Making Studios Pay
Not, as you might have thought, a guide on how to run a protection racket (Sorry, Squire, I scratched the Westlake), but how to make them cost-effective.
To its devotees, sound recording has a magic and excitement about it — a satisfaction so compelling as to see grown men and women burning midnight oil and morning toast by its powerful distraction. So, unsurprisingly, many of our finest people of an engineering inclination fall prey to the incensing venom of the recording serpent. The agony of this particular ecstasy can however lead to a somewhat hallucinogenic decision. (Enough of this compelling allegory and stunning metaphor - Ed). The dangerous assumption is that one's creative success in this infinitely worthwhile medium would justify giving up current employment and securing a bright future in sound by starting a small commercial studio. This can work, but rarely when an amateur's studio is merely made available to the public. Of course, most engineers would agree to there being a marked, not to say extreme, difference between 'hobby' and professional sound studios. But the mistake of ignoring this difference is still made, albeit to a lesser extent than in the heady hopeful days of the early 70s. At this time, small commercial studio bankruptcies reached a frighteningly high level, with a lot of small operators losing their proverbial shirts.
So what are the chances for the modern day punter? Well, for one reason or another, small studio business today seems to be booming — but the equipment needed to establish even a small studio nowadays has to be of a higher quality. Consequently entering the business today requires more capital than was adequate at the turn of the decade, even allowing for inflation.
The spate of bankruptcies mentioned earlier occurred at a time, or rather one of the times, of world trade recession. But though this tight-fisted period produced some genuine victims who otherwise might have survived, a good number of the strangled studios would probably have died naturally in any event. Theirs was a swift, rather than a slow death. The recession argument was bandwagonned and commonly obscured business incompetence. Probably two of the commonest failings of doomed studios were lack of capital and inadequate research.
Undertaking market research first might seem logical as it's surely the initial step in any venture. But first, it is necessary to establish the kind of studio one could operate. Table 1 lists some types of studios in the small studio league and their business activity. As you might expect, the range of investment and specialised expertise required varies tremendously between categories; also in the categories themselves, generalisations have been made so as to keep the list reasonably compact.
Probably the most comprehensive and reliable source of assessment here is through a first-hand experience of the chosen area of recording. A typical example is that of the balance engineer using contacts at work to acquire steady demo recording work. This justifies a part-time studio and later provides the basis for expansion into full-time operation. Naturally the existence of a market does not guarantee your taking a share of it — factors such as location, facilities, acoustics and engineering skill, to name a few, are all important. But you must establish that there is work to go around in your chosen area of recording. Fortunately, musicians are quite a mobile fraternity even at semi-pro level and tend to be prepared to travel to studios of their preference, within reason. So, location need not be such a problem as with many businesses — this is provided you can beat the services/facilities of more central studios. Although it may be possible to peel some clients away from existing studios, you must be reasonably confident of acquiring enough of them to make your investment worthwhile. Short of getting a stream of bookings together before you start building the studio — which isn't easy when you're not famous (!) — there's no way of guaranteeing the success of a new studio. Some tips on promoting a new installation are suggested, however, under Marketing.
The music business is a risk business; as such finance for musical projects can be rather shy in coming forward. Unfortunately, in this world (sigh) money is all important. Terrifyingly important in fact, particularly where merchandising is concerned. Consider the fact that with money it is possible to promote successfully an essentially bad product, while without money it is difficult to promote a good product; no democracy of quality there and a situation never more true than in the record business. Fortunately, studios are a little lower down in the speculative finance league. Whereas a record company might, in the event of a record release flop, be left holding the scrap vinyl baby, a studio always has its equipment to barter against debt claims and bankruptcy (morbid isn't it?).
Even so, moneylenders tend to prefer more conventional businesses when splashing out the cash. As you might expect, that land of wealth and enterprise, America, displays a more creative approach to capital, being the centre of the capitalist world. They have banks wholly or partly operating in the area of so-called venture capital. This allows companies who have reached a ceiling through a shortage of cash, needing better (or more) equipment and some inventive marketing, to gain all these things in exchange for a hefty interest repayment commitment or part ownership by the venture capital bank. That's not so far removed from European bank policy, but where venture banks differ is that they will help finance an idea without holding securities equal to the value of the loan. Here the president of the bank typically becomes Chairman of the fledgling company, but rarely becomes involved with day to day running of the business. That is the responsibility of the original ideas man, who needed finance in the first place. All very business-like, professional — and very profit conscious. If profits seem unlikely to satisfy target levels over the medium to long term, the project is wound down or sold in practically every case.
