Finance & Funding 101 "IT TAKES MONEY TO MAKE MONEY." - OLD SAYING "IT TAKES MONEY TO LOSE MONEY." - NEW SAYING OF NERVOUS INVESTOR(S) The one thing you can bet on in this industry is that IT DOES TAKE MONEY. More money than most artists dream of is spent developing, recording, manufacturing and promoting a new act's first release. But not to worry; if you're on a label, you will probably find out exactly how much it costs when you begin getting your royalty statements from the company. One of the most comic/tragic things to witness is a newly signed artist whose head swells up six hat sizes because he just got a sizable advance from a record label. Somewhere in the artistic mind there seems to be a block against the word "recoupable." When a record company advances you money, it is just that: an advance. Look at it as a loan you will have to repay. They won't come get your car, but they will see to it that they recoup every dime they invested in you before you see any further royalties. They, in effect, have a lien on your recording career. So the next time you see Johnny Skunkhead bragging about the six-figure advance he got for Suzi Dahling, ask him how he's going to repay it since Suzi hasn't been sober or on time to a gig or session in years. An act has to sell a lot of records for a label to recoup a six figure advance. A lot of records. Keep in mind that the advance is usually a great deal less money than the amount they will have to spend to get the records in the stores and promoted. So what do you do if you want to further your recording career and don't have a six-figure offer from a record company? You do the same thing that every other industry does to raise capital: you bring in investors. You may get lucky and your Rich Uncle Bob loves your music and believes that you can really be big if you just had a record out. He is willing to back you for an album. Or you may just have a group of people who really believe in what you're trying to do or say and just wants to help. How do you compensate these people for their faith in you? There are a few rules of thumb that should be followed when seeking out investors in any entertainment project: (1) Make the investor realize that this is a very high risk investment. Statistically there is little chance of realizing a profit. Failure to make your investor aware of the risk factor could constitute fraud. (2) The investor should realize that he/she may lose everything and should never venture money that they cannot afford to lose entirely. It is very sad to see someone put their kid's college money down on the table for a roll of the music-biz dice. And when the economy takes a turn for the worse, who is to blame for the investor's kid not getting the new Maserati and having to go to public school? You. (3) Is it really a viable investment? The bottom line judge of the success of any recording project is the same judge for any other type of industry. Does the public need or want this product? Are you playing twenty dates a month? Do the audiences at gigs ask you for tapes? If so, how often? Can you sell 1,000 tapes off the bandstand in a year if they don't fly in the record stores? Try to keep in mind that most artists think of themselves as the exception rather than the rule. They have to believe that they are going to make it no matter what. It is very hard to believe in your talents and abilities and still be objective about the marking of your services. Your girlfriend might also think you're great, but will she buy the 1,000 CDs in your closet? (4) I know a number of unsigned bands that are doing quite well in merchandising records, t-shirts and other memorabilia off the bandstand. It makes up a major portion of their earnings. One of the great mistakes is to press up a bunch of records for distribution to radio stations, even college or alternative radio. You really just can't compete as an individual on a national scale. Many artists feel that their material is so strong that the radio will pick up on it immediately and it is sure to be a Big Hit, bringing record execs to their door. The fact is that there are only so many minutes in a broadcast hour, and radio programmers have to play what their demographic target audience wants to hear. Even on college or alternative radio, what will the listener request: R.E.M. or Someone They've Never Heard Of? (5) Examples of successful independent releases stuff my file cabinets but only because these artists had both a demand for the product and a plan to finance, manufacture and market it. A good example is my ex-wife who sells cassettes off the bandstand for $10 a pop. She has an independently produced master in the can from her earlier dances with record labels. It is a broadcast quality master. The majors didn't pick up on it but the mix is done and the artwork has been shot. She has a friend who puts up the money for each repressing of the master. It usually cost about $2000 and takes possession of the cassettes. He advances them to her 50 at a time for $5 each. He has become the wholesaler. In about four months, he has his money back, and from there on he gets a buck a copy. It works well for everyone. He gets his money back when 400 have been sold, and over the next six months or so he will turn another $600. He sits on the collateral. My ex gets $2000 from the first 400 sold, and an additional $5400 on the last 600. On her friend's $2000 investment, he has gotten back $2600 in less than a year and my ex takes in $7400. This is a fairly reasonably-secured business investment. There is little overhead, except for the manufacture of the tapes. One thing to keep in mind though, is that my ex wife is very talented, regionally well-known, and works over 200 nights a year. Then you have the big time. (6) To attain any kind of national recognition requires money and hard effort. If you must have your product out, this is some idea of a very bottom-line way of looking at things: ALBUM PRODUCTION 50 hours 24 track studio time @ $35 per hour $1,750.00 4 reels 2" Ampex 456 @ $115 per reel $460.00 12 Reference cassettes, DATs, analog reels $125.00 Color separation (one side only) $200.00 1000 Color cassettes 1,500.00 1000 J-cards $3,500.00 1000 45's - 500 each for 2 radio promotions $3,000.00 ALBUM PROMOTION 12 months Radio regional promoters, per release $25,000.00 Printing, Logos, posters, etc. $1,500.00 Postage, phone, miscellaneous $3,000.00 This is assuming that the band plays and sings all parts for no pay, that your cousin is the producer, you don't pay taxes or unions, your brother is an engineer, and your girlfriend is a graphic artist with a printer who owes her a favor. This is a very low budget. Of course, it has been done cheaper, but I don't see those releases topping the charts. I got my first album recorded, manufactured and promoted for under $1500. It sold well under a million copies in Texas alone, and I still fondly use them as skeet targets. There are different ways of collateralizing a deal like this. Usually the backer has all the rights in and to the master until he is paid out. The backer might also demand a part of the publishing rights. It goes on and on and on from there. They can ask for a piece of personal appearances, merchandising income, depreciation of capital assets (sound, lighting, trucks, etc.). They will go on like this until you say "No." Where you say no depends on how hungry and/or stupid you are. I have been and seen plenty of both, and have learned to regret it.