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Record Profits

the average album costs over six quid: where does it go, and why?

Where does your money go when you buy a record? Where do pop stars' millions come from? And what is all this business about "royalties" anyway?

HOW MANY WOULD-BE pop stars have not lain awake at night, planning the ideal way to spend that first advance? How many have not been excited by the promise of a lifetime of financial security - the reward for writing a simple three-minute song?

But getting a foot on the ladder to fame and fortune can be one of the most frustrating experiences life has to offer. The stakes are continuously rising, yet today, more young musicians than ever before are recording demos in the hope that one day they, too, will become stars. And that's only the beginning. Once you've signed on the dotted line and spent weeks in the studio recording your debut single, everything suddenly comes into focus. The theory is simple: you sell records to get rich, go on tour to get richer, which in turn sells more records, and... Reality, as always, is a lot more complicated.

The four main areas of income for the budding musical legend are record/cassette/CD sales, broadcast royalties, touring, and merchandising. As is common in the music industry, there is no such thing as a standard contract (see last month's issue for more details about these horrid but necessary pieces of paper). Consequently, all the figures that follow are average amounts which can differ greatly from artist to artist.


FOR A MUSICIAN, record sales are still the most widely visible source of income. Last year the value of UK retail sales of singles, albums, cassettes and CDs totalled some £914.5 million, an increase of over £172 million on the previous year. This increase was mainly due to an extra £100 million being spent on CDs.

If obtaining a slice of this for yourself sounds inviting, bear in mind that only a fraction of it goes to the artist. Record companies work on what is known as a "points" system. This is similar to a percentage, except that one point is equal to 1% of 90% of the record price. In other words, the company dismiss 10% of their earnings as overheads and work out royalties on the remaining 90%. The fine details of record deals can differ enormously, but ultimately every artist is offered a number of points, and from this the royalties can be determined.

In cash terms, an average artist royalty from the sale of one copy of a vinyl album (based on a retail price of £6.49) is a meagre 79p. Artist royalties are paid to whoever performed the song, not to the person who wrote it, and are normally divided equally between band members - so if you are in a newly signed five-piece, expect around 16p per album.

Things may improve slightly once you've established a reputation for yourself. Paul McCartney, for example, is rumoured to "earn" around 20 points, giving him £1.17 from each album sale.

At 6¼% of the VAT-exclusive retail price, a mechanical royalty goes to the publisher of the song, and in turn to the writer, rather than the performer. Most publishers are members of the Mechanical Copyright Protection Society (MCPS), which acts as a collecting house on their behalf. The payments are known as mechanical royalties because they relate to music being reproduced mechanically, either on record, tape or CD. On the average album, the mechanical royalty would be around 35p.

You might also encounter a third type of royalty from record sales, namely a producer's royalty. Some producers accept a set fee for making a record, while others opt for a number of the artist's royalty points on each sale, either on top or instead of this. It's an area for negotiation. Some musicians hardly need producing at all (some actually produce themselves), but it could be argued that the producer is more important than the band in the case of PWL, or of Trevor Horn and Frankie Goes To Hollywood.

The difference between the wholesale and retail price of a record is split between the record shops and the Government, who take 15% as VAT. Although the record shops seem to take the largest slice of any out of the retail price, this has to cover their overheads, such as running and maintaining the shop, rent, rates, staff, electricity bills and the risk involved in stocking records which don't sell as well as expected.

All of the remaining money goes to the record company, but it's not all juicy profit. In the first instance, the record, cassette or CD has to be manufactured. Manufacturing involves a comparatively high initial outlay for the pressing of master discs, acetates and so on, but once the presses are moving, the average cost per record comes down dramatically, averaging 39p for a vinyl album.

Other expenses include distribution, advertising/promotion, and A&R - the division of the company responsible for discovering new talent and nurturing it once it's signed.

Finally, there's record company profit. Around 90% of all records make a loss, so the other 10% have to subsidise them. In the last few years the singles market has collapsed, and seven-inch singles selling for £1.79 now make an average 13p loss for the record company. Twelve-inch versions fare even more badly, losing the record company 15p per copy. Record companies now view singles as promotional items for related albums, which is one of the reasons albums are often rush-released by bands who appear to be one-hit wonders.

But independent record companies are still able to make a profit from singles, since the money they spend on things like advertising is proportionately much less than that spent by the majors.


THESE ARE THE NEXT major way to earn cash from a record. Each time a song is played to the public, a fee is due to the copyright holder, and these can add up to more than you might imagine.

By far the simplest way of ensuring you don't miss out on any earnings that are rightfully yours is to join the Performing Right Society. Last year the PRS (which is a non-profit making organisation) collected over £78 million for its writers and publishers in the UK alone. To join the PRS, you need to be an "active" composer or musician who's actually written something that has been (or might soon be) recorded. If you're not, you may be signed to a publisher who is a member, in which case you'll still enjoy the benefits of the PRS collection service.

