The Insider Interview: The Record Industry Exposed

Who is the insider?
He is a long time site regular who works in Los Angeles for in a high profile position for one of the big four major record labels.
When sent a whole range of questions regarding business practices of the major labels and how different aspects of the record industry work, he was only to happy to spend some time writing some in depth and thought provoking replies.
What is included below may sometimes be controversial to some, but none of it is fabricated. It's how things work.
Naturally the identity of the author cannot be revealed because of fear of reprisal from his employer. While they are one person's take on the scene, his views are an interesting read...

As a record label executive, how do you feel about the Internet?
Unlike most of my peers, I see an untapped potential rather than a threat. Unfortunately, most people at record labels see the internet as a threat to the current business model. In a way, maybe it is. Then again, maybe it's time to shake things up a little.

What most label people don't tell you is how they're the ones making the money. The artists are in all reality short-changed most of the time. While the label and the execs are swimming in cash, the artists often see little in the way of real net dollars on album sales.
The internet is a threat to the current way of doing business. While I personally think the labels should embrace the net and use it in a way that benefits everyone, we have a lot of "old blood" that doesn't like change. We still have guys here who think giving an artist a decent "crib" and a couple of nice cars entitles them to keep the artists' royalties.

You'd be amazed at how little money artists actually see. For every million dollars an artist makes, they see less than a hundred grand of it. That's if they have a good deal, and most deals aren't good -- unless you see things from a label point of view.

In short, labels need to learn to use the net rather than fight it. If the labels don't change the way they approach this, they'll soon find out that the web is bigger than they are.

I also believe that certain songs actually should be available, even by the label itself, for free download. After all, many people bought 8-tracks or vinyl albums only to see the formats change to CD.
They already bought the song, so they should be entitled to a free download. If I bought "Abbey Road" on vinyl for the home, 8-track for the car, cassette for the next car - shouldn't I be allowed to download a copy to put on CD? After all, I already bought the
album three times.

But the labels don't see it that way. As we speak, the next format is already in the works. In another ten or fifteen years we'll be replacing our CD's too! Easy money!

The $64,000 question is - does file sharing hurt sales?
The evidence, the sheer statistics prove otherwise.
However, there is no conclusive evidence either way. The labels have spent a lot of time and money fighting file sharing and actually won that battle in many ways. Yet while
file sharing was at its peak, so were sales. File sharing has dropped substantially, and with it so have sales.
I don't think this is a coincidence.
I believe too many people bought too many albums loaded with one or two quality songs and a bunch of filler material. If that's the kind of album you're releasing, then yes, file sharing will hurt.
But if you're releasing a strong album, then I firmly believe file sharing helps.

The biggest beneficiaries of file sharing are the lesser known acts or indie artists. Any artist without the benefit of a strong label backing or high budget PR campaign certainly has a lot to gain from internet file sharing.
Bottom line is that you could prove that downloading doesn't hurt and the labels would still be against it.
Not many label people are progressive thinking or actually really know the internet very well. Label people assume that every time a download is made or a CDR is burned - a sale is lost. This obviously isn't true, but it's what they believe to be true.

What's the worst culprit – CDR trading, advance copies leaking out or just MP3 downloading?
Actually, the labels tend to be their own worst enemy here. I'll use the Journey "Arrival" album as an example here. Journey fans were told of a release date as far back as the fall of 1999. No album. Spring 2000? It came and went, still no album. Fall 2000? Still not there.
Then the album was released in Japan before a stateside release.
Normally, this isn't a problem. Normally, it's only a one or two week lapse before the U.S.
release. In this case, however, it was several months before the album hit the shelves here in the states. By then, the fans had bought the CD as an import.
It was widely available for download as well. As a result, the album faired poorly in domestic sales. It wouldn't have mattered who fronted the band, Steve Perry or Steve Augeri. It was handled very poorly. It's easy to blame the net for it though.

I believe CDR's may impact sales slightly, but no more than tape recording did years ago. The labels shouldn't gripe about CDR's either, as they get a percentage of all CDR's sold, even if they're being used strictly for data.
Same goes for audio cassettes. Hell, even CD burners are slapped with a $2.00 surcharge that goes right to the RIAA.

Record labels are seemingly going to stupid lengths to stop Net trading. Is any measure going to work?
Simply put - No! Does that stop the labels from trying? No.
There will always be someone to take over where another left off.
The labels killed Napster. Did that solve anything? No. It only made the labels look
mean-spirited and greedy. Now there are several other Napster-like sites out
there and file sharing goes right on along. There will always be legal loopholes and inventive minds. The labels can't stop it. Yet they refuse to embrace it and make a system that benefits everyone.
If you enjoyed almost exclusive power and profited immensely from the labor
and creative powers of others, you wouldn't want to give it up either.

