A Woman of Independent Means : Ani DiFranco’s Got a Great Royalty Rate--It’s Her Label

Which entertainer has the best royalty deal in the music business?

It’s not Michael Jackson, Madonna or Garth Brooks, three artists who’ve made headlines over the years with record-breaking contracts.

Even though these artists have far more clout to negotiate tough contracts with their record companies, the highest royalty rate belongs to Ani DiFranco, a 25-year-old punk-folk singer who has sold a modest 400,000 albums over the last six years on Righteous Babe Records, the tiny underground label she owns and operates in her hometown of Buffalo, N.Y.

DiFranco makes about $4.25 for every record she sells--more than twice the going rate for major label superstars. Her newest release, “Dilate,” which burst onto the mainstream pop chart last month at No. 87, has already generated an estimated $600,000 at retail without the aid of advertising, radio or video airplay.

Add those figures to the $2 million in box office receipts that DiFranco generated on her last concert tour and it’s easy to see why she is being touted in independent circles as proof that artists can succeed outside the major music companies.

“The good news is that if you are disgustingly sincere and terribly diligent, there are ways for any serious artist to operate outside the corporate structure,” said DiFranco, who rejected contract bids this year from every major label. “My problem with the guys who run the music industry is that their only priority is to make money. My priority is to make music. The fact is they need artists more than artists need them.”

Major record company executives applaud DiFranco’s success but contend that by operating on her own, she’s selling her music short. They believe that with the backing of a major company, she could sell far more records, though probably with a lesser royalty.

Giant companies have the deep pockets and marketing muscle to obtain airplay on radio and MTV and to guarantee optimum placement of product in major retail chains around the world.

Atlantic Records, for example, transformed Hootie & the Blowfish from an unknown act that had sold 60,000 albums on its own label into an international superstar with sales exceeding 9 million units. Although Hootie may get four times less profit per unit than DiFranco, executives note, the band has made more money because Atlantic has sold 20 times the number of units DiFranco has.

Several other new major-label acts such as Alanis Morissette and the Dave Mathews Band have seem similar sales growth patterns.

“Ani DiFranco’s success as an independent in no way diminishes the role that major labels play in breaking new acts,” said Strauss Zelnick, president and CEO of Bertelsmann Music Group North America, which releases Mathews’ records. “We offer expertise in marketing and promotion and distribution that is essential to expanding careers.”

That expertise, however, does not come cheap.

One reason DiFranco pockets so much per record is that the profit from her music is not used to underwrite corporate overhead for marketing, distribution and manufacturing. These days, the typical major record label employs hundreds of people overseen by dozens of department chiefs whose salaries and bonus packages seem to be pushed upward year after year.

*

Profits from hit albums offset losses incurred by the thousands of commercial failures pumped annually through major label distribution channels.

Indeed, most artists don’t sell enough to reimburse their companies for the $300,000 to $1 million in cash advances spent per project on studio recording, video production, radio promotion and tour support. As a result, record companies lose money on the majority of their releases, and many artists signed to standard long-term contracts remain in debt throughout their careers.

Artists who sell as few albums as DiFranco did early in her career are often dropped or pressured to change their style.

By setting up her own company, DiFranco has been able to grow at her own pace.

She is currently the only act on Righteous Babe, and she has been operating in the black since Day One. She produces her music herself, designs her own artwork and has recorded each of her albums for less than $20,000. Righteous Babe spends no money on record promotion or tip-sheet advertising, and the company has created just one $20,000 video since its inception.

Another reason DiFranco’s profit margin remains so high is that her contract--unlike other musicians’--is not riddled with deductions for packaging, technology development and other costs that take a significant bite out of the typical major label act’s royalty rate.

In addition, she owns the master recordings to her entire eight-album catalog and the publishing rights to all her songs--something true of only a handful of superstars.

“We throw typical business precautions to the wind here,” DiFranco says. “The way I feel about it is that if I can play music and pay my rent, I’ll be happy and doing well on the planet. Don’t get me wrong--I’m glad that all our hard work is finally paying off. But the bottom line is not at work in determining the way I live my life. That’s not what drives Righteous Babe. For me, it’s about art and politics.”

Righteous Babe was launched in 1990 when DiFranco reproduced 500 cassette copies of her first album and began selling them after shows at folk clubs, dive bars and church basement benefits across the nation. She toured relentlessly and developed a national mailing list of loyal fans--thousands of whom regularly attend every show and purchase every album she makes.

Until two years ago, DiFranco’s manager, Scot Fisher, booked all her dates and ran Righteous Babe out of the living room of his Buffalo apartment. But as pop critics began to rave about DiFranco’s music, demand for her albums surged.

Fisher, now president of Righteous Babe, has since hired seven employees and moved into a 1,000-square-foot office in downtown Buffalo. In February 1994, he and DiFranco incorporated the firm and implemented health insurance and profit-sharing pension plans for the entire staff.

Righteous Babe has its own sales, marketing and accounting divisions and works with independent printers, manufacturers and distributors to deliver products to retailers at about 55 cents below the standard wholesale compact disc cost of $10.80.

The company has sold about 400,000 of DiFranco’s albums at record stores, concerts and through mail order since 1990, netting an estimated $1.7 million. Last winter, DiFranco performed 130 shows across the nation, generating almost $2 million in box office receipts--about 25% of which was profit.

Last week, she got her first pop radio airplay for “Outta Me, Onto You,” a song on her latest album, which is likely to mean her sales will be boosted further.

DiFranco is not the first underground act to challenge the myth that an independent act cannot achieve success without hitching its wagon to a major company.

Ian MacKaye, leader of the Arlington, Va.-based punk act Fugazi, launched Discord Records in 1980, and Bad Religion singer Brett Gurewitz followed suit a decade later with Epitaph Records, a tiny label in Silver Lake. Epitaph stunned the music industry last year when “Smash,” an album by the Orange County punk band Offspring, sold more than 8 million copies with no major record company distribution tie.

Offspring has its own label now and signed a deal with Sony under which the Japanese giant will collect a distribution fee of just 25% on the last two albums on the band’s new four-album agreement. Roswell Records, a label founded by Seattle rock act Foo Fighters, operates under a similar distribution pact with Thorn EMI-owned Capitol Records.

*

Recent advances in digital technology allow artists to record state-of-the-art albums cheaply and to monitor sales and radio airplay without a giant staff. Some analysts believe that the established manufacturing and distribution system will crumble as electronic transmission of music through interactive computer services becomes easily accessible to independent artists.

“The record conglomerates operate on the principle that being the biggest means being the best,” says Fisher. “They waste so much money peddling hype and fighting each other for position--all of which has absolutely nothing to do with making music. Ani is proof that you don’t need to be a part of that to find an audience. Righteous Babe may just be a little blip on the radar right now, but what we’ve accomplished is definitely a threat to the established order.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

DiFranco’s Deal

By creating her own record label (Righteous Babe), singer Ani DiFranco now earns more per record than any of the major-label superstars, but their profits still total more because the susperstars sell more records.

Estimated profit per album paid to artist*

Hootie & the Blowfish: $1.25

Michael Jackson: $2

Ani DiFranco: $4.25

Source: Industry sources

*Minus the company’s contract deductions for packaging, promotional giveaways, producer fees and other costs.