The Three Biggest Ways Musicians Get Ripped Off (and How to Avoid Them)

Image by SeDmi via BigStock

After 25 years in the music business, I’ve probably seen it all when it comes to musicians being ripped off – by managers, labels, promoters, venues, websites and assorted other characters. I’ve also been ripped off myself a few times as well before I wised up to things.

So to help you avoid the same fate, here are the three biggest rip-offs I’ve come across, and how to avoid falling for them in your music career.

Rip off #1 The big deal with small print

To most bands and musicians the Holy Grail is to get signed up by a major record label. But all that glitters is not gold. Although the major labels can make you a household name it comes at a cost.

Most talents are so happy to get a record deal they will sign any contract stuck in front of them.

What they don’t realise is that any advance comes out of future royalties. That seems fair enough, but on top of that all your recording costs, video costs, packaging and many promotional costs are deducted before you get paid. So even with a big hit you will often find you still owe the record label money.

If you have some degree of success that’s when you find out just how much it cost you to get it.

If you are Sting, Elton John or George Michael you can still make a lot of money even with deductions, but here’s a sobering example of other music icons that you may have thought earned millions.

I saw an interview with John Lydon (Johnny Rotten) the other day. It’s well documented that The Sex Pistols made very little money the first time around despite swindling the record industry because it was said that Manager Malcolm McClaren trousered the money.

John bounced back with the excellent and innovative band Public Image Limited. They released a lot of albums and had many hit singles like ‘This is not a Love Song’, ‘Rise’, ‘Disappointed’ and the excellent debut single named after the band itself.

However ten years down the line he found he still owed Virgin Records money and PIL were not allowed to put any more records out until he paid back what was owed. He couldn’t, so there were no new PIL releases for twenty years. It was payment from his British Butter advert that finally paid off the debt and freed him up to record and release the first PIL album in two decades.

Jamiroquai (Jay Kay) had a phenomenally successful debut album ‘Emergency on Planet Earth’ and it had actually earned a lot more than was spent on it, so he was due a big cheque. But flush with success, he ran up lots of money and time recording the follow up album – which flopped. So just as his cheque was due to be paid it was cancelled and used to clear the debt of the second album. He learned not to over-spend on future albums once he knew it was coming out of his pockets, and he gradually made money.

Even the Rolling Stones took till the 70s before they earned decent money. Bill Wyman told me after reading my book Music Business Bastards (How to do well in the music business without getting ripped off) that the band could have done with reading it when they started out. He said that most people thought they’d earned a fortune in the 60s but it was only in the 70s, when they got their own Rolling Stones label, that they earned big money.

This is one reason the Stones used to tour a lot because that was guaranteed money, once deductions were taken off record sales there was no guarantee that they would have made a profit. Also royalty rates were criminally low. The Beatles were original on less than one penny per record and the Stones likewise.

How to avoid the ‘big deal’ rip-off

I think you get the picture. So how do you avoid doing a deal with the devil?

Know the business, not just your music

Sadly it’s not all about the music. Knowledge is key in understanding what to look out for and also what will make you successful as well. That’s one reason I wrote Music Business Bastards (and updated it recently to reflect industry changes since the first edition). To give people that much needed knowledge.

Here’s one quick example: the popular TV show ‘The Apprentice’. Does it amaze you that many of these so-called entrepreneurs, many of whom run their own businesses, are so clueless when it comes to many of the tasks?

It doesn’t surprise me because their lack of knowledge in what they are doing lets them badly down. They may have a little bit of knowledge about their given subject but they lack the business basics to do well.

In our case, a typical musician knows how to play, write songs perhaps and do gigs but that is only a small part of what makes a musician successful. The clue is in the second word here: ‘Music Business‘. Yes it’s a business. So if you want to do well in it make sure you know it well enough to give you an edge over the competition.

Sign with an indie

If you are in big demand by many labels you can get a smart lawyer to get you a much better deal because you are hot property and can call the tune. But most artists won’t have that luxury.

So my advice would be to sign with an indie label. The advance won’t be very big if you get one at all, and it may take you longer to become a household name, but many indie labels do a 50/50 split of the profits. So you also have some say in what is being spent. If you achieve success via the indie route you can often earn more than you would have through a major.

Release it yourself

The first tip I will say is don’t just do downloads. I know they are cheap and there is no manufacturing involved and we all like to save costs. CD still accounts for at least 60% of all music sales and vinyl is coming up on the rails at 10% so don’t be fooled into thinking everybody out there is only buying downloads because they are not. So put you releases out on CD as well.

When selling downloads, you can’t deal directly with iTunes and Amazon, you need a distributor like Orchard to get your download out. Once iTunes and the distributor have taken their cut you may end up with only 30% of the price of a 79p download. Not a brilliant deal but with no manufacture involved it’s all profit if you wrote the track yourself. If it’s a cover expect to lose another 10% to the original publisher.

Once upon a time I believed in distributors but they to have learned from the major companies and offer very bad deals and with not so many real record shops around, you are better off just putting your CD up on Amazon and even HMV and selling it directly yourself.

Don’t forget to do your own website to sell it from as well. It’s also free to get a Paypal account and accept payments via your website.

