Wizkid was recently on Ndani TV. He discusses his visit to the USA, the industry friends he made (Chris Brown, Young Jeezy, The Game) and most importantly, for AML artists, the business of music i.e. how he was looking to expand into merchandising and capitalizing on his brand name.
What is merchandising?
Revisit my archived (older) discussions below on how the music industry makes money and then watch the clip below.
“How Does the Music Industry Make Money?
To discuss revenue streams from record label agreements, artists you must have a fundamental understanding of how the music industry makes its monies. Music industries make money primarily through: 1) sound recordings (track record you hear on Itunes or actual physical album) and 2) music compositions (written songs artist performs). The two methods above have many layers that generate numerous streams of revenue for both the artists and label.
Sound Recordings Streams of Income
- Advance: Assume AML is a record label. Assume Davido is signed to AML Records. Davido wants to produce his Freshman album ‘I’m So Fly, Err’Body Want Me’ under the AML record label contract. AML would give Davido an advance (from thousands to millions of Naira/Dollars/Pounds etc.) that covers the costs of Davido’s’s recordings so he can produce his album. That money is not free. Davido will have to repay AML from the sales of his album. So, Advances are a source of income for Davido and AML.
- Record Royalty: In addition to the advance, Davido “can” make money through a percentage of his album sales. This is referred to as royalties. I say “can” because Nigeria is still slow on royalties. The percentage depends on Davido’s’s bargaining power. For example, Davido has never released an album, yet his name is known nationwide in Nigeria. He has a solid following and that translates to a higher bargaining power. So he could bargain on the higher end of the typical 12-18%. If he is ultimately sitting on top of Nigeria’s music world, it can be up to 20%. These percentages are consistent with music industry standard here in the States.
- Advance Recouped: AML, as a label, must recoup its advance and other expenses given to Davido to produce his album, it’s business. We saw how this all went wrong when Stingomania. In that case, Stingomania artists collected advances yet they wanted to walk out of their contract without completing its terms. They claimed they were yet to really see their names in the spotlight the way they wanted it. Too bad, so sad. Think before you get in bed with that pretty woman (record label) because you can’t just up and leave when she has invested all that money on you. Artists are getting sued for breach of contract in these cases. You are an adult, you signed a contract, you fulfill your obligations and where you want out, you get an entertainment lawyer to see if you can get out and what the damages will be if you get out. SeeStingomania v. Trybeson Dudukoko; see also Colosal Entertainment v. Soul E.
- For artists in general, this is where it’s tough and money management goes a long way. Once your 12-18% royalty comes in, you have to pay AML back. By the time AML subtracts all advance fees such as money for personal care (rent, transportation, food etc.), marketing and promotions, video production, tour support, recording costs etc. it adds up and for majority of artists, even on big labels, it is more of a wash or at times, they still owe the label money. Borrow wisely. If you already have a car and house or your parents home to live in, especially if you are in your late teens to early 20s, you can forego having a house and car from your label and buy it only when you have earned the money and can afford to do so.
- Copyright: A quick note here on copyright specific to sound recordings. AML will want the copyright to Davido’s sound recordings. For example, Davido signs with AML. AML guarantees it will put out Davido’s first record with an option to renew the contract up to 5-8 options. This means, if AML chooses, it can have Davido put out 5-8 album under this agreement. AML owns the copyright to all albums because Davido contracts its away. Again, reference the Stingomania drama to see when all of this goes wrong.
Now let’s look at music compositions (the written song an artist performs). Typically, in most western music markets, someone else writes the song(s). In Nigeria, if Davido writes all songs on his album, he would earn money for the written songs in addition to the monetary scheme above. As you can see, if an artist writes and performs his/her work, he/she earns more than an artist who just performs.
Historically, record labels were not aggressive with wanting a share of the publishing rights (the written songs) and touring. Now, labels want it all because record sales are down. In Nigeria, piracy is a big issue that makes it hard for record labels to recoup on their investments. A higher return on their investments is through artists tour, concerts etc. Here is the breakdown:
Music Composition Streams of Income?