That scheme may represent a dream or a nightmare to the punter who has to equate the cash injection with the loss of total control and expensive terms of repayment. But to get any sort of financing — and with any sense, before using their own capital — the entrepreneurs must carefully plan financial needs for the establishing and development of their brainchild. This means assessing the cost of installing and running the studio and gathering together as many facts and reasons indicating the studio's likelihood of attracting enough custom. Normally costings are made for each of the first (say) three years. These are equated with anticipated income for that period. Of course income must exceed expenditure to produce profit, which on paper must be above the minimum acceptable level to allow for various contingencies (like equipment or any other purchases going over budget, or bookings being below target), and evidence gathered to suggest the realistic presence of a market for the studio. Capital expenditure is normally recovered over a period of years, according to loan arrangements. While recording rates must be reasonably competitive they should truly reflect the investment made and the average anticipated level of custom. Generally, quality comes first to a client and getting involved in a price war results in unrealistic pricing of studio time.
The carefully planned financial package can then be presented to a banker, moneyed friend, venture capitalist or a loan arranger (or even the Lone Ranger) for consideration. Normally financiers require insurance policies, mortgage deeds or share portfolios, that is paper security signed to them for the value of their loan. Investors, on the other hand (for instance a group of friends or family), share the risk with the 'ideas man' or entrepreneur, and share the profits in proportion to their investment. Here, it's probably best to form a company (or buy one off the shelf) and allocate shares. Assets of the enterprise are equitably divided between investors and profit is re-distributed by a premium added to the share value. A company is in fact an efficient way to finance and run a business — an accountant will advise on procedure and ways of (legally) minimising tax payments. Table 2 outlines costs associated with creating and running a studio. Finally, if your turnover is over a certain amount (around £7000 per annum) you must register for VAT and add VAT to all your invoices (in the UK only). However, those turning over less than this amount may benefit by voluntarily registering (ask your accountant). This allows you to claim all VAT on purchases back — and on studio gear that can be a fair amount of money. It does mean your prices will be inflated by (at time of writing) 8%, but will make no difference to VAT registered clients. Non VAT registered clients will probably be used to paying VAT, and so won't worry about the apparent rise in booking charges.
Conducting a business, it has already been pointed out, is quite different from indulging in a hobby. Briefly, the activity has to be more reliable in all respects; professional and accountable to various authorities. The professional aspect concerns the installation of facilities solely for the benefit of the client and the general provision of a good working environment. Controllable lighting, air conditioning and co-ordinated decor are some examples. Reliable, consistent quality equipment and flexible patching options are others. Accountability comes in the form of well-kept accounts - for tax men and accountants - and observation of planning, health, safety, fire and security regulations. Keeping friendly with Local Authority representatives responsible for each of these areas is important, as they can offer useful advice on matters within their scope or, alternatively, make life pretty difficult. Historically, recording studios - particularly the popular music variety — are not easily accepted into a community due partly to tangible objections like noise, but largely because of functional ignorance and cultural prejudice; depending on the community of course. In this connection, favourable local press coverage is useful. It never hurts to use a bit of 'dead' studio time to record the local scout band or whatever, to show willing toward the community.
Some studio buffs will argue that all except the most basic marketing techniques are useless in the recording industry, at practically every level, because everybody goes by word of mouth and that's just a question of time. This much maligned aspect of business is particularly misunderstood in the UK and conversely probably most advanced in America (perhaps a little too much so). But first of all, what does it mean? Well, crudely, marketing is concerned with optimising (in this case) a studio's custom in its specific area of work. However, it also endeavours to initiate business where possible, that is in all areas where the studio organisation has the necessary talent and expertise.
This can, and should, mean that the actual studio ultimately fits into an organisation of related enterprise. Table 3 shows a reasonably logical development of studio business structure, based on music recordings. Note the diversification into equipment hire, electronic design and manufacture (manufacture could be contracted outside the organisation) and record company. The record pressing operation is almost always done outside the organisation, although I know of one set-up in Wales where even this is done in-house! There is a good deal of interaction between enterprises; an important and useful feature. Not all of the links have been shown; for instance equipment prototypes and subsequent production models would surely be tested and assessed in the studio.
Of course, each area of business shown requires special skills and knowledge and the decision to diversify in this way cannot be taken lightly - to do so could easily result in your becoming the proverbial jack of all trades and master of none. Quite apart from the ins and outs involved in each of the ventures, the marketing approach differs profoundly, hence 'marketing' is shown separately in each case.
An approximate marketing breakdown is also suggested in table 3. This defines the type of business to be marketed in each case, lists potential customers and suggests media. The function of gigs in this case would be to promote record sales and so their arrangement and promotion could be contracted out to a promoter or agent. Record shop sales, other than on a local scale, are a rather expensive specialised and ambitious proposition - if and when the decision to do this was reached, the record company would be best detached from the other activities by formation of a separate limited company. The 'mother' company could then buy a majority shareholding, the remaining shares sold off, thus raising capital, and a substantial number of the created shares being sold to the experienced record company staff. Ideally, each of the businesses tabulated would be separate limited companies, the original 'mother' company retaining shares in the splinter companies, perhaps while continuing to serve as the main trading vehicle for the actual studio, that being more or less central to each of the splinter activities.
