Your Band Is A Business, So Treat It Like A Business

The topic of bands paying taxes and the proper business entity to file as came up in a recent Facebook conversation thread, which made me realize that not all bands know exactly what they’re doing when it comes to protecting themselves and their assets. Not to mention what happens if a member leaves a band, so you don’t end up with Queensryche part two. Assuming that a band has passed the “let’s jam and get to know each other stage” and are ready to conquer the world, there are a few things they should do before rushing into the studio to record their demo or album, at least here in the U.S.A. The following may be a lot to take it, but if you are serious about being in the “music business” then you will read on.

• Have a Band Partnership Agreement written up and signed by all members. Ideally, this would be drawn up by an attorney who practices entertainment/music law in the state that the band resides. However, most bands in their infancy can’t afford legal counsel and can just find examples online to use as a template and tailor it to suit their needs. Just make sure to cover every possible aspect you can think of, it can be amended or added to later. Key points to focus on are: how the money (profit and loss) is split amongst the members, what happens in the event a member leaves the band both voluntarily and involuntarily, the obligations/roles of each member, etc. There are so many things that I couldn’t possibly list them all, but a good Band Partnership Agreement template will have these things in there. However, if you can afford outside legal help….then get it. Whether it be a lawyer or something like LegalZoom.com.

• Establish a General Partnership business entity and get a DBA account. I don’t know about all states and territories, but typically once people decide to partner up and engage in business together they are a General Partnership. A General Partnership has two or more persons engaged in a business for profit. The business is not a separately taxed entity, it is a conduit where the profit or loss flows through to the partners. The partners (band members) report their share of the partnership profit or loss on their individual income tax returns. All partners enter into partnership by either oral or written agreement that must cover all terms of the parties’ business relationship (Band Partnership Agreement). Getting a DBA is pretty easy. The process may vary slightly from state to state but in California you just register the Fictitious Business Name in the county that the band is based, there is a small fee to do this. Then run a public announcement/legal notice ad in one of the many publications that cater to such things in the county that the band is based, again…small fee. You also have to file the proof of publication to the county. If in Los Angeles County, a great place to have this all done for you is 30dollardba.com – they will file the Fictitious Business Name, run the ads, and file proof of publication with the county at a reduced cost than other sites that charge for such services. Once you get all that stuff done, take the proof of publication and Band Partnership Agreement to the bank and open up a DBA account using the band name. Once this is done, people can make a check out to the band name and you can actually deposit it. Also, this is how you keep track of most band expenses…by using the account solely for band related transactions.

• Copyright the band’s music and lyrics. File for copyright for the band’s original written songs and specify the writer(s). An album would be registered as a “collective work” with all song titles listed. More information on how to file for copyright (if U.S.A. based) can be found at copyright.gov.

• Register with a Performing Rights Organization such as ASCAP or BMI. Each member that is considered a writer for any song registers as a writer. If the band has no publishing deal yet (which is usually the case) then register the band name as the Publisher. Once this is done and everything is in the system, then you can register each song and specify each writer along with their percentage of “ownership” in the writing of each song. This is how public performance royalties get paid. If you fail to register with a PRO and start getting radio play…you will get nothing in terms of royalties.

• Once the band is making money, dissolve the General Partnership and become an LLC. Some think that a band should start off as an LLC from the beginning, but I don’t necessarily agree….unless they can afford it. It costs around $800 per year just to be an LLC, so unless a band is making enough to cover that it really doesn’t make sense to put the band in the negative just to say they’re an LLC. I recommend going the General Partnership route, which is the same as an LLC but without any liability protection. What that means is, an LLC protects each member’s personal assets in the event of legal action (lawsuits). In a General Partnership, personal assets are still fair game if someone is claiming damages in a lawsuit. So just don’t do anything stupid in the early stages that could result in any legal repercussions.

• Keep track of expenses. Pay for rehearsal space? Write it off. Pay for gas while on tour? Write it off. Eat something while on the road? Write it off. Pretty much anything that costs money that directly relates to the band and performing can be written off on taxes. Just keep receipts and put it all in a spreadsheet as you go, it will save you time come tax season.

