Financial Risk and Return in the Music Recording Industry

Theo Papadopoulos

Victoria University

Abstract

In response to commentary made by Peter Alhadeff and Barry Sosnick (A&S) relative to his 2004 paper on the economics of record company recoupment practices, the author systematically refutes two of his critic’s assertions in order to strengthen his paper’s original argument. Firstly, the author address A&S’s misunderstanding of a recording advance as an accounting cost (inherently more explicit or fixed) whereas he intended it to be understood as an economic cost (a combination of explicit and implicit, or opportunity-based). To illustrate the nature of the advance being an economic cost, the author gives examples of a record company foregoing the opportunity to invest their money alternatively and a recording artist foregoing his opportunity to earn a living in a career outside of music. Secondly, the author addresses A&S’s skepticism over his assertion that record companies use the financial gain from the small percentage of album releases that prove successful to subsidize the large percentage of those that do not. The author seeks to better quantify the risk that accompanies the speculative nature of record company investment in new artists.

Keywords: artist royalties, recording industry, music industry, recoupment practices, recording advance, artist royalties, Alhadeff, Sosnick

Papadopoulos, Theo. “Financial Risk and Return in the Music Recording Industry." Journal of the Music and Entertainment Industry Educators Association 5, no. 1 (2005): 19-31. https://doi.org/10.25101/5.2

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