One label - Sony - spent a lot on an CD anti-piracy measure that could be overcome with a .99c marker pen. What did you think about that?
As I said before, there will always be those with creative and inventive minds who will find a way around anything. Hell, some 17 year old kid a few years back found out how to defeat DVD anti-piracy techniques and literally invented the DVD recorder long before any such product existed.
If a 17 year old can take a DVD which is piracy proofed and burn it on a CD, can any label really win this game?

This was an example of how a label will spend a fortune to fight rather than very little money to try to find a win-win situation.
No matter how much time and money you spend trying to stop piracy, it won't be long before someone defeats your attempt at a fraction of the cost and time you put into it.

And just this week - news that advance copies of the Pearl Jam album were sent to press in CD players glued shut! Is this the silliest idea yet?
I ask that, as I have an advance CDR of the album and it didn't come from Sony!
Who thinks of this stuff?!
The thing here is that the labels don't see just how silly they look. If anything, you have a
handful of guys patting each others' backs and talking about how smart they are at their latest anti-piracy attempt.

How does a label get advance press in the future without giving up control of where the music ends up?
Good question. Right now, the trend seems to be on limiting how many promo copies go out and when they go out.
There are some ideas in the works, but I can't really divulge them right now.
The bottom line, however, is that once you release a promo copy, you can't control what happens to it. Unfortunately, some people with promo copies do things they shouldn't, like list the CD on E-Bay or upload MP3 files for everyone to grab.

I am aware of the problems the labels are trying to deal with, but as a webmaster, I have to speak up and say why is the Internet written off as all bad, when sites like mine are genuinely interested in promoting music, but can't get a major label to respond?
Your Kalodner interview shows what the vast majority of people at all labels think of the web. They truly believe there is nothing positive about it. Their view of it is that everyone online wants everything for free. They think people feel they are entitled to music without
paying for it.

Again, it's all about power and money. Label execs are truly feeling threatened by the net. They see the whole system as being vulnerable, and think that change - any change - is bad. The fact is, however, that the web is too big to ignore or win a fight against. Sooner or later, something will give. Oh - and it won't be the internet!

Your comment about wanting to promote music is telling the labels you actually want to share it for free. Ideally, it would be nice to form a mutually beneficial partnership wherein the label gets you a promo CD. You upload files of say 30-45 second long clips of each song. People visit your site, hear the clips, like what they hear, and buy the
CD. Good idea, right?
Well, the labels see even that as getting something for nothing.
I say if the album is good, and you hear the clips, you'll buy it. If it sucks, you deserve to keep your hard earned money.

What the labels don't admit to is that with just about anything you buy, be it food, curtains, clothing, whatever - if you buy it and don't like it, you can return it. But with CD's? Sorry! You bought it, you keep it. Doesn't matter if it sucks. Doesn't matter if that one hit they reeled you in with is the only decent song.

The labels also won't tell you how they prevented low priced CD singles from becoming a reality. We all remember the 99 cent 45 RPM single. Many people would buy 45's instead of LP's until they heard several hits. If the album was crap, but had that one radio friendly single, it would sell poorly even though the single would go gold or platinum. In the CD world, you don't have this option. You plunk down 15 bucks for a CD that cost the label maybe two bucks, and it's yours. No refunds here!

Moving to another issue – radio and airply - the radio industry is now deregulated, yet it is harder than ever to get a new song on the air without substantial financial backing. Can you explain what the whole Payola or Pay For Play concept is and how it works?
The old fashioned version of payola is illegal. Once a few people got busted for it, the idea of payola had to be re-invented.
Instead of the labels handing out cash and gifts to stations, they now have added a go-between to do it more discretely. People like Kalodner are essentially middlemen hired by the label. These guys will pay millions of dollars every year to get songs played on
the radio. The radio stations receive what are called "promotional payments", often getting hundreds of thousands of dollars each. Once the song is in heavy rotation, the label sends the person who made the arrangement a check for his services.

Your local radio disc jockey never picks what he wants to play. That's decided for him. The music industry is a multi-billion dollar goliath. Top 40 stations in nearly every city have self-appointed geniuses watching over everything they play. The stations win
because they get huge payouts. The payola guy wins because the label sends him huge paychecks for a job well done. The listener loses because he hears what someone else wants him to hear.
Ironically, it was the deregulation of the early 90s that paved the way to this new breed of payola. It actually made things much worse.

