``You spend your time learning how to make music. You may not be spending the time to protect yourself in a business environment,'' said Gary Harris, former senior director of A&R Records.
``If you don't think like an accountant - and frankly, how many artists do? - it's not race- or class-driven,'' Harris said.
Look at Willie Nelson. He owed the IRS $9 million.
Between them, Toni Braxton and TLC sold more than 18 million records in the United States. Yet they ended up in bankruptcy court. When you're generating those kinds of sales, how can that be possible?
Industry insiders say it's not that difficult. The initial recording contract is heavily weighted in favor of the record label. The label will advance artists money up front to record and to cover the artists' expenses while recording. Depending on the artist's potential, advances for a new R&B or hip-hop group can range from $100,000 to $500,000. (R&B acts tend to fall at the upper end of that scale because their projects are often more expensive to record, and have better sales potential.)
``When an artist is given an advance, they believe that money belongs to them, but that's only half the story,'' said Ahmir Thompson of Philadelphia's The Roots.
``The advance is like a loan. They give you 10 percent of what your budget is, and you're expected to live on that for the year. After you pay your manager, your lawyer, the studio that funded your demo when you didn't have a record deal, you're left with next to nothing.''
The entire recording budget and much of the marketing and promotion budget is absorbed by the artist. That means that, until enough albums are sold to repay the record company's advance, the artist doesn't make a dime.
``I had to tell my clients that what you're getting is not a great deal, it's a terrible deal in the sense that most of the money that you receive from this business will not come from record sales, it will come from other sources of income,'' said Center City entertainment attorney Michael Jackson, who handles several local acts and an independent label in Atlanta.
He says often the advance is the only money a recording artist ever sees. ``You start out in arrears. It's like plantation sharecropping and they never get out of arrears with the record company.''
One of the biggest problems with turning a profit is the increasing expense of marketing and promotion. It takes several departments and many people inside and outside a record company to break a new group and even to support an established one. Preparation for an album starts long before it hits the streets.
Promotional costs include travel expenses, promotional parties and merchandising efforts - like stickers, posters, photos and press tours. Most of those expenses are ``charged'' back to the artist. Some are shared by the label - videos, for example, are usually split 50-50 - but the entire recording advance is fully recoupable.
And while R&B and hip-hop acts once had to fight for recording, touring and video budgets on a par with their rock and pop counterparts, now that black music is more profitable, budgets are much larger.
``Four years ago, I would have been pleading for $60,000 for a video for a developing act,'' said Michelle Murray, senior director of marketing for Elektra Entertainment Group in New York. ``Now a $250,000 to million-dollar video is not unheard of.''
Record labels do take a risk on unproven talent. They have no idea whether the ``next big thing'' will prove profitable or not.
``Looking at it from the record company's point of view, you're nobody and I'm lending you the money,'' Harris said.
``It's subject to so many vagaries. Who knows if I'm going to be able to get your music to the public? I'm loaning you north of $250,000 and I'm giving you 15 percent after I get my money back. I'm going to give you this million, but I'm taking 83 percent. That's actually a very good deal. You don't bring any equity.''
The money now being offered to black artists shows how increased profits make a group more lucrative for the label.
In 1997, hip-hop and R&B records sold more than 200 million copies of the total 652.1 million records sold. A look at Billboard's pop singles chart for March 21, 1998, shows seven of the Top 10 pop records were recorded by black artists, and six of those songs are either gold or platinum singles. Six of the Top 10 R&B albums are gold or platinum.
Gold (500,000 albums sold) and platinum (a million sold) sales are benchmarks that can determine if an artist ever sees any money off an album. The Roots are recording their fourth album but have never reached gold status. They are making money because of their extensive touring schedule, which kept them on the road nine months of last year, but like most artists, they still owe their label.
``We're in the red,'' said manager Richard Nichols. ``Ultimately, the touring life provides money, and provides a certain amount of credibility. The bottom line is you only get a buck or so off of each record. Depending on how many videos you've done and what your recording and promotional costs are, you have to sell 2 million records'' to see any profit.
But, he explains, it's not always record sales that determine a group's ultimate value. Establishing yourself as a ``brand name'' can bring about multimedia deals that can enhance an artist's overall marketability. Nichols cites Queen Latifah as an artist whose ability to make money isn't based solely on record sales. She's been able to star in a television show and earn roles in several movies.
It's what groups like Wu-Tang Clan and independent record-label heads like Sean ``Puffy'' Combs have done to even the odds. Combs' Bad Boy label is a joint venture with Arista Records, which has another succesful joint venture with LaFace Records. In a joint-venture situation, profits between label and distributor are shared 50-50, though the distributing label may charge marketing costs back to the partner.
New Orleans rapper/entrepreneur Master P. has a pressing and distribution deal with his distributor, Priority Records. He markets and promotes his records with his own staff while Priority takes a fee for getting his records to the marketplace. While he has more upfront expenses, he's able to rake in the bulk of the profits.
