If you’re a songwriter or an artist on the recording stage or another part in creating music, managing your career is similar to working for a small-scale company.
In the current DIY music industry, There’s a lot of debate about what this means for distribution of music, fan marketing and touring booking, social marketing, etc. However, one thing that most creative professionals don’t get enough guidance on is managing their money.
Smaller businesses share one crucial thing: they have the requirement to have work capital (otherwise known to me and you by the name of “money”). Working capital is the money that companies employ to cover their financial requirements in the short term and invest in their potential products or services. For businesses, this includes paying for expenses for payroll, paying invoices and purchasing inventory, etc.
When the cash flow is scarce, businesses seek to borrow working capital to stay on the right track. But what options do creative professionals need to get through their financial needs? What can you do to tie yourself financially when creating new songs or an album? Working capital isn’t easy to find for everyone, not just the most successful songwriters and musicians.
Advances for Labels and Publishers
The answer has been advanced from the labels or publishers in the past. But they aren’t always guaranteed bets.
- Advances have to be “recouped,” meaning the publisher/label holds your future earnings to cover any costs they might have paid for in the course of production (recording time and music videos.). If you do not recoup the money in advance, you don’t receive any future payment beyond the original passage and, in many cases, end up owing the publisher or label at the end of the day.
- Labels are tighter in their money nowadays, which means advances are less and provide less. Publishers are more reluctant to grant advances. Some collection societies have completely stopped feeding them.
Private Advance Services
Many creative rights holders desperate for cash have sought out private advance businesses. They promise quick money on what appears at first glance like reasonable conditions. However, a closer look at the fine print will reveal high-interest rates that compound and strict conditions that make paying off and taking control of your copyrights nearly impossible.
With both labels/publishers and personal advances, the cash you make from the new music after signing the advance agreement is put towards the loan repayment instead of going into your pockets.
Crowdfunding is an innovative and exciting alternative to conventional advances and loans. Platforms such as Kickstarter, Patreon, PledgeMusic, and others permit fans to support projects they are passionate about, including music. The fans will get the album after it’s been made, often with added benefits, such as getting their names included in the book’s notes or some other acknowledgment.
The advantage of crowdfunding is that there are no recouping scams or high-interest rates for advance loans to repay. However, the downside is that you’re dipping into the future earnings of your business to finance the project, which leaves less to be made.
Crowdfunding isn’t a sure thing, however. Although Kickstarter claims that 54% of its music-related campaigns it runs are successful, which means that 46% of them don’t. Only artists with a substantial base of fans can benefit from this feature. This requires immense effort in marketing and getting fans to contribute.
When all else fails, artists are discovering that declaring bankruptcy provides them more negotiating ability to address the economic power disparity in the music business according to Waukesha Bankrutpcy lawyer. The court can dismiss bankruptcy applications that are prepared for the sole goal of violating a contract, thus for this strategy to succeed, a debtor must demonstrate that they are insolvent under the law. However, no artist with a record label in a largely unrecouped position to date has had trouble demonstrating that their obligations outweigh their income and that they are sufficiently bankrupt to qualify for the protections provided by the Federal Bankruptcy Code.
This bankruptcy ruse, however, can backfire on a creative person. In one recent case, a musician with only one hit song and no name recognition filed for bankruptcy in order to gain advantage in contract negotiations. The record label boss was so offended by the strategy that he agreed to drop the artist as part of a settlement. Since then, the musician hasn’t been able to land another record deal.
For record labels, the overarching answer to avoiding the dangers posed by the potential bankruptcy of a well-known musician is brutally obvious: give the artist fairer contract conditions. Even if contractually unpaid, a successful musician typically generates sizable revenues for the record label. Forcing such a musician into bankruptcy and taking the chance that their long-term recording contract may be canceled are both bad ideas.
The rise in artist bankruptcy cases is a double-edged sword since it both levels the playing field and compels record corporations to pay their musicians more while also posing a serious danger to the standards and procedures of the music business. In order to prevent an artist’s obligations from exceeding its income, record labels would be wise to share more of the financial benefits with even slightly successful artists at the proper moment. They run the risk of having their artist’s record deal terminated early in bankruptcy court if they don’t, and they also run the risk of discovering that the artist they worked so hard to develop is now benefiting from the first label’s efforts by recording records for a second record label under a lucrative new contract.
When companies need to obtain a loan, they will have their inventory, property, and other assets they can offer as collateral. Banks recognize these assets. Artists with only their royalty to offer are left with fewer options. A few banks are willing to provide loans to artists who have royalty as collateral. However, it takes a considerable time to process these loans.
Banks are also very cautious in their lending policies. This means that they will offer smaller loan amounts.
Artists who have a track record of royalties may try to sell their royalties once the amount decreases to a minimum. Publishing companies are always trying to grow their library and are happy to get your royalties off your shoulders.
The problem is that the following are some of the challenges: a) they usually seek out royalties that are more than a certain level, and b) it’s generally an all-or-nothing arrangement that grants the entire value of your stake and eliminates any potential control in the future.
Additionally, These transactions are typically done through backroom agreements that do not value royalty payments adequately. Buyers are willing to offer vast sums of money to prevent the buyer from negotiating; however, it’s challenging to determine if you’re getting the most value.
The Negotiation Game
Except crowdfunding, all choices above involve negotiations that give you an advantage as the creator. They’re trying to negotiate against you because their money is at the table. They’d like to ensure they get a fair bargain for them. A good deal for them is a bad bargain for you.
The Alternative for Artists
Royalty Exchange offers an alternative method to sell royalties or obtain loans and advances. Our online marketplace helps artists make money by connecting them directly with private investors interested in buying royalties or granting loans backed by royalty payments.
It has many advantages:
There’s nothing like nickel-and-dime-recouping or high-interest rates. There aren’t any backroom deals that make you wonder whether you paid the correct price. All loans and sales are made in an open marketplace, where the price, terms, and other details are available for everyone to see. This transparency encourages the possibility of competition between investors, which will ultimately result in the best possible deal for both rights holders and artists.
Our method also allows you flexibility without losing control over the copyright. This isn’t an “all-in” arrangement that gives you no permanent position in your royalty payment. You can sell
- A percentage from SoundExchange OR PRO revenues
- sync revenue generated from one song
- Mechanical or performance royalties on a single album, song, or the entire catalog