Rather than thinking of an advance as a huge payday, think of it as a loan made to you by a music label. In a typical (old school) deal an advance will be paid out to 1. buy your band’s exclusive services for a period of time and 2. be used to pay for the recording of you album. Oh, minor detail, a typical recording agreement which pays a large advance to the artist usually means that the label paying the advance has just bought the rights to the band’s masters. The advance is not really your money. Its yours to use to make your album (or albums) and possibly live off of while you are recording your album so you can quit your job at Wal Mart. Nice right? Not so fast.
That advance/loan has to be paid back to the label one way or the other. The typical way a label recoups the amount it advances is by taking any profit your record makes first before you get paid a dime. In 360 deals, an advance is recouped not only from your record sales but from your live performances, merchandise and anything else your band sells.
Here’s a depressing example: Atlantic gives your band $100,000 bucks as an advance in exchange for a 3 record deal. Depending on the wording of the recording agreement, that advance is paid to cover the production of your first album with a potential second advance to make your second and third. You have to hire a producer ($30,000), rent studio time ($10,000), pay a mixer and post production house ($10,000), pay some studio musicians ($10,000), pay for clearance of a sample you need for one track ($10,000) and feed and house four band members while making the album ($30,000). Just like that you have spent your advance. Hopefully you got your record made. If not, its back to the label to ask for more money.
Now your album is done and the label spends another $100,000 to market and promote it. Right off the bat your band is $200,000 in the whole. Your record has to sell a lot of copies at the going Best Buy price of 9.99 (which is split amongst Best Buy, the distributor, the wholesaler, and the label and finally you, probably at about $1.00 (if you are lucky) per cd) before the label has gotten its $200,000 loan back. We can save the mystery of royalties for another day.
Here’s another little nugget of bad news: Labels don’t have any money to pay big advances any more. Advances have shrunk right along with the number of physical cd sales.
What does this mean to you? It means you shouldn’t 1. wait for a big advance cause it ain’t coming and 2. try to be as self-sufficient as possible. Bring a finished or nearly finished product to the distributor or label and ink a license deal rather than a recording deal. Rather than take a huge advance, try to work out a better split on royalties. That way you won’t be paying back your advance for the rest of your music career.