Last week the world economic situation claimed another victim in the music world. Pinnacle Distribution, one of the biggest British independent music distributors, declared bankruptcy (known as administration in the UK). The ramifications of another large physical (CD’s and vinyl) distributor going out of business will have a wide reaching effect.
Distributors work with independent labels to distribute hard copies of a label’s catalog out to the stores and the public. The labels wait for delivery of payment from the distributors based on the number of units sold. If a distributor goes under, the labels, and the musicians who are signed to labels, stand in line with every other client/creditor of the distributor waiting to get paid. Usually the result is not enough money to go around. A label may end up taking pennies on the dollar for what is owed rather than taking nothing at all.
It’s a true domino effect. Simplified example: Jimmy usually buys $100 bucks per year in cd’s for holiday gifts. This year Jimmy got laid off and is no longer buying cd’s for his buddies. The store (Best Buy/Target or the last remaining record shop) where Jimmy used to buy cd’s notices that a lot of its customers are like Jimmy and does not order as many cd’s as it did in the past. The distributor who distributes Jimmy’s favorite bands’ music orders the same number of cd’s as it did last year from the manufacturer, but cannot sell as many units. The distributor cannot pay the manufacturer nor can it pay the labels who provide the distributor with its product. The label cannot sell as many of its artists’ cd’s nor can it distribute its cd’s worldwide. The label who is chiefly dependent on record sales to make cash, cannot continue to market or advertise its artists. And finally, you, the artist who survives on royalties from record sales does not get paid.
Major downer. Sorry. At first glance it appears that the sole reason for the chain reaction which is not-so-eloquently described above is the crumbling world economy. However, if you have been paying attention to the music industry and reading this blog, you already know that is not the only reason. The underlying reason for the crumbling music industry is rise of digital music as a true industry standard for music sales. The cd doesn’t make sense any more. It is a “loss leader” for most bands and distributors alike. The overhead involved in manufacturing, shipping, returns and fees make it almost impossible for an independent label or the artists on that label to make any real money from physical cd sales.
Yes the economy is scary. Yes music sales as a whole are not great. But, today there is no reason for a creative independent label or artist to be shackled to the dying distribution system. Using digital distribution companies, releasing digital only albums, striking exclusive deals with non-music websites or stores are just some of the out-of-the-box methods for musicians to make money. New and unique methods for delivery are popping up everyday. Bands can provide fans with exclusive content on its website or through a fan portal or by selling thumb drives with its music preloaded on it.
As the old industry infrastructure continues to crumble, independent labels and artist must move quickly to avoid being swept under by the collapsing giant. It is truly time to think independently, meet with other creative people and think of methods on your own to get your music to the masses. Most musicians are creative. Successful musicians realize that their non-musical-team which they choose to work with must be creative as well.
SHAMELESS SELF PROMOTION OF THE WEEK: The State of Illinois (?)
My adopted state government of Illinois finally got something right. Recently it passed Senate Bill 1981 which increased the state film tax incentive in Illinois from 20% to 30% and also includes a tax credit of 15% for the using labor on a film production from poverty stricken areas. The prvious bill was set to disappear on January 1, 2009 is now extended for an undetermined amount of time. Independent film makers in the music, movie and television industry should all be happy. Now the trick is trying to explain the tax incentives to a potential investor.
DISCLAIMER: THIS BLOG WAS ORIGINALLY POSTED ON DECEMBER 8, 2008. HOT ROD DID NOT GET ARRESTED UNTIL DECEMBER 9, 2008. THE AUTHOR HEREBY RECANTS ANY AND ALL APPLAUSE OR PRAISE DIRECTED AT THE SOON TO BE “FORMER” GOVERNOR OF ILLINOIS.
Everyone remembers Cuba Gooding Jr’s famous quote. No not the one from Radio or Snow Dogs. His famous rant to his agent, Jerry Maquire: “SHOW ME THE MONEY!” As a musician, you may be waiting for the opportunity to ask a label exec to do the exact same thing. Problem is, (a) labels don’t have much money to throw at new talent and (b) getting an audience with an A&R guy is not exactly easy for most performers.
Musicians just starting out may not have that much in the way of overhead. Instruments, gas money, food and booze costs and perhaps an occassional Holiday Inn tab. But as with most businesses a plateau is reached; a band has to spend money to actually make more money. Recording studios don’t come cheap, neither do managers, lawyers, PR firms, booking agents, etc (I know, Debbie Downer moment). While it is possible for bands to self-promote, utilize myspace and the internet, travel on the cheap and record in your buddy’s uncle’s improvised studio/trailer, it takes some serious cash to take the next step.
So what’s a band to do? Well, you could keep plowing away and playing as many shows in as many places as you possibly can while only eating Taco Bell and Ramens; all the while hoping and praying that Clive Davis happens to be in Witchita, Kansas at the Stumble Inn when you hit the stage, waiting for the end of your set to hand you a huge bag of cash. Or you could come up with an actual business plan for your band and try to get cash from a more traditional source for businesses.
As I’m sure you have been a loyal reader to my past blogs (see http://www.lawyer4musicians.com/2007/11/why-do-you-need-to-set-up-llc.html), the first step for an artist who is actually serious about making a living in the music business is to treat her music like a business. Set up a corporate entity. A limited liability company (“LLC”) is the most flexible option out there and is usually a good way to get the protection you need while not being pinned by corporate formalities. In addition to the benefit of protecting your personal assets, setting up a corporate entity will show people and entities with money (investors, banks, venture capitalists, etc.) that you are legitimate. Your music business will be eligible to open a bank account, use a business credit card, and build your businesses’ creditworthiness.
Just like any other business, a musician’s company may eligible to qualify for loans from lending institutions. Check out the Small Business Administration at http://www.sba.gov/. There are a lot of major lenders, like Chase and Citibank, who work with the SBA and specialize in loans for small businesses of all types. A lender will take a look at your individual credit as well as your corporate entity’s credit in determining whether you qualify for a loan. It helps for your LLC or corporation to be in business for two years or more or, if your credit isn’t so hot, to have someone who is willing to co-sign the loan.
There are other resources out there as well. Rich people are always looking to invest in something. Just think of all the rich folks who invested in the XFL. What an awesome idea! Seriously, there are people known as venture capitalists or others known as angel investors who, when presented with a legitimate business plan hand over cash to those asking for it. Obviously, these are not the easiest people to find and you better have a really serious business model in place which identifies how much you are going to earn with the money they are about to hand over to you. But the point is, they exist and surrounding yourself with a team of people who know how to reach potential investors is a big step in the right direction.
Finally, there are other groups in each state that are designed to help small businesses, specifically minority owned businesses. Check out some of these links: www.commerce.state.il.us/dceo/, www.business.illinois.gov/women or http://www.mbda.gov/. There are a ton of programs out there set up to actually give money away to qualified businesses. Keep in mind, however, that if you don’t have your business together, you aren’t going to get very far with any of them. So organize first, then try to get the green.
My point is this: Labels are not doing so hot right now. The ones that are still out there don’t have money to just hand out to new talent. Artists have to be responsible and treat their music as a multi-facted brand and money maker. A band who never signs a record deal, but licenses its self-recorded music to television and movies can make serious money. Becoming self sufficient, tapping into all avaiable resources and following a legitimate business plan can not only make a music label obsolete, but make your dream of being a full-time musician a possibility.