The Entertainment Business

4

Introduction

The business of business is to make a profit! The business of the entertainment business is to use creativity for profit. One of the biggest mistakes we can make is to try to be in the entertainment and music business without understanding how business works. Another key mistake is downplaying how important desire and passion are in making a career out of creativity. To make it even more fun, this industry has some unique barriers to entrance built around what you need to understand before trying to pitch a new song, recording, film, book, script, game, or even yourself, to secure a deal or employment. Let’s face it, if you’re trying to sell property you’ve created (e.g., a song, script, recording) or yourself as the talent, you’re in business, even if you don’t know it (see Figure 4.1)!

Entrepreneurship

Now, let’s really dive into the concept of “business” by exploring the process of building an actual business model related to what you may want to achieve in the industry. I am providing some basic concepts to spur thinking and to get you to try to come up with helpful answers to the questions you may have.

Take a few minutes to review the illustration (Fig. 4.2 below) adapted from the book Business Model Generation by Osterwalder and Pigneur (2010).¹ It provides a step-by-step process to help us understand how a start-up business venture is constructed. Once you have looked it over, consider how to apply each step to the types of opportunities in the entertainment and music business you find interesting. Osterwalder and Pigneur (2010) claim there are nine steps or “building blocks” to consider before starting a business.²

The Language of Start-Up Ventures

How can you become successful in the entertainment and music business? Find a problem consumers are experiencing, develop a service or product that is the solution to the problem, and then build your own venture to sell to consumers. Businesses in the entertainment industry sign talent, scripts, and so forth, and buying, licensing, and signing “talent” are a business-to-business deal. If you’re the talent then you’re also the “business” executives in the industry will “deal” with if you’ve got something they want. What a concept! So, if you’re a creative talent, you’re also going to be a business and more than likely the owner of the business also! If you are a songwriter, you’re in business! If you write scripts, act, sing, or play music, believe it or not, you’re in business. Here’s the big surprise: to be a successful creative person, you are usually required to also be a businessperson who owns your own writing, acting, singing, performance, or other related business. And your product or service is usually the selling of your own songs, scripts, and so forth to other businesses that desire to license your “creative works” as books, recordings, movies, or computer games. So what is the name of your business? What type of legal business is your company? What’s it going to cost you to run your business? And the questions go on and on, but let’s start with building a business model.

Business Model

A business model is required to determine the type of business you’ll need or need to be to sell your products or services. There are many different types of business models; yet, no matter which style you choose, there are nine commonly required steps in developing your business model. Remember the business model is simply a plan rooted in how you are going to sell your songs, recordings, or live performances as a product or service. Figure 4.2 shows you how the business model flows with it fully completed. Note that each step has a related prompt that links the product or service to the consumer and, ultimately, to the profit the product or service will generate.

The Artist as Businessperson

Often, successful creative people begin their careers locally as a sole proprietorship, frequently choosing an engaging business name, not their own, allowing them to do business as (DBA) or within a framework that is designed to attract customers. At first, many creative people do not even know they need to be a business or understand the purpose and processes of commerce. Are you a creative artist and you want to get hired by the local club, promoter, or film festival, or sell your paintings at a street festival? Lesson number one is to realize the club owner, festival promoter, gallery manager, or anyone who is hiring talent, placing the art on a wall, or showing a film short is making the money, not you. They’re betting whatever you’ve got or can perform will increase the number of customers who buy a beer, meals, paintings, or tickets and to them, that’s a profit that grows their business. Whatever you’ve got is a means or a way for owners of businesses to bring people in who will spend money, and the way they do that is to hire your business to provide whatever you artistically do in order for their business to make money. This is a business-to-business industry even when you’re just getting started. When you’re getting started as an artist or someone who’s helping artists sell their creative “works,” you need to ask yourself the following building-block questions about how to develop the business model (Table 4.1).

Table 4.1 The Building Block Questions. Answer the question(s) for each building block to help you understand the type of business model that will best help you sell yourself, creative works, or services (e.g., artist management) to other businesses that need them to make a successful profit.⁴

Order and Name of Building Block	Definition	Examples of Questions You Might Ask
1. Customer segments	Defining your customer	Who is your customer? Fans, labels, music publishers, and so forth.
2. Value propositions	The “perceived value” your product or services provide to your customers	What problem are you solving for your ideal customers?
3. Channels	The ways and methods of distribution of your products and services	How can you make your customers aware of your products and services and get them to them?
4. Customer relationship	The types of professional relationships between the company (you) and your customer	How do you find and retain customers to upsell your products and service? Is it automated, or is there personal assistance available if needed?
5. Revenue streams (note that it is often more than one stream of money)	Represents the gross income from sales minus expenses, which is the net profit or loss	How can you monetize different types of customers or sell to established customers with different or new products? In the music and entertainment industry, think about subscription fees and free products driven by advertisements, such as what Amazon and Spotify do.
6. Key resources	The physical, financial, and intellectual property or human beings who make a company or product valuable	What is the value of your songs, videos, and other creative products or what is the value of your knowledge and contacts to an employer? Why would someone want to hire you and not others?
7. Key activities	The most important thing you or your company does to make a profit or to become more valuable to any employer	What are the key things your company does to make it more profitable in the marketing, production, reduction, and so forth, or for an individual? This could include networking, knowledge, or increasing creativity.
8. Key partners	The suppliers of goods and services that will help your company or you achieve more value to the industry	What people, places, things, and knowledge do you need to acquire to be as successful as possible?
9. Cost structure	The total cost and expenses of doing business	How much will it cost you to gain the knowledge, experience, products, and services that will make your company successful?

