Looking at industry money flows

Many times people do not understand how the money flows or where the costs are in an industry. Sometimes even those who work in it have no idea. http://ivanhoffman.com/moneyflow.html is a good example of someone explaining the way the money flows in a huge industry (the music industry) that many in the industry do not understand or appreciate.

Just to start (quoting from the article):

The artist will usually get a royalty of anywhere from 5% at the low end to 15-25% at the high end of the Manufacturer’s Suggest Retail List Price (the retail price) as a gross royalty but that royalty is almost always illusory.

The company will generally deduct for “packaging” (remember “packaging?” that is, when albums came with covers and liner notes?). The artist should of course negotiate not to have such a deduction for digital downloads since there is no “packaging” in such formats. The company will also deduct an amount, currently somewhere around 15% for pretty much nothing at all but which historically was an amount allocated to “breakage” (remember when there were actual records that could break?).

Now the 85% basis for royalty calculations has simply become part of the royalty structure and there is no rhyme or reason to explain it. In fact, it used to be 90% as the standard but could, in the right instance, be negotiated to 100%. Needless to say, this is negotiable as well. There are often many other deductions and reductions in the above royalty rate for foreign, mid-price, budget price as well as different rates for foreign sales.

Additionally, the artist gets a share of the licensing income (read “Is It A Sale or A License?” ). If the recording is used in a commercial, movie, television show or the like, the company negotiates a “master use” license with the user and collects the money and pays the artist’s share to the artist, which if properly negotiated, should not less than 50% of the gross and sometime much higher than that. And it is not just the rate that is important; it is the basis upon which the rate is calculated which is even more important.

Read the rest of it. Now, look for that same informatin in your industry.