Record Labels, Artists, and Finance: A Contribution to the Economic Analysis of Costs and the Equity of Recoupment Practices in the Music Industry

Peter Alhadeff

Berklee College of Music

Barry Sosnick

Five Towns College

Abstract

The paper is written as a rejoinder to Theo Papadopoulos’ Are Music Recording Contracts Equitable? An Economic Analysis of the Practice of Recoupment, MEIEA Journal, 2004. Papadopoulos asks at what point in the product cycle should a label consider the advance to the artist as paid from artist royalties? He then considers various scenarios. Papadopoulos’ analysis hinges on the definition of total cost, and therefore fixed cost. The authors argue that Papadopoulos’ own treatment of the recording advance, a key element of his work, is not strictly correct. Papadopoulos is right to describe the recording advance as a fixed cost. However, it is wrong to consider the sum handed to the artist at its face value—as much of the literature does too. The label is parting with a sum of money that would otherwise be earning a steady stream of interest payments if invested elsewhere. When a label signs an artist, this opportunity cost of lending money is very real and has to be included as an additional fixed cost. The result is that Papadopoulos underestimates the true break-even point of a label. The conflict between a label and its roster of artists may be harder to reconcile than Papadopoulos imagines.

Keywords: recording industry, music industry, recoupment practices, recording advance, artist royalties, record labels, Papadopoulos

Alhadeff, Peter, and Barry Sosnick. “Record Labels, Artists, and Finance: A Contribution to the Economic Analysis of Costs and the Equity of Recoupment Practices in the Music Industry." Journal of the Music and Entertainment Industry Educators Association 5, no. 1 (2005): 13-17. https://doi.org/10.25101/5.1 

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