Toric wrote:
Why don't YOU tell me how a label calculates their income from song sales? Explain it to me smart guy.
-T
Sure, bro. Here let me break it down for you so the next time you are in a situation such as this, you'll have a modicum of understanding regarding the business aspect of a release.
Let's look at the original "equation" you posted:
Toric wrote:Here's a math equation for you.
1,000 x .99 = answer a
30,000 x .99 = answer b
answer b - answer a = answer c
answer c /2 = net profit for label (minimum)
Post answer here plz.
I'll go ahead and use a hypothetical situation modeled after the original "equation". Here's scenario 1: Toric self-releases a track.
Answer A:
Toric self-releases a track for .99 cents. Through some miracle, he sells a 1,000 copies. Sales revenue from the release is $990. Unfortunately, Toric also has associated marketing costs of 10% (for sake of simplicity lets say your artist website), as well as distribution costs of 25% (since Toric has no previous dealings with the digital distributor and does not deal in sufficient volume for discounts which more established labels enjoy). Additionally, Toric has associated legal fees of another 10% in order to properly license his creative material. Moreover, he also has production costs of 10% (for your synthesis engineer, mixing engineer and mastering engineer assuming you want your track to sound comparable to other commercial releases). Also, tax season is finally here! Toric employs an accountant at 5 percent of his total revenues to do his taxes, since he isn't an accountant. Also, Uncle Sam is here to collect 35 percent of your total net income, since Toric has self-released on his own label which is incorporated (we'll refer to that as tax costs).
Now pay attention here:
Revenue minus
cost is equal to
net income
Toric's self released sales revenue: $990
minus marketing costs $99 (.10*990)
minus distro costs $247.50 (.25*990)
minus legal costs $99 (.10*990)
minus production costs $99 (.10*990)
minus accounting costs $49.50 (.05*990)
NIBT (net income before taxes) = $396
minus tax expense $138.60 (.35*990)
BOTTOM LINE (realized net income) = $257.40
(Mind you this doesn't even account for manufacturing overhead such as utilities, studio rent, which both by GAAP and IASB standards are to be included in the costs of manufacturing goods etc.)
Conclusion: After self-releasing, Toric has enough money to pay a fraction of his studio apartment's rent.
Answer B
Since Toric has already self released his track, a notable label turns down his submission for a release. The track is already creatively licensed (label does not want to deal with associated legal fees of transferring rights and accounting for amortization expense), had sub-par production quality (due to the engineers he could afford), was already marketed to the general populace (and had mainly negative exposure due to the factors above), and has already been on the internet freely available for download over p2p due to his previous self-release.
Scenario 2: Toric decides against self-releasing and waits until he is good enough to get a release.
Answer A: Not applicable. Toric in this alternate dimension actually has foresight.
Answer B: Notable label has taken an interest in one of his submissions for release. In order to prevent any previous negative branding from impacting sales, the notable label asks Toric to change his moniker. Since there was no previous licensing costs associated with this, notable label can use the attorneys they have on retainer (flat free for all artists) to do this (5% of revenue). Additionally, notable label has distribution channels set up with various digital distributors and cumulatively pays them 10% of revenue (due to the sheer volume of notable label's sales they are offered commercial discounts). Moreover, notable artist, one of the most distinguished artists on notable label's roster, has a market of 50,000 people, and in order to help promote and market Toric's music, notable artist adds Toric's track to his DJ playlist (thus, notable label realizes a marketing cost of virtually nothing while exposing Toric to nearly 50 times more potential customers than he could through self-release). Since notable label also has professional synthesis, mixing, and mastering engineers they always use for all their artists (either in house or third-party), production costs are marginal and can be included in manufacturing overhead (10% of revenue although probably significantly less). Finally, notable label is incorporated, thus, they have accountants both internal and external which they constantly deal with (once again a marginal cost which could be included in overhead but for shits and giggles 5% of revenue). Uncle Sam is back again; however, notable label's accountants' actually have undergraduate degrees and are specialized tax accountants (unlike the accounting clerks from HR Block that Toric utilized). After clever accounting, notable label only has to pay 20% of net income as tax.
Due to notable label's market, Toric sells 30,000 on his release at .99 a pop.
Sales Revenue for notable label on Toric's release: $29,700
minus legal costs $1,485 (.05*29700)
minus distro costs $2,970 (.10*29700)
minus production costs $2,970 (.10*29700)
minus accounting costs $1,485 (.05*29700)
NIBT = $20,790
This is where the label keeps 50% and hands Toric 50%. After costs are realized on the balance sheet and before income is taxed, because Toric is accountable for his own taxes.
Therefore, net income before taxes for Toric is $10,395. ($20,790/2)
minus Toric's tax expense $3638.25 (.35*10395)
TORIC'S BOTTOM LINE (realized net income) $6756.75
Net income before taxes for notable label: $10,395
minus notable label's tax expense $2,079 (.20*10395)
NOTABLE LABEL'S BOTTOM LINE (realized net income) $8,316
Conclusion: Toric can pay his rent and then some.
So what would you prefer as compensation for a track release? $257 or $6756?