Mastering the music business
Technology has forever changed the industry
A bright-eyed youngster comes to the city with a small suitcase and big dreams. He or she gets a record contract, has a couple of hits, buys a house in the hills, and then 10 years later, loses it all and files for bankruptcy.
This story is all too familiar. In fact, VH-1 built a series, “Behind the Music,” which essentially follows this formula. However, most people can reel off a long list of music stars who made it big, and then ended up losing it all because of poor financial management or bad business deals.
Germany native Toby Gad has been in the music business for more than 20 years and has witnessed how the landscape has changed. Gad got his start working with the now infamous Milli Vanilli, back in 1988, and contributed three songs to their debut album. (The group’s two lead singers were later discovered to have not sung on the records and their Grammy award was later revoked.)
Gad said that he was first introduced to Frank Farian, Milli Vanilli’s producer, when he was looking for songs to complete a new album. Gad emphasizes that he never actually worked with Milli Vanilli, but simply supplied the songs to their producer. “Frank said the singers don’t want anyone around when they do vocals,” Gad said.
Gad worked in Los Angeles about 10 years ago and collaborated with some of the top names in the music industry such as Ricky Martin and Kaci Brown. He also collaborated on Keke Palmer’s debut album and his protégé, Meleni, contributed a song to the soundtrack of the Will Smith movie “Hitch.”
As a veteran of the industry, Gad is well aware of the importance of the business side of show business. However, he says that many artists are not geared towards handling money. “I think musicians, or writers or singers, by nature are bad with business. Quite often you find the best writers, are terrible businessmen,” said Gad who believes the key to succeeding financially in the music world is to have a trusted network of advisers.
“You need to choose your team really well. You need to find people who are trustworthy and fans of your craft,” Gad said.
Some African American executives are beginning to realize the importance of the business side of entertainment.
Music industry veteran Angela McLain formed Type A, a company that provides back office management to the creative fields.
McLain, a L.A. resident, formed the company in 2009 after working for 14 years in the music industry. She has previously worked for Loud Records, LAVA Records and Starbucks Entertainment/Hear Music.
McLain has seen both sides of the industry—the creative side, and the dollars and cents, business side. She said understanding marketing and financial management is critical to a long career in the industry.
“You have to learn how to manage your money and your intellectual property, or have someone in your corner doing that for you,” McLain said. “Artists have to be more savvy about how they market themselves. Be sure that the money being spent is spent in the places that will make the most impact.”
McLain advises budding artists to educate themselves about financial management and, more importantly, learn how to monitor their financial statements.
“Be involved in your business, learn how to read a balance sheet, look at your bank accounts, know how to read a royalty statement. Put yourself on a budget or have someone do it for you. You are your best investment, and you have a duty to know where you stand,” McLain said. “We present our statements to clients weekly in the most simple of terms. We make them spend half an hour on the phone with us, so they know where they stand. It’s a lot less boring when you have up-to-date information and you have control of your own destiny.”
Music producer Brian Kennedy is only 24, but he has already seen how the business side of the industry has changed. The Kansas City, Mo. native got his first break when he penned “My Love” for Ciara. He has gone on to work with the top names inR&B and hip-hop such as Chris Brown, Rihanna, Nelly and Timbaland, to name a few. Kennedy, who now lives in L.A., wrote and co-produced Brown’s “Forever” and also collaborated with Brandy on her new album.
Kennedy says that sometimes business sense is more important than talent in the music industry. “If you are talented, usually the talent will take care of itself, but the business will not. That’s why it’s important to have a team that specializes with the business aspect of your career, which often includes an accountant, attorney, manager and a person you trust to oversee all of them,” Kennedy said. “But always make sure you stay connected and stay involved in the process of everything that is concerning your career. With having these individuals behind you, this will give you the freedom to be more creative.”
Social media, Facebook, Twitter and MySpace, has recently become a huge part of marketing an artist. “Social networking has become a great resource for artists to sell their music and make a living independently,” Kennedy said. “In order to make a substantial amount of money, you will need the distribution from a record company. The Internet is a great place for people to recognize your talent, build a fan base and be discovered by record labels. But if an artist wants to be a household name, there is still a need for the record company. You don’t have to give up everything, when dealing with a record company, but you can come to an agreement for distribution.”