If you play live, your biggest sales will be at gigs. You can’t beat an impulse buy and it’s 100% of the money to you. Doing a gig and telling people to buy a download or CD or give out a flyer will only result in about 5% sales. Even those who love the gig never quite get around to getting the CD elsewhere and believe me downloads are not as popular as they are hyped up to be.

Rip off #2 The 360 deal

The second big rip off is a very recent phenomenon, the 360 deal. These days, record companies not only want to sign you for record releases, they want a cut of everything – song-writing, merchandising and gig money, and anything else you do.

To be honest I was surprised they didn’t do this before. I think it was because it looks like such an obvious rip off, previously it couldn’t have been justified. But they are now pleading poverty due to piracy, and saying they can no longer invest in new acts unless they stand a chance to recoup their investment – and the only way to do this is get a cut from everything.

To know the music business mindset you only have to look back to something called ‘Packaging Deductions’. This was a staple in any music business contract, where the record labels deducted 10% of your money for possible breakages and returns!

People stood for it because they had no choice, even though the 10% was obviously a rip off. But when downloads came along the labels were shown up for the sharks they are, because they still had it in the contracts – but wait a minute, downloads don’t have packages that can be broken!

It finally came out of the contract and with the cost of music in general coming down as well, they had to come up with something new to fill the shortfall… so the 360 deal was born.

How to avoid the ‘360 deal’ rip off

Simple: don’t sign one. Put the record out yourself or go down the indie route. Once you know the basics of the music business it’s not that difficult to have your own label and control over your career.

Rip off #3 Giving away your music on someone else’s website

Once upon a time the internet seemed like the saviour of musicians. No dodgy record deal, people hearing your record and seeing your video without some jumped up TV or Radio Caesar giving it the thumbs down. You also had control over what you wanted to put out… Great, where do I sign?

Once again knowledge is key. You can do well via this route but you have to know what you are doing. I was early to the internet (1991) and learned quickly. From the outset the master plan for most internet companies was the long game. Free was key and the money would follow.

In their minds, to attract customers you needed to offer something for free – preferably something they hadn’t paid or sweated to create. Their business model was based on advertising revenue, and to get advertising revenue you need traffic. After that it was about building the site brand name and selling it on through IPO stocks. This was the dot com philosophy of the time and many millionaires were made daily… until the bubble burst.

There are thousands of examples, but here are just two I can tell you about first hand.

I was enlisted as an A&R person for Peoplesound.com in 2000. They said they were building a website to give exposure to lots of bands. I said to the owner: “You must be a great music lover.” He replied: “I hate music and especially musicians.”

Part of the deal for hosting all these bands for free was that the bands had to give tracks away as free promos to visitors. They were told this would get people into the band and help sell albums.

It worked out very well for Peoplesound, who earned a lot of money. Did the bands do well? Did they hell!

Since I signed quite a few bands, I left in disgust, I asked how many of them shifted lots of albums on the back of the free giveaway tracks.

Most bands said two or three; most said none.

You see what Peoplesound knew and the bands didn’t is that most people just took the free tracks and then went on their merry way. To them it was just a legal free download.

A handful of bands picked up a few fans but that was about it. But you can’t blame Peoplesound for spotting a way to earn big bucks. That’s business.

MySpace came along with pretty much the same thing, but at least it was a social network as well where members actually did get into the bands. The site was integral to the success stories of a number of well-known acts such as the Artic Monkeys and Lily Allen. Although the vast majority didn’t get big, I tend to think MySpace was more worthwhile and did help bands to some degree.

If you look at it purely in terms of payment for on-site plays, YouTube is probably the biggest rip-off these days. Of course it’s a good place to get promos played and put fun videos up but if you get 100,000 views you earn about £5. That doesn’t seem quite right to me.

Many artists have earned nothing from other people posting up their work over the years. YouTube have tried to redress the balance by giving video channels an advertising revenue share, but it’s extremely low and I still don’t think songwriters get paid fairly.

How to avoid the ‘free music’ rip off

Major record labels and distributors now have software to automatically track and find their work on YouTube. As an individual you can’t afford such software so the only way to benefit from this is to use a download distributor like Orchard who can track and monetise you copyrights. Of course they take a distribution cut but that’s the way to go to get more funds in.

You can also get exposure for your video elsewhere at places like Vimeo, so if you don’t like the idea of YouTube’s deal, there are alternatives.

Also many people these days are turning back to doing their own websites, using them to make the most of any exposure they gain via music sites and social networks.

It’s a big leap to go from hearing a song once to buying an entire album from a band you’ve never heard of. So instead of simply trying to get listeners to buy first time, encourage them to visit your website, get to know you and your music better, and sign up for your mailing list.

Getting permission to stay in touch with your fans via email gives you a better chance of selling new releases and filling gigs than any amount of free plays on someone else’s website.

About the author: Russell Brennan has 25 years experience of the music industry, as a musician, record producer, songwriter, A & R person, photographer, stylist, record label and music publishing boss, music journalist and manager. For in depth advice on how to succeed in the music business without being ripped off, read the new and updated edition of his book Music Business Bastards (How to do well in the music business without getting ripped off).