What kind of sums of money are being exchanged? For minor coverage? For blanket coverage?
Each song on each station is worth a minimum of $1,000.00. Some songs can net up to $10,000.00. That's each song added to each station. Consider there are about 10,000 top 40 pop stations in the U.S. alone.
Each station adds about three songs a week to their playlist. Three songs at say $2,000.00 each over 10,000 stations -- do the math. It adds up to 60 million dollars a week in cash changing hands. That's three billion benjamins a year, my friend!
How would you like Kalodner's job now?

The RIAA is trying to stamp out Internet Radio Stations by making them pay
royalties also. Is this a smart or a stupid move?
Artists deserve their royalties for any public broadcast. However, internet stations are still a new and not yet profitable industry that is still in its infancy. I think a good, fair, comprehensive plan needs to be put in place that will serve everyone's best interests.

I think a grace period of a few years to see where things are going is the best course of action. The RIAA is there to serve the interests of the labels though, and like the labels, they haven't shown a lot of good judgment when it comes to the internet.

Just this week I sent a DJ (who is a site regular) a request to play a few new tunes if I sent them to him...
His reply was this:
“I would've said "Hell Yeah!" about five years ago, but the corporate powers
that be just cut our playlist by 200 songs...Now the idea is to squeeze out our competition, since we also own the oldies station in town, who is updating their playlist. This is supposed to make it harder for the crosstown rival to hang on to their share of the market. Nice idea, but in the meantime, the listeners who like that kind of narrow
programming are the only ones who are listening.”

What do you make of that?!!
That's how the radio business is nowadays, my friend. I think I explained it all.

How about promoting these releases. Can you explain what decisions are made at high levels as far as what artists will be supported and why?
It's not art the label wants, it's your ability to sell albums and make money. Those who have that right blend of looks and willingness to do whatever it takes are the chosen few. Play the game right and you're on the "A" list.

A recent example is the excellent but ignored Def Leppard album, Vs the ok, but media overkilled Bon Jovi album!
Who's the prettier band?

In all seriousness, I think Lep hurt themselves by trying to be more contemporary and not being true to their true selves. "X" is like "Slang". It's not what Lep is all about. Young people aren't interested in an old classic rock band trying to be "hip". That's not
to say it's a bad album. It isn't. It just isn't the kind of album the traditional Lep fan wants, and the younger crowd isn't interested either.
Bon Jovi is doing the right things at the right time, and the label is helping them make it happen. It's just the nature of the beast, Andrew.

How much money goes into promotion of a big album?
Millions. Millions of dollars.

Where does that money go?
Payola. Videos. Promotional items. The band. In that order!

How much is legitimate expenses and how much of it is payoff's or favors?
It all depends on how you define "legitimate". How do define "payoffs"? To the industry, the current system of payola is perfectly legitimate. I gave you the numbers earlier. I'll let you decide.

Manipulating the media seems a fine art – with special appearances on certain programs etc. How much work goes into making that happen?
You do what will get you more album sales.
It doesn't matter if it's Britney stripping at the MTV video awards, or Aerosmith working with producers they hate on songs they hate, or Rob Thomas dieting and working out so he can look good at some appearance on some show, or any of a number of artists doing early morning radio promotions when they'd rather be sleeping.
You do what is expected of you to sell just a few more albums. Keep in mind that 99% of what you see is planned in advance. The offbeat antics of Eminem is all a planned thing to generate sales.

Moving on again…As far as the recording of some of these actual releases go…How about the practice of having bands/artists substituted in the studio
with professional session guys?
This happens a lot more than people think.
Sometimes it's to get that "one perfect" take. Other times your guitarist is too drunk or a no-show.
Sometimes, your guitarist just can't seem to do what you want. Can you say Creed? Nickleback? Can't do that guitar part? We'll bring someone in who can.
This revelation will probably piss a few people off, Andrew! I can hear and smell the shit hitting the fan already!
Most of these appearances by others go uncredited. You think Creed wants to admit they brought someone in to do leads?
Some bands have entire albums packed with work done by other drummers, bassists, guitarists, whoever and whatever. It's so common in the business that it's really not a big deal.
Most fans have no clue that this happens though.

I have heard examples where the entire band have been replaced for the all important debut album. Is this correct? Have you heard of such instances?
Like I said, it happens a lot more than people think.
Yes, I have heard of this and am fully aware that it happens a lot. Artists tend to have a lot more control after the first album. Pink, a pop star all over the radio today, is a prime example of this. They dictated everything on her debut. She was able to have far more control on her latest album.

