars. To show us how that number evolved, the president brought in an economy expert to explain it all.

The first area he covered was the producers' salaries and percentages of profits because those were the days of in-house producers with each producer responsible for up to 7 or 8 artists (in my case, more) and the percentage of profits was about 3 percent of retail.

Next came the artists' advances against royalties, some of them getting up to (or over) $150,000 per year (and artists' royalties in that era were 7 percent of retail) and, in some cases, those guarantees were not recoupable, and if an artist tanked and didn't sell...well, that advance was eaten by the company.

Then came the recording or studio costs and according to the specific contract, those costs were not charged against the artist's royalties. What I just remunerated took quite a chunk out of the profits, but now, watch what the expert got into.

Firstly, the executives' salaries and that applied to the president of the company, the vice president, the heads of divisions a la sales, promotion, accounting, and various A&R heads, and these figures were once again not recoupable.

Next came the secretaries' salaries, the buildings' rental costs, electricity, and gigantic phone costs. After that came the travel expenses for most of the executives, sales personnel, promo people and trade ads for all of the industry publications, plus artists' promotion trips, hotels, etc., and expense account charges. The company also had branch offices both here and overseas.

I've already covered the pressing plant costs, but also add the mailing costs of single releases to radio stations and free goods, mostly LPs, to radio stations for contest giveaways. We also owned our own recording studio, but many artists' chose to record at other locations, but again, the studio engineers' salaries came into the mix. I know that I'm leaving things out because it's difficult to remember everything from almost 40 years ago, but the last thing the expert mentioned was office equipment, including desks, chairs, sound equipment, etc. When the expert ended up his presentation, we realized just how expensive the recording industry was, and how did we keep our heads above water? He showed us that with (I think) 30 or 50 artists, earning millions of pennies each, it balanced out, and, in some cases, like "The Chipmunks", etc., there were 3-5 million pennies coming in.

In today's market, some of the figures are relevant, but other costs come into view like videos, in-store promotion (yes, record companies do pay for those records you hear being played in record outlets), and finally, payola, but I can honestly state that I never saw, heard about or discussed that subject in any of the firms I worked for.

At any rate, that's how at 33¢ piece of plastic ended up costing $7.00. I did leave something out - the art department that was responsible for some of the most striking album covers ever done.
Division of Serge Entertainment Group