Gad agrees with Kennedy and adds that new technologies have reshaped the music business and the structure of record companies. The advent of more powerful, inexpensive computers has practically killed recording studios. Gad said multi-million dollar studios have been replaced by $1,000 laptops.
“The laptop has replaced the studio,” Gad said. “I have done a lot of albums on my laptop. Many artists have a successful record that was not made in a big studio.”
The easy availability of music technology has opened up the industry, because now more people have the hardware to produce their own albums. File sharing technology has also cut into record company profits, with more music users choosing to buy their music online through sites such as iTunes.
Additionally, many younger music fans download their music free and don’t pay anything for the music. “The old radio single and video formula doesn’t work for most anymore. In fact, it may be the quickest way to a short career,” McLain said.
“It’s a global trend that big record studios are going out of business. A lot of A and Rs (artists and repertoire departments) have been fired,” Gad said. “But the record companies are still needed for promotion.”
Kennedy has also noticed the waning power of the record labels. Nowadays artists are stepping up and demanding more control of their image and music. “In most cases, the record labels no longer control every aspect of an individual’s career,” Kennedy said. “Most artists have more control over their finances and decision making. It is now very common for artists to be involved in which direction their careers go.”
However, record companies still spend huge amounts of money on artist promotion. Gad estimates that labels spend about $1 million on promoting an album, and that is how many artists get in trouble. Record companies loan artists the money to record and promote their debut albums, and that money is expected to be repaid. That’s how 1990s R&B group TLC famously got into trouble. The group filed for bankruptcy, even after they had had several hit albums.
Gad said the mistake TLC made was only performing and not writing any of their music. “Most of the money is in the writing. Artists who write their own hits don’t end up broke,” said Gad, who writes about 100 songs a year. “As an artist, if you write your own songs and you have hit, you’ll be likely able to live from that for many years.”
Another big financial mistake artists make is thinking with their heart and not their brain and pocketbook. McLain warns against hiring friends to manage your money. “Find people you trust to be your managers and agents but, that doesn’t mean to hire your friends. Trust in their skills to manage and invest your money wisely,” McLain said.
She added that ignoring your bank statement, spending frivolously, and taking the first deal offered are guaranteed ways for an artist to end up broke.
Kennedy says artists have to be extremely vigilant about all of aspects of their financial dealings. “Often times, people make the mistake of allowing other people to spend their money without accountability,” Kennedy said, noting that “The contracts that they sign are not very lucrative, and the artists tend to overspend to create an impressive image to the public.”
Artists also need to look beyond record sales and royalties, traditional sources of revenue, Kennedy said. Many hip-hop artists have jumped on board this bandwagon by using their brand to negotiate clothing, video games, and endorsement deals. Kennedy said one of the biggest mistakes an artist can make is rushing into signing a deal before they have a good entertainment lawyer review the contract.
“It may be difficult to find an entertainment attorney locally, but it is definitely worth the efforts to search and find one who will work hard on your behalf,” Kennedy said.
Although many outsiders think the music business is glamorous, Gad describes it as very demanding.
“The industry is really back-breaking and brutal,” Gad said. “It’s important that you are persistent. Don’t take no for answer, because you will hear a million nos. It’s about originality. Don’t try to sound like Toni Braxton, bring something new to the game.”
McLain says that artists have to be in it for the long haul. “To quote the phrase loosely the ‘overnight successes’ you see were ‘years in the making.’ Whether you go the record company route or try to make it independently, practice and work and stay focused. Believe in yourself, but set realistic goals,” she said.
Kennedy said a successful artist needs to have a strategic plan and goals. “Know what you want to accomplish. That way you won’t fall for everything that comes along,” Kennedy said. “It’s hard to trick people who are focused and know what they want. Do your research and make sure you have a plan and are willing to work hard and do what it takes to accomplish your goals.”