How often is a good looking artist being sold to the millions actually not behind the bulk of the music they are fronting?
When it comes to song writing, it's quite common. In fact, the labels usually decide what songs will be recorded, who will write them, and what the songs will sound like.
A pretty face and nice body can sell a lot of albums. Can you say J Lo? This woman knows nothing about music, yet she has a pretty face and a decent voice and an ass that gets a lot of attention.
What does she need to know? A pretty face and nice body is more important than real talent in today's pop music world. Let's not forget that of the over 12 billion dollars a year the industry makes, the bulk of it is from the top 40 pop market.

What are your thoughts on record labels not supporting artists for any period of time as they used to?
The whole business has changed. The way things are done has changed dramatically since the 1970's. These days, it's all about the benjamins, my friend. It used to be the old saying "here today, gone tomorrow" for most pop stars. Now it's like "here today, gone later today".

Labels today want an immediate return. Outside of Aerosmith, Bon Jovi, Gwen Stefani and Moby, practically no one is in the 30's or older. Youth is more important now than it's ever been. Therefore, you don't have the years you used to have to develop an artist. Today's kids want people in their 20's, if not their teens. How good can you look on MTV?

Why not try and work a band as it used to be, with maybe the band breaking through on their 2nd or 3rd album, rather than going for instant payoffs these days?
Welcome to the MTV generation. You need to be young and good looking. Also, labels want a return on investment right away. Money talks.

As you know, I recently interviewed John Kalodner, who said Sony were not interested in working bands that were only going to sell 100,000 units of a release. Isn't that a fair and reasonable number of units sold though?
Not for a major label. That may be fine on the small labels, but for a biggie you better at least go gold. You better at least make some money for the label. Major labels are interested in putting out CD's that will sell millions of copies.
The result is inevitably a focus on the artists who the label believes is capable of producing multi-platinum discs. That overwhelming desire to sell millions of records
and get a big return on their investment makes the label unwilling to produce a second album for an artist whose debut album yielded disappointing sales.

I read a great book recently - It basically blows the lid on some industry
practices. One comment was interesting - it said having a major label record deal was like having a Credit Card with 500% interest. Thoughts?
Every single penny of the money spent recording an album, making a video, whatever - is money that the label has loaned, not given, to the artist. If you got an advance of a half million bucks, which by today's standards is rather paltry, your album has to go gold just to hit the break even mark.
Today's advances are upwards of two million dollars. Even with a good contract you need to go double platinum to break even.
Most artists use only a part of that money on the actual business itself. Most take a big chunk of that cash and buy a few fancy cars, live in a big fancy house in Beverly Hills, and show themselves off on MTV Cribs.
While they're showing off all this stuff, they are in all actuality not only broke, but owe the label big money unless and until the album sells enough to repay the advance. If the advance isn't recovered, they lose those cars, the big house, and never see any
They look cool on MTV Cribs, but a few years later most of them are working in manual labor jobs making minimum wage, and the label is taking every single penny in royalties. It's not like they have any real marketable skills.
Keep in mind that industry is in the business of making money and lots of it. The welfare of the artists is never a concern.

A store sells a CD for $X. Where does the money go - how is it broken up?
On average, the label makes about $6.50 for each CD.
Of that, about a dollar goes to the artist. A couple of bucks goes to the manufacturing and distribution process, a part of which the label often takes from the artist.
The rest is for the label. A platinum album will net the label roughly two and a half million bucks. That doesn't include the money made by the distributors, who are generally owned by the labels anyway. The artist will make around 700k before expenses get deducted on a platinum album.
Most albums never go platinum though. Also, there's that little footnote to add here -- the advance. On a million dollar advance, with a platinum album, you still owe the label about 300 thousand bucks. On an advance of a couple of mil, with an album that hits
platinum you're still 1.3 million bucks in debt!
Record stores' earnings are substantial. They earn everything over the wholesale price, and can at any time return product that doesn't sell. They also get a little extra to put up big displays to feature an artist.
Everyone makes a lot of money except the artist himself!

How important is a publishing deal in the scheme of how an artist signs a
When it comes to income and livelihood, it's the single most important thing in an artist's life.
Publishing is the money you receive for writing the song. Publishing money comes from the copyright of the song itself, i.e. the words and the music, not from the actual recorded version of the song. The song writers own this copyright and receive publishing
money from that ownership. The owner of the songs is entitled to some exclusive rights. Only the copyright owner can do things with his song, unless people pay him or her to use it. Think of television commercials as the big example here. When people are willing to pay the copyright owner, the owner will grant a license for someone to use that song.
Publishing is also how artists receive airplay royalties. No one can play your song publicly (as in radio) without you granting them a license. Every time your music is played on the radio, you are entitled to performance license money. Unfortunately, many artists sign these rights away.
Other forms of income from publishing rights include print licenses and mechanical rights. All boring stuff for the purposes of this interview.

