The Music Industry's Funny Money

Still think a music career is an easy path to a blinged-out life? Don't believe the hype. A whole lot of folks have to get paid before the musician does. The Root traces the money trail.

If you thought the life of most musicians was comparable to the blissful and blinged-out existences of Kanye and Rihanna, you've clearly not heard much about our ever-desiccating music industry. According to the latest Nielsen research, only 2.1 percent of the albums released in 2009 sold even 5,000 copies -- that's just 2,050 records out of nearly 100,000, and to fewer people than go to a small liberal arts college.

As if that weren't bad enough, even the bands who do move units end up paying through the nose, mouth, eyes and ears for management, legal fees, producers and other expenses, leaving most of them scrounging to pay for record advances and, if they can afford it, health care.

From the outside, it often sounds fun to be in a band. But before picking up that guitar or microphone, take a look at where the money from a record goes.(Scroll down to continue)

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SLRP: The suggested list retail price of a CD is currently $16.98, while the standard wholesale price -- what retail stores pay the label per CD -- is about $10. Once the retailer gets the CD, they can sell it for however much they'd like -- hence "suggested." Artist's royalties are a percentage of the retail price. Superstars can get 20 percent of the SLRP, but most get 12 percent to 14 percent.

Packaging charge: 25 percent of the SLRP goes back to the record company immediately for what's called a "packaging charge" -- that's the label literally charging the artist for the plastic case in which his or her CD is sold.

Free goods: In essence, "free goods" are a roundabout way for labels to discount records so stores will be more inclined to buy them. So rather than sell Best Buy 100,000 records at the regular wholesale price, the label will sell them 100,000 records for the price of 85,000. The artist is then paid for the 85,000 CDs, not the actual 100,000 sold to the retailer.

Reserves: Records, especially records by newer artists, are generally sold with the caveat that retailers can return to the label whatever copies they don't sell for a full refund. Thus to ensure they don't lose too much money on artists, record labels will sometimes pay artists for only 65,000 copies out of 100,000 copies, just in case 35,000 (25,000 if you consider the free ones) are returned. If the retailer ends up selling all their copies, the label will then pay the artist the balance owed, which can sometimes take years.