An Audience Machine

Leverage

Generally, recording artists start off with a pretty rotten deal. The standard record contract gives control over “masters” (the master recordings, key to royalties and reissues down the line) to the label. Labels also deduct charges for “breakage” (physical merchandise that is damaged in shipping) from artists’ sales, including from digital sales where there is no physical merchandise to be damaged. And labels bargain for a 7 percent royalty payout on “sales” and a 50 percent payout on “licenses,” but class iTunes downloads and other digital transactions (which are licenses—according to iTunes, you don’t own the iTunes music you buy) as sales, keeping 93 percent of the revenue from each ninety-nine-cent track, rather than 50 percent, which is what the actual contract says they should get.

And in an example of what can only be called theft, the labels used to run “third-shift” pressings of CDs in the dead of night, which were off the artists’ books, and sell those CDs without any payment to artists. As noted copyright scholar William Patry documents in his book How to Fix Copyright, this routine, industry-wide practice was ended only when the Sarbanes-Oxley Act made company executives criminally responsible for false accounting statements.

This rotten deal is largely nonnegotiable, especially for new artists. Even famous and successful acts, who represent a major source of revenue for the labels, usually can’t renegotiate the deals they signed starting out. A musician who has satisfied the terms of his initial deal and become a success can threaten to leave his label unless he gets a better deal the next time around, but he’s not going to get control over his masters from the original contract. He’s not going to get paid what he’s owed on the iTunes sales of his last record.

The reason the deal is nonnegotiable is that it is industry-wide. There are only three major record labels, and they all offer the same rotten terms to their new artists. When you’re the only game in town, you get to make up the rules, and tilt them to your benefit. It’s a little like the old Lily Tomlin bit from Saturday Night Live: “So, the next time you complain about your phone service, why don’t you try using two Dixie cups with a string? We don’t care. We don’t have to. We’re the Phone Company.”

Even for very successful artists, a new contract negotiation was always bounded by the “two Dixie cups and a string” ultimatum. As in, “None of the Big Three are going to give you what you’re asking for. And if you don’t like it, try getting your music to your audience without us.”