How vital is a good record producer / engineer and what do they cost an
artist to have involved?
A well known producer can command almost whatever he wants.
Let's say you're in "Our Kickass Band". You try to get Mutt Lange to produce your album. You see he wants 100 thousand bucks upfront and and six points. Too rich for your blood. Let's try Bruce Fairbairn. He's available for $30k plus three points [at least he was available…RIP].
You keep looking and find someone else. He only wants three points. In other words, you're giving up a percentage of your money on all future sales of the album to the
A good producer is vital. Bands also should work with producers who share their vision of what the album is to sound like. Ultimately, it's the producer, not the band, that makes the album sound like it does.

I see time an time again and artist who moves on from a record label but doesn't hold the rights to the music they recorded for that label. What follows is countless compilations by that original label that the artist has no control over. How and why does this work?
When a band records a song in the studio, there are two copyrights involved. One is for the words and music of the song. The other is for the recorded version of the song. If a song is recorded a second time, the copyright in the words and music don't change, but you would have a new copyright in the actual recorded song.

Whoever pays for the studio time owns the copyright for the sound recording. Keep in mind that artists use the advance money, a loan, the label's money, to pay for studio time. Therefore, the label owns the copyright to the recorded version of the song.
The songwriters still own the copyright to the words and music, but the label owns the recording. This is why the label can put your song on compilation albums whether you like it or not. Bear in mind, however, that the writers of the song are entitled to

What's the worst deal you have ever seen?
Robbie Williams. You'd have to know the European pop music scene to know just how bad this deal was. Mariah Carey is a close second though.

What is the most outright corrupt transaction you have witnessed?
Not a transaction per se, but a major label head ordered a manufacturing hold on a #1 hit single for one artist, which had held his then partner's single at #2. The result was that song becoming an artificial #1 hit because the original #1 track slipped in sales and
a little down the charts.

How rigged are the Top 50/100/200 charts?
Until the early 90s, they were very well rigged. Not by any single entity in particular, but a
combination of them. New measures put into place have made the charts far more accurate in representing what the chart positions should be. Really though, they are
just manipulated in a new way. Can you say payola?

How are they set up?
These days, Billboard relies mainly on Sound Scan data. They also use radio airplay to chart the songs not actually released as "singles". It's mainly sales and airplay for the singles chart and Sound Scan sales for the album chart.

How about distribution deals. Getting the CDs into stores etc? What's involved generally?
The major labels control more than 3/4ths of all commercially released recordings. Distribution is handled by major distributors who are wholesalers that take the records manufactured by the labels and coordinate getting them into retail stores.
The distributors are generally affiliates of the labels themselves. Ultimately, the retail outlet will only accept what they think they can sell though. The majors have a huge advantage here because they can manufacture and distribute a lot of CD's in a short
amount of time.

What kind of "things" go on to get a chain store to support a title? Wine and dine the buyers for that chain? Any kind of deals?
Pre-release hype is very important. As I said before, stores only take what they think they can sell. A little extra cash for setting up a big cardboard display is always a good incentive. A little cash for putting this CD in a prominent location also helps. There are a ton of little tricks.

So with all of the above in mind, do you have any tips for new artists out
The first thing a band should do is get a business license. This makes it formal that you are doing business using the name "Our Kickass Band". You will need to fill out an application and pay a fee. Legal requirements vary in different places. Find out what
your locale requires.
After that, it's a good idea to get a tax identification number. I'm speaking here of the U.S. legal method. The band will need to file an IRS from SS-4. You can get this form in the U.S. by calling 1-800-829-3676.
Then get a lawyer on retainer and insure your personal property. Do everything in writing and trust no one.

What is the best way a band starting up today can break into the industry
without a lot of money? Can it be done?
Less than 1/10th of 1% of all bands get that nice label deal. You'll need to shop your tape around. If someone offers to shop your tape for you, be very cautious. This is where a lawyer's advice is important. In short, pay no money upfront and allow no more than 10% of future royalties as compensation IF that person lands you a deal.
Never, ever allow anyone exclusive rights to shop your demo. Lastly, do everything in writing!

And THANKS again for the commitment to do this. Very much appreciated.
You're welcome.

c. 2002