Well, I hope that helps paint a picture of what needs to be done in order to have a band function as a business. If you have any questions, feel free to ask them in the comments and I will do my best to answer.

-Max ‘ManJewky’ Wallis
KM Co-Founder / Blog Editor

Turning Piracy Into Profit: A Lesson By IRON MAIDEN

In a recent story on The Guardian, it was revealed that Iron Maiden turned piracy into profit by tracking where their music was being pirated the most and then touring there. This sort of seems like a no brainer, but apparently this is not something done by the average artist. But it should be. Whether we like it or not, the consumer imposed business model known as “free” has greatly impacted the business of selling music. The key is being able to convert those “freeloading fans” into “paying fans” and Iron Maiden‘s approach is a great example of how to do this.

Find out where people are consuming your music via file-sharing and streaming services and then route a tour hitting all of those markets. Of course, this isn’t a practical approach for every band….but those who are in the position to tour should be utilizing this method every time.

According To This, A Musician Needs 10K-12K Hardcore Fans To Be Successful

In this clip from the forthcoming documentary Unsound, musician Zoe Keating speaks about the best way to support a musician. Sure, her music isn’t Metal but the message transfers across all genres.

The three key points made here are:
1.) The conception that one is helping to support an artist by listening to their music via a music streaming service is false.
2.) The best way to support an independent musician/band is to buy the album.
3.) A musician needs 10,000 – 12,000 hardcore fans to buy their album and attend shows in order to make a living.

Keep in mind that Zoe is a solo artist, so I would think that the amount of hardcore fans she needs is lower than the amount that say a five-piece band would need. So I would estimate that if you multiply 10,000 by the number of members in a band then that would give you an idea of how many hardcore fans a band would need to sustain a successful career.

When it comes to key point #2 made above, it goes much further than what the statement may suggest. While attending shows is a great way to support a musician or band, there are underlying benefits when it comes to album sales. Assuming that a musician/band has their shit together and submits their album UPCs to Soundscan, there can be underlying benefits to having a large amount of people purchase the album during release week; such as charting in Billboard and other industry charts. While the average music fan may not pay so much attention to these charts, people within the music industry do. So if a musician or band is making waves and spiking the charts…people in the industry will take notice and that just means more potential success for the artist(s) down the line.

Ok, enough of my jibber jabber. Watch the clip below.

The Consumer Imposed Music Business Model Known As “Free”, and its Damaging Domino Effect

I came across a thought provoking article today on MusicThinkTank called The Cost of Free  written by Athena Butler, a student at Berklee College of Music. It’s no surprise to most of us that the music industry has been taking economical gut punches from multiple angles for years. However, it’s highly ironic that those mainly responsible for this decline are among the same group of people that made the music industry so successful to begin with….the music fans. After all, it was the music fans that made the perceived value of music go from around $16.00 per CD to $0.00 practically overnight during the dawn of the piracy age. Some could blame technology, some could blame it on label greed, but the bottom line is that the decision to no longer pay for albums came from the music fans. And it’s that very mindset that is re-shaping the way many artists release music now, along with a little help from iTunes and their pioneering of the single-song business model. Some have argued that the day of the album is dead, and that artists should now focus on releasing singles on a more frequent basis as opposed to releasing entire albums with years between releases. Which is morbidly funny if you think about it. Back in the day, artists were forced to only release singles due to limitations within the recording technology available and now they are being forced to release singles again due to limitations within the desire of the average music fan. Ok, I got a little off-topic there, but the bottom line is that it costs money to give something away for free, and a lot of people tend to forget that.

Below is the copy from the MusicThinkTank article I was referring to:

Independent Bands Belong On Bandcamp, Not iTunes

It kind of goes without saying that independent bands and artists have the right to sell their music on the open market and retain as much of the revenue as possible. Yet, in order for artists to sell music these days they usually have to sell via a third-party site in order to be able to process orders and payments efficiently. Even if they did, there is also the aspect of reporting the sales to Soundscan. Not every musician has extensive knowledge on e-commerce and website building, so in order to provide people with a means to obtain their music they have to choose what service or site to sell their music through.

