How Four Tet vs Domino Indicates the Future of Our Industry’s Profit Share
The following editorial comes from UK-based Hunter Giles (inset photo), who co-founded and runs Infinite Catalog, a royalty accounting software + services company.
Profit-sharing record deals — sometimes called “50/50 deals,” referring to their most common form — have been used by independent labels for decades.
Compared to the major label style, Kanye-tweet-Offerings worthy of 80 pages, they’re also perfectly suited to an era of rapidly expanding ways to make money from music, whether from streaming, gaming, the metaverse, wherever.
To prove that profit-sharing agreements are indeed the way of the future – and how their continued adoption could lead to a more transparent and profitable industry – look no further than the recent Four Tet vs. Domino spat.
“They acknowledged my original request that I should receive a 50% royalty on streaming and downloads, and that they should be treated as a license rather than a CD or vinyl sale.” So tweeted Kieran Hebdan, aka Four Tet, in a bodacious yarn.
What’s on display here is the tension between those old-school contracts (sometimes referred to as “royalty-based” or “PPD” agreements) that were designed for an analog world and the modern environment we live in. Actually.
Now buckle up, it’s going to get a little wonky…
In old-school deals, a royalty rate (18% in Hebden’s case) applies not to the revenue actually received by the label, but rather to pre-agreed amounts called “Published Price to Dealer”. (PPD)” or “Suggested retail price”. List Price (SRLP)”.
This means the label can just track the units rather than all that pesky revenue: eg 100 cds sold * $10/ppd per CD * 18% = $180 royalties for the artist.
The revenue actually received by the label is, again, particularly unrelated to what is accounted for on the royalty statement.
These “PPD agreements” (as we will now call them) make even less sense for digital revenue.
Streaming rates change every month in most DSPs, and in addition there are dozens or hundreds of different “types” of streams/downloads (free/freemium/paid/ad-supported/cloud/offline /etc.), all giving different results and constantly changing rates on hundreds of different DSPs.
So you can’t really set a standard amount of PPD, nor find a “real” amount “sold” (and indeed there is no sale, with streaming anyway). Instead, labels end up applying that same 18% or similar royalty rate to the actual revenue received after all…just like in a profit-sharing agreement, where rates are usually around 50%.
So the profit sharing tends to be much fairer, not to mention transparent – the artist actually knows what the label is earning for their efforts. These characteristics seem to suit an increasingly artist-centric era.
But that alone won’t be responsible for the continued shift towards profit-sharing — it’s the explosion of unsuspected new ways to make money from music.
Profit-sharing agreements are simply more adaptable – they don’t need to lock anyone into tariffs for one thing and then apply it to “any medium now known or designed by the sequel”, as old-school chords so often say. All players undertake to share the costs and benefits, in complete transparency, wherever they come from.
If that sounds like Web3, you’re not far off, but we don’t need blockchain to do it, and indeed freelancers (not to mention managers, business owners, etc.) are already doing it. for decades.
The future of the music industry’s profit share is already here, but it’s just not evenly distributed – yet.The music industry around the world