- Mechanical license: When AML coverts Davido’s music onto an actual CD or audio and sells it, it must pay him. In the USA it is called a “compulsory license” clause. The law requires a payment of 9.1 cents per track. So, Davido would make 9.1 cents for each of his tracks on his album. Davido, whether in the USA or Nigeria, owns the songs while AML would own the sound recordings. Davido is giving AML permission (license) to sell his songs. If AML also negotiated with online distributors like Itunes and Amazon etc., to distribute his music, AML will also have to pay 9.1cents per digital download i.e per track. In Nigeria, this is intriguing because artists are figuring and setting their relationships directly with Itunes etc. In the USA, labels now negotiate this part under a clause called a “Controlled Composition Clause.” It means they would pay Davido (writer and performer) and artist on their label, 25% less the full 9.1cents; than what they would pay if he was unsigned.
- Performance royalties: In the USA, if Davido’s music is played on a radio station like Beat FM or Nigezie (tv), he would not be paid for the sound recordings but he would be paid for the compositions. Many countries in Europe pay for both. A recent US law now allows record labels to make money off digital play of sound recordings i.e. satellite radio etc. In Nigeria, October 2010, the following announcement was made: “Copyright Society of Nigeria (COSON), the nation’s sole government approved collective management organization for musical works and sound recordings, has begun negotiations for music copyright licences with all commercial users of music across the nation. This follows the expiration of the grace period announced by COSON for all commercial users of music in Nigeria to regularize their copyright licences. COSON has in the last 12 weeks carried out massive public education on the issue including the release of public notices. Category of music users affected include broadcast media organizations, hotels, restaurants, event venues, advertising companies, banks, telecoms establishments, airlines, road transporters, oil companies and such other enterprises in Nigeria which use music in any way to aid their operations.” . . My sense is that artists might have to sue these third parties, when they use their music and do not pay, to force the court to make a ruling and set precedent; before we can truly start seeing organizations fear and actually pay artists.
- Ringtones: This is still a relatively new concept both in the USA and Nigerian music markets. Gongo Aso by 9ice, for example, was a big hit back in the day. In the USA, for the Gongo Aso master tones i.e. a snippet of the full track, 9ice would have to be paid 24 cents for his track. In Nigeria, artists with hit songs negotiate with companies like MTN on such rates. In the USA, labels demand 40% of profits from ringtones. They split that with the artist giving them either 25% on the low or 50% on the high. Watch out for labels that even want your voice tones. For example, if you are Eva and your fans want to purchase your voice saying “I done Did It,” many labels in the US now want a percentage of this.
- Synchronization Royalties: Assume Emem Isong, top Nollywood producer comes to Davido and says, “Hey Davido, I’d like to have your track ‘Back When’ as (background music) in my film, ‘Bursting Out.’” This is a form of licensing. If Davido agrees, he is entitled to a payment from that synchronization. So, Davido makes money from the song (the written part) on the film, the sound recording, record sales etc.
- Merchandising: This is a big area for Nigerian artists to make money just like they do shows. It still remains largely untapped. Generally speaking, artists in the USA license their name to a merchandise company who then produces their merchandise items (t-shirt, posters etc.). The artist makes money whenever that merchandize sells. AML would want about 25-30% of that cut. Artists typically will want to prevent AML from getting a cut from merchandise sales.
- Touring/Live Performances: Nigerian artists have just begun touring. The first real tour we have seen is that of Lynxxx with Pepsi. For the most part, however, while Nigerian artists perform at concerts in different states, they do not go on tour. It is still a very new concept. it is way too expensive to do a tour and most labels, even the big ones in Nigeria, will have a hard time footing such a bill. They need huge sponsors like Pepsi etc. If they could foot the bill, it is not unusual to expect 12% of the cut, which is what is typical out here in the West. The bulk of the money then is made out of shows. The percentage the label gets for shows is open to negotiations. In extreme cases it could be as high as 50%.
Watch the clip below: