Slicing Up the Pie

Under a typical recording contract, young artists are led to believe that the royalty rate the record company agrees to pay is higher than it actually is.

For instance, if the company agrees to pay a new artist a royalty rate of 15% for every compact disc sold at a suggested retail price of $15.98, the artist might expect to be paid $2.40.

But after the company takes contract deductions for packaging, new-technology allowances and promotional giveaways, the artist usually earns only about $1.22.

$15.98 compact disc’s suggested retail price

- 4.00 (standard packaging deduction)

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11.98

- 1.80 (free-goods deduction)

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10.18

- 2.04 (CD new-technology clause)

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8.14

x 0.15 (15% royalty rate paid to artist)

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$1.22 (amount paid to artist)

In addition, record companies deduct the producer’s 3% share from the artist’s royalty and pay the artist a lower royalty rate for albums sold overseas and through record clubs.