At the last PRS distribution, one play on Radio 1 was worth around £183, divisible between the composer, lyricist and publisher. Recommended divisions are equal thirds, so if you wrote the music and words you could expect around £122, although in a band situation where there may be (say) five writers and two publishers, this would come down to £26.

Aside from radio, television, jukeboxes and discos, royalties are also earned for music on aeroplanes, at football grounds, on telephone switchboards, and so forth. So the earnings potential is simply enormous.

Now, not all airplay is of equal importance, and this is reflected in the size of the royalty paid. A system of station values comes into operation here, based not on a particular programme's audience, but on the potential audience that programme could conceivably attract. So, seeing as BBC Radios 1-4 are available to the whole population, they have a station value of 100 - whereas Radio Newcastle has 4.15 and Radio Jersey 0.19. BBC radio stations give the PRS a computerised tape of usage which has been conceived by the various DJs. Independent Local Radio stations each have a separate agreement with the PRS, and pay a set fee every year, rather than being incorporated in the station values system.

Remix producers don't automatically get royalties from airplay, although there is a strong argument for this to be the case. If a remix proves immensely popular, the parties involved in the original version may agree to cut the remixer in, but probably not before "extensive" negotiation.

PRS royalties are payable to the writers of a piece, rather than the artists. Artist royalties are governed by Phonographic Performance Limited (PPL). As Nigel Holtby mentioned in his 'Airplay Action' piece in PHAZE 1's launch issue, the PPL has agreements with 52 radio stations whereby the stations pay for an agreed amount of "needletime" - typically nine hours per day. Each station then makes a note of which records have been played within that time, and royalties are worked out accordingly.

As Nigel also mentioned, some independent record companies aren't members of PPL, and usually write "non-PPL" on record sleeves to inform radio producers of the fact. The argument in favour of not joining PPL is that non-PPL records fall outside the needletime agreements and can therefore be played as a cheap extension to a radio station's music coverage. Understandably, PPL play down the importance of this, as do radio stations themselves, but the theory is based on fact.


THE POTENTIAL OF merchandising as a money-spinner is often underestimated by the public. It's also something many young bands fail to capitalise on. The best opportunity for selling T-shirts, posters, scarves and so on is after a gig, whether it's at Wembley Stadium or down the local pub. Bands make a profit of around 30% on all merchandising sales - more if they sell everything themselves without a promotion company.

On a shirt costing around £7, this represents a financial gain of at least £2.10 - compared with 79p on the sale of an album, remember. Suddenly, merchandising begins to make sense. Many major tours are subsidised in this way; recovering the cost of staging a show on ticket price alone would make admission prohibitively expensive, and nobody would turn up. Touring can be a way to earn a living for small bands, and an alternative route to fortune for mega-stars. It's the bands somewhere in the middle that tend to lose out.

Major record companies tend to over-estimate the needs of their bands at gigs: the PA system is always bigger than necessary, and there are always more lights than the band strictly need. Extra roadies are always hired "just in case" and everybody stays in the best hotels, which are then smashed up in the best rock 'n' roll tradition - though pretending to be a star is generally best avoided, since more often than not, it's the band that has to pick up the tab.


FROM THE ABOVE, it's possible to work out approximate weekly earnings based on average contracts for a variety of chart placings. Let's take as an example a synthesizer duo - the next Climie Fisher, perhaps - signed to a major label, whose songs are co-written by both band members, and published by one single company.

Each member of the band could earn between £250 and £300 from having a single at number 100 in the charts - notching up around 800 record sales in a week and gaining a meagre amount of airplay.

If the same act reached number 20, record sales alone would generate around £1,250 for each band member in an average week, based on a sale of over 13,000 singles. Add to that about a grand each for airplay (based on around ten Radio 1 plays plus the locals), and each side of the duo would net £2,250.

Hitting the jackpot with a Number One charting single means the band are selling around 77,000 records per week. Airplay would go up to around 18 Radio 1 plays and the equivalent nationwide, which, if my trusty Casio is to be believed, gives each band member a total payout of £9,066 before tax. Not bad for a week's work.

Now, our mythical synth duo could also have an album in the charts to top up their revenue, in addition to earning extra cash from television appearances, merchandising sales, appearing on compilation albums and the like.

It all paints an enticing picture. Should an album "go gold" in its week of release (100,000 sales), the average band is nearly £100,000 up on record sales alone. With all this money just asking to be lifted from the wallets of the general public, it's no surprise that the music industry is infested with sharks. So keep your eyes and ears open, and never go fishing alone.

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Stick Trix

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Life's A Beach

Phaze 1 - Copyright: Phaze 1 Publishing


Phaze 1 - Feb 1989

Feature by David Bradwell

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