Written By Lee Thompson
It is impossible to know (without a crystal ball) how much money is likely to be generated from any particular publishing rights. The publisher will therefore agree to account to the writer for a given percentage of whatever is actually generated. How does the publisher calculate what advances (if any) it is prepared to pay? If the deal relates to specific songs which have generated earnings in the past then it is a relatively simple task for the publisher to calculate the average annual earnings over the past few years and then decide how much to offer as an advance against anticipated future earnings.Past earnings are by no means a guarantee of future earnings (the profitability of a particular song will ordinarily decrease with the passage of time) but the publisher will make assumptions based upon what is happening in the marketplace.
But how does the publisher decide what to pay for a new writer i.e. perhaps a singer songwriter who has not previously released a record? The more sophisticated publisher will have the benefit of complex financial models which will be used to predict the speed and size of the publisher’s financial return but those models are only marginally more useful than the crystal ball because they depend upon the accuracy of numerous assumptions.
So, using a few crude rules of thumb, let us take a fanciful look at what the publishers might offer for a particular writer. We will take the example of a band which has just signed a record deal with a major record company which guarantees the release of an album. They intend only to record their own material. They do not cowrite so that 100% of the publishing rights for the album will be available.
The Piggy Back Approach
The first publishing company is familiar with the record company involved and it rates the label highly. The publishing company also knows that the record company has committed to the payment of around £150,000 inclusive of costs. It has found out that for the record company this is a priority signing and that the label intends to pull out all the stops. The publishing company is prepared to take a financial risk calculated by reference to the risk undertaken by the record company.
It reckons that the label will make at least two properly funded promotional videos and will commit to substantial independent promotion. The publishing company thinks that after taking into account the band’s advance, re-mixing costs, video costs, independent promotion costs and the like the record company will be committed to a minimum level of expenditure of around £300,000.
The publishing company assumes that after manufacturing and distribution costs (including mechanical royalties) the record company will make an average of £4 per unit on all UK sales (before paying artist royalties) and will receive a royalty of £1.50 per unit on overseas sales. The publishing company assumes the record company will break even on 60,000 UK sales and 40,000 overseas sales. The publishing company therefore calculates what publishing income might be expected from those sales. After the MCPS has deducted its commission the publishing company calculates that it will receive around 60p per unit for the UK sales giving rise to £36,000. After sub-publisher deductions the publishing company reckons on 50p per unit for the overseas sales so the publishing company would gross another £20,000. On top of the £56,000 gross mechanical royalties the publishing company reckons there will be a fair amount of airplay.
The publishing company knows that in the case of its other comparable writers their gross performance income is around 30% of their gross mechanical income. In this case, that would mean £16,800 but the publishing company will only receive six twelfths of this. All in all, if the record company breaks even the publishing company reckons that by that stage it can expect to have received at least £60,000.
In this instance, the publishing company prefers not to pay out this much by way of an advance because even if the various assumptions prove to be correct there will be a long wait for the money to come through the pipeline. Accordingly, the publishing company decides to offer the band a 75/25 deal and to pay them £45,000 as an advance but to try and stagger payment so that £15,000 is payable now, £15,000 upon UK release and £15,000 upon US release.
The Scientific Approach
The second publishing company needs to build up its market share. The company is prepared to take a risk but it has to be a calculated one. The company knows that there will be competition to sign the band because the band’s lawyer is already touting the deal around town. The band signed their recent record deal in a blaze of publicity.
The publishing company knows that it will have to pay at least the going rate and after consulting with the head of business affairs the managing director decides that £50,000 would be an appropriate advance. However, he has pitched in at this level for several new bands recently and each time he has lost out to competitors. He decides to offer £75,000 but he needs to get Board approval. He therefore gives the financial director some projections (which are similar to the projections made by the first publisher who is “piggy backing” on the record deal) and asks him to work some figures.
The financial director spends some time on his laptop before telling the managing director that based upon the projections he has been given he thinks that the band should be offered an advance of no more than £50,000.
The managing director knows that this will not secure the deal. He has lunch with the band’s manager and then calls in the financial director again. He has found out more about the band and he wants to revise the projections. He doubles the anticipated sales and asks the financial director to factor in some compilation income. Also, he has heard the re-mixes and based upon what he has heard he has decided to increase the projected performance income. He also wants to include a provision for some synchronisation income because the manager has told him that Disney want to use some of the music in a new film. The financial director re-works the figures and the next day the Board gives approval for an advance of £75,000.
The Maverick Approach
The managing director of the third publishing company will kill for the band. He thinks the band will be the next big thing and anyway even if the band does not hold together the main songwriter is a genuine talent. The managing director does not care what the deal will cost. He will offer £100,000 and double it if he has to. He does not have to worry about his Board because the company has already made £1,000,000 from his last year’s signings and he has just signed a new three year employment contract at a huge salary with share options and he knows that the Board will do whatever he recommends.