For Wu-Tang Clan, hooking up with a struggling label proved a good deal for both parties. Wu-Tang's label, Loud Records, let the group have creative control and agreed to allow its members to sign solo deals because the label was desperate for a hit. Wu-Tang had already established themselves by selling 40,000 copies of ``Protect Ya Neck'' out of a car trunk.
``The deal was to have creative control,'' said John ``Mook'' Gibbons, the CEO of Wu-Tang Management and Protect Ya Neck Records, who dealt Wu-Tang's first record from his car. ``It wasn't about the money.''
The initial $60,000 advance Wu-Tang received has turned into an empire, putting both the group and the label on the map. The Clan's success has helped them start a clothing line and establish a chain of stores in Georgia, Virginia and New York, with a Philadelphia shop slated to open next month.
Gibbons says Wu-Tang members RZA and GZA, both the victims of bad deals in the past, knew that creative control would eventually pay off, and that the ability to sign each member to other label deals could only help the entire unit.
``We already knew that nine individuals and the management staff can't all eat off of one record deal signed to one label,'' Gibbons said. ``Loud gives us the creativity and freedom to sign our acts individually to anybody we want.'' The five Clan members who've already released solo albums (Method Man, Ol' Dirty Bastard, Ghostface, GZA and Raekwon) have all gone platinum.
Wu-Tang's long-term plan includes a Dave & Buster's-meets-Virgin-music-store-type entertainment complex. They'll need to solicit corporate sponsorship to build it, but despite problems with the law (gun possession and assault charges) the group has had in the last year, Wu-Tang Clan is an established profit-making entity and likely to find someone to take the risk.
Another way to see profit is to be self-contained. A solo artist like R. Kelly or D'Angelo, who can sing, write and produce, can expect to profit handsomely from songwriting royalties. And if they can produce for others, there are even more opportunities for them to make money.
Tony ``Prof. T'' Tolbert was a member of the group Lo Key? who recorded two albums for Perspective Records. They had a hit with ``I Got a Thang 4 Ya'' in 1992, but neither album went gold.
``A lot of the money we made the first time out was from touring,'' Tolbert said. ``And that can keep you above water for a minute.'' When Perspective folded, group members went their separate ways except for Tolbert and songwriting/producing partner Lance Alexander. The two survived the group's demise because of their ability as writers. ``Let's just say songwriting can be more lucrative than album sales, and you can rely on that a little more,'' Tolbert said.
Tolbert and Alexander recently wrote the platinum single ``Butta Love'' for the male trio Next. A gold or platinum single, depending on the number of writers on the track and any sampling fees, can be worth six figures to a songwriter. And as writer-producers, the duo got a fee to do the track in the first place, then receive publishing royalties off the single and the album it appears on. Fees for beginning producers may start at $10,00-$15,000, but established producers can charge - and get - well over six figures.
``If you write any song on a platinum album, you can see some loot because you still got points on the album,'' said Tolbert. ``Let's just say your points are about 3 percent. An album sells for about $14. Take 3 percent of $14 and multiply it by a million, and you could see that money.''
Artists who aren't savvy about the economic realities of the business can definitely suffer in the corporate record-industry climate. Most independent labels have merged with or been purchased by large conglomerates, and most record executives concentrate more on the bottom line than the creativity of their artists.
Money woes, income-tax problems and bankruptcy have plagued recording stars from Marvin Gaye and Jimi Hendrix to Hammer.
Profligate spending and the demands of the music industry have derailed many an artist not used to making money. Hammer admits he overspent - traveling with a 100-person entourage and purchasing a $7 millon home, several cars and even horses. In Braxton's case, she claims the considerable expenses of performing and appearances, and a deal not commensurate with the money she's made for her label, have caused her bankruptcy.
Braxton is more than $2 million in debt, according to a recent article in Entertainment Weekly. Her creditors include business managers and lawyers and the expenses for a tour that wasn't profitable.
Though her albums have grossed an estimated $170 million, Braxton says she's made only $5 million, a royalty rate of about 35 cents per album sold.
LaFace Records says Braxton spent more than $2 million on clothing, travel, videos and an entourage.
Both have a point. Braxton does have to look alluring for each public appearance - the public expects her to. For female artists in particular, the cost of gowns, hair and makeup people, stylists and personal trainers can add up.
But others say bankruptcy has simply become a tool for renegotiation. ``Once you're in profit, the magic word appears across your label radar screen. The word is renegotiation,'' Harris said.
And once you've sold enough records to get to renegotiation status, you can make your initial deal, no matter how unfair, much more favorable. Possibly the most coveted renegotiation perk is ownership of the master tapes of recording sessions, but only a very few superstar artists can demand that. (Prince, for example, does not own his, but Michael Jackson does.) What usually happens is the artist receives more royalty points and a more generous recording advance.
``The labels always want to lock you in. If you blow up, they keep you; if you don't, they drop you. When you have a hit, you can renegotiate and you're not owned anymore,'' Gibbons said.
``You and the label become partners.''