Many people think that the best place to sell music online is via iTunes, but those people are wrong…like Ron Jeremy in a pink speedo wrong. In order to sell music on iTunes, an artist must go through what is called an aggregator (such as TuneCore). With two services involved, the artist will surrender 30% off the top in addition to whatever fees the aggregator charges to process payments. In some of the worst scenarios, some artists could end up surrendering 50-60 percent of each sale. In addition to this there is an annual fee to keep your album listed, so from the beginning you are already in the red. You’re just paying for the privilege of having your music available in a bottomless digital pit, regardless if you sell anything or not. And even if you do, it doesn’t become profit until you recoup the initial money spent for the listing. The aggregators are in the business of selling the ability to have music listed on iTunes, not promoting independent artists. People have to know to look for you. The illusion that having your music on iTunes will give you more visibility and added promotion is just that…an illusion. Besides, fans can’t even buy physical CDs on iTunes so the artist will have to find another way to make that option available. Yes, there are those people that still prefer CDs to downloads.

It seems to me that the best place for independent bands and artists to sell music is via Bandcamp. Not only can bands go direct to fan without an aggregator, they also take less of a percentage (15% for digital, 10% for physical). When fans buy a physical copy, they automatically get a digital copy immediately after purchase. In addition to this, Bandcamp also reports sales to Soundscan and allows artists to set up a merch store, making it a one stop shop for fans. If you do decide to give away a free download, you still get the downloader’s email address (email is still one of the best ways to reach fans directly).

Another great thing is that people can listen to full songs on Bandcamp as opposed to tiny snippets before they buy, and the artist has full control over what songs can be streamed. Anyone can easily share music directly from a Bandcamp page as well, whether it be linking to it on social networks or embedding the music player directly on a blog or website. If listening to a band via a Bandcamp widget, the listener can easily click a link to purchase the music. Refer to the widget below, featuring one of our favorite bands Night Demon.

 

Special thanks to Rebel Pyro of Rebel Pyro Management for his added insight.

Kickstart My Fart: Stop Crowdfunding The Lazy and Unrealistic

You should be familiar with the whole concept of crowdfunding by now. For those unaware, crowdfunding is the latest craze to consume the music industry by turning typical music fans into financial backers of various sorts. There are tons of these sites around, but the main ones are Kickstarter, IndieGoGo, and PledgeMusic.

On the surface, this seems like a great idea; an outlet for independent bands and artists to raise capitol so they can achieve a specific goal, such as recording an album or funding a tour. If done the right way it could prove to be quite powerful (and has for many independent bands and artists), since many independent bands don’t have a lot of money to work with these days. There are also rewards for contributing, depending on the amount given. I have no issues with local/independent bands raising capitol in this fashion. However, I’ve been noticing an increasing number of some of the more well known bands turning to these platforms from what appears to be out of pure laziness and sometimes just plain greed.

Orgy is a perfect example of a band that I think abused this platform. Recently, the band launched an unsuccessful crowdfunding campaign to record a new album and launch their own label…asking for $100,000! They fell way short raising a little over $7,000 and shortly after the campaign failed, their guitarist quit. The big problem I see here is the amount they were asking and their desire to launch their own label. It may not be obvious to the average music fan, but it surely doesn’t cost THAT much to record a pro sounding album….not even half that, more like 10%-15% of that. As far as starting their own record label, well I don’t think that was the best way to go. I think they would have probably been taken a little more seriously if they just planned to record the album and license it out to labels (like what Protest The Hero did). Launching a new label just to release a ‘comeback album’ doesn’t seem a realistic way to go about things. I find it necessary to mention here that Nine Inch Nails tried going the independent route and then returned to an established label simply because there is generally more value in being with a label than being independent; allowing the artist to focus on being creative, as opposed to running the business end of a self launched label.

The main point I’m trying to make here is that the bands and artists involved with these types of campaigns should really evaluate what they want and what is a realistic goal to meet. Find out how much it will cost to record, release, and market the album; or how much it will cost to tour. Don’t just pull a number out of your butt-hole. When possible, include the breakdown on the campaign site so backers know exactly where the money is going. Furthermore, if a well established band can afford to use their own money but would rather spend their fans’ money instead….is that really admirable?