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A Woman of Independent Means : Ani DiFranco's Got a Great Royalty Rate--It's Her Label

July 05, 1996|CHUCK PHILIPS

Which entertainer has the best royalty deal in the music business?

It's not Michael Jackson, Madonna or Garth Brooks, three artists who've made headlines over the years with record-breaking contracts.

Even though these artists have far more clout to negotiate tough contracts with their record companies, the highest royalty rate belongs to Ani DiFranco, a 25-year-old punk-folk singer who has sold a modest 400,000 albums over the last six years on Righteous Babe Records, the tiny underground label she owns and operates in her hometown of Buffalo, N.Y.

DiFranco makes about $4.25 for every record she sells--more than twice the going rate for major label superstars. Her newest release, "Dilate," which burst onto the mainstream pop chart last month at No. 87, has already generated an estimated $600,000 at retail without the aid of advertising, radio or video airplay.

Add those figures to the $2 million in box office receipts that DiFranco generated on her last concert tour and it's easy to see why she is being touted in independent circles as proof that artists can succeed outside the major music companies.

"The good news is that if you are disgustingly sincere and terribly diligent, there are ways for any serious artist to operate outside the corporate structure," said DiFranco, who rejected contract bids this year from every major label. "My problem with the guys who run the music industry is that their only priority is to make money. My priority is to make music. The fact is they need artists more than artists need them."

Major record company executives applaud DiFranco's success but contend that by operating on her own, she's selling her music short. They believe that with the backing of a major company, she could sell far more records, though probably with a lesser royalty.

Giant companies have the deep pockets and marketing muscle to obtain airplay on radio and MTV and to guarantee optimum placement of product in major retail chains around the world.

Atlantic Records, for example, transformed Hootie & the Blowfish from an unknown act that had sold 60,000 albums on its own label into an international superstar with sales exceeding 9 million units. Although Hootie may get four times less profit per unit than DiFranco, executives note, the band has made more money because Atlantic has sold 20 times the number of units DiFranco has.

Several other new major-label acts such as Alanis Morissette and the Dave Mathews Band have seem similar sales growth patterns.

"Ani DiFranco's success as an independent in no way diminishes the role that major labels play in breaking new acts," said Strauss Zelnick, president and CEO of Bertelsmann Music Group North America, which releases Mathews' records. "We offer expertise in marketing and promotion and distribution that is essential to expanding careers."

That expertise, however, does not come cheap.

One reason DiFranco pockets so much per record is that the profit from her music is not used to underwrite corporate overhead for marketing, distribution and manufacturing. These days, the typical major record label employs hundreds of people overseen by dozens of department chiefs whose salaries and bonus packages seem to be pushed upward year after year.


Profits from hit albums offset losses incurred by the thousands of commercial failures pumped annually through major label distribution channels.

Indeed, most artists don't sell enough to reimburse their companies for the $300,000 to $1 million in cash advances spent per project on studio recording, video production, radio promotion and tour support. As a result, record companies lose money on the majority of their releases, and many artists signed to standard long-term contracts remain in debt throughout their careers.

Artists who sell as few albums as DiFranco did early in her career are often dropped or pressured to change their style.

By setting up her own company, DiFranco has been able to grow at her own pace.

She is currently the only act on Righteous Babe, and she has been operating in the black since Day One. She produces her music herself, designs her own artwork and has recorded each of her albums for less than $20,000. Righteous Babe spends no money on record promotion or tip-sheet advertising, and the company has created just one $20,000 video since its inception.

Another reason DiFranco's profit margin remains so high is that her contract--unlike other musicians'--is not riddled with deductions for packaging, technology development and other costs that take a significant bite out of the typical major label act's royalty rate.

In addition, she owns the master recordings to her entire eight-album catalog and the publishing rights to all her songs--something true of only a handful of superstars.

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