Whether you're into discussions relating to company strategy and deployment or not, the subject of credit, or more accurately debt, speaks a language most people would prefer to learn in theory only. The chances of having to endure the painful practical however, can be minimised. One way to eliminate the problem entirely is of course to operate on a cash down basis either before or directly after work has been done. But, sooner or later, clients, particularly the regular ones, will want credit facilities, paying on receipt of invoice, as a smoother way of settling bills. In order to reduce the risk of late or non-payment by inefficient or fly-by-night clients (there is a plentiful supply of each) who have been granted credit, it is necessary to formulate terms of business conditions and stick to them.
All big studios do this as a matter of course, and it's usually the small studio owner who gets taken for the biggest ride. Before granting credit to clients it's a good idea to get a reference, or recommendation from a client's trading source or bank. Alternatively, you may develop a trust with the client after some trading experience. Terms of business are commonly printed on the back of studio booking forms which the client signs, displayed prominently on the premises or printed in studio brochures. Either way, the client's attention should be drawn to the conditions which serve to clarify matters for both studio and client.
Some terms of business suggestions appear in table 4. They should be drawn up in legal jargon by a solicitor, once you've decided on the terms of business applicable. The APRS (Association of Professional Recording Studios) provides a more comprehensive and legally worded tabulation which you can adapt direct. Joining such an organisation can be very useful for advice and liaison with others in the business.
You are bound to have decided to insure against fire, loss and damage — which is expensive but better than losing equipment — but you might consider public liability insurance as well. This covers incidents ranging from trousers being torn on a sharp corner to the gruesome possibilities of loss of life or limb due to studio negligence. Instead of ending up on the sticky end of a £250000 damages writ, you'd just pay a relatively modest annual insurance premium; worth a thought, perhaps.
Defining terms, conditions and all that kind of thing doesn't necessarily make you into a fussy-minded bureaucrat dodging obligations and responsibilities. Some traders, particularly small ones, feel clients may think this and fear an erosion of their 'personal touch' relationship with clients. So they dispense with any form of business agreement or conditions relating to the client. A more professional approach is to accept the rules as a means of clarifying the position of studio and client.
If and when you join the happy band of conned studio owners (staggering in number) who are still waiting for payment from an ex-client, somewhat rashly granted a credit arrangement, then you'll probably want to take steps to recover it. Discreet, followed by blatant, demands by letter are an obvious step; after that you can employ one of the so-called collection agencies. These agencies write to debtors requesting payment and threatening court action if they fail to pay. Some people respond to third party demands of this kind whilst others don't. If the agency get the money, they take a certain percentage. If they are unsuccessful, they charge nothing. A more effective procedure is to file a claim under the Small Claims division at the local County Court. Here you pay a win or lose fee to the Court proportional to the sum involved (applies to UK only). Of course, a decision must be made as to whether your action will have repercussions in the industry — unfortunately, there are some 'names' on the client end of the business who exploit that to their advantage - but if handled diplomatically, debts can be recovered with a minimum of ill feeling, your image retaining the essential quality of reason.
Finally, a slightly more detailed look at the subject of press and public relations; you know, all that stuff about news coverage, adverts and mail shots in table 3. You need somebody to derive a logo to fit the studio name, which can range from an eye-catching typeface to a full colour motif or symbol. If the studio name doesn't include your name, or in the case of a company, a director's name, you should file it with the registrar of business names (in the UK) after you've started trading. And if you use a made-up name like Recordadisc (ugh!) or original motif, you may wish to protect it by registration with the Trade Marks Registry, also at Companies House in London.
But back to the subject of PR. Having sorted out your identity, you'll need somebody to originate adverts and perhaps a brochure incorporating your logo. Good black and white photos should be taken of the studio as soon as completed, for press release use. Colour shots may be useful also for some press and the brochure. Somebody with a flair for writing (remorseful sigh!) should be involved in writing ads and press info, one who can succinctly express the particular advantages of the studio. Letterheads carrying your logo are useful as they can be overprinted for press releases, (unless of course you go through an agency), booking forms and invoices, as well as serving for correspondence. Visiting cards are useful as a cheap way of spreading your name around via friends and clients. Brochures or leaflets, however, are probably more effective.
So there you have it - a glimpse at the business of recording. A world fairly unique in combining (hopefully) creative satisfaction with income — plus the odd twit and odd hassle. The subjects covered include some specialised areas and the advice or help of experts should not be underestimated. Don't forget some of these include Local Authority officials, whose services are free.
Feature by Richard Dean
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