The Establishment

The need for a sound business model is the same for major films, labels, touring production companies, and so forth, where your value is based on how much fans, movie ticket buyers, and radio and TV listeners and viewers spend on whatever you’ve got to offer. In more ways than you would imagine, any stardom you might achieve and your measure of success are tied to the value of the money you (your image and brand) generate—usually for someone else. The trick is for your artistic efforts and products to emotionally move the customers enough for them to pull out the credit card or lay down the cash. Before you get upset that I’m being so honest about the money angle, never forget that it’s really about the art, passion, emotions, message, experience, and about a billion other things art provides emotionally to consumers. Money, as we learned in Chapter 2, is simply the language of the deal.

Small Business Administration Questions

Even if you don’t want to own a business it’s smart to either start a venture or work for one related to your passion. The experience usually confirms your desire to work in the industry, gives you a chance to apply the basics of knowledge, develop contacts, and experience business-related realities needed later to help your employer solve problems and make a profit. As a college student, typically, you may have enrolled in an internship program to experience the opportunity of using what you learned in class to inform what you need to be able to accomplish to be successful in the industry. The quicker you learn, the more valuable your talents or skills are to your success and to the industry. Of course, when you’re starting to launch a creative career, the catch-22 is that nobody important in the industry is likely to know who you are or what you’ve created. Why would they listen to your songs, films, and so forth, or hire you? The surprise is that you’ll get your shot!

Your Shot

Club owners to industry executives understand that their future is tied to new ideas, talents, products, and innovation, which only new generations can contribute. It’s still not unusual for new bands to pay to play or confirm a number of fans will appear before a club owner gives them a shot. It’s a business after all! Word of mouth is always helpful as long as the buzz is positive. Negative comments or referrals from others who gave you a shot where you did poorly cause a slow, painful artistic death. So plan ahead, understand others’ needs and agendas (as promoters or club or gallery owners), and you’ll quickly find opportunities for work.

Starting a business or evaluating a business opportunity can’t be happenstance. The questions provided by the Small Business Administration (2015) are great places to get some guidance about what you should be thinking before you start doing. Here are a few of those questions and some of my comments, which I hope will make these questions relevant to your particular needs and interests in having your own business.

1. Why Am I Starting a Business?

Good question—the answer is simple, to make money for the other guy and yourself. Many beginning positions in entertainment are entrepreneurial in nature. After all “To be or not to be?” is the question Shakespeare famously wrote about big choices. If you want to be an act, songwriter, manager, or scriptwriter, do it now and get better at it every day. However, from day one be yourself; be creative when you need to be and a businessperson at the same time. Be your own business and sell it as you sell yourself because that’s what you’re really doing every day if you’re an executive or even a local act playing a gig. Gain success by having others experience your art, act, and gigs, and if they dig it, hopefully they will talk, talk, talk about it.

Start a Business by Creating Market Demand

Now if your product or service is getting exposure, is heard, seen, experienced then other club and gallery owners and fans will hear about it and your price goes … up. Business and product demand is the language executives in most businesses use to make their important decisions. Do you know the language? For example, what are these: a controlled composition clause, WIPO, SoundExchange, the formula, recoupment, advances, options, a sync or master license? To create a demand for yourself as an artist or a product you may want to sell, you’ve got to know the language used in the industry. That’s the way people talk to others about business opportunities and the potential profits and losses tied to what you’re offering. How does everyone make money? Forget about ego for a minute and focus on the business as a business if you want to really succeed in the entertainment industry. Art is art, business is business, and when you can tie the two together (if you have something consumers want) you may never be able to spend all of the money it may generate.

Try working for a small, established industry-related entrepreneurial company, such as an independent label, promotion, agency, or production company. More success, knowledge, and contacts lead to better job offers and eventually the possibility of starting your own company. But this time instead of starting on the bottom, trying to get noticed, you’re a major player and maybe even on top, controlling a valuable niche in the film, music, art, or touring industry. Rock on! Everyone needs the experience and contacts that bring wisdom, and the industry businesses will evaluate you on “who you are and what you can do.” An internship connected to a college that offers related industry majors is a great way to discover how successful businesses are designed. So once again, why should you start a business? To learn what you need to know to make yourself valuable to the industry. Unless you’re filthy rich, you’ll probably have to work to survive this cruel, mean world (only kidding). Actually a job can be a great experience, lots of fun, and an opportunity to meet others and contribute some type of kindness to the world. If you’re in the entertainment or music business, ditto that and add hard work, and you might have an amazing, blessed life.

The Deal Within the Deal That Starts Your Business

Nothing beats the fun of performing or excitement of selling the book you’ve written! But that great feeling starts with the deal based on green paper. I’ve mentioned before the “don’t give it away concept,” hoping you’ll realize the power you have as a writer or act, when someone in the industry likes what you’ve got and it hasn’t been distributed yet. Why not do something fun and get paid for it? Most of us have seen our parents labor at gigs they really do not enjoy, so consider a career that may make less money, but provide you with a rich lifetime of experiences. Further, with a business of your own, you can give back, as you’ll probably be helping to create or sell products and acts that may improve the quality of people’s lives. That’s a good thing! So when you’re offered a contract put the ego aside and consider what’s really important. In many cases, you’ll find it may not be the amount of green paper you’ll get in exchange for your time and efforts, but the opportunities for experiences and emotions it provides.

2. What Kind of Business Do I Want?

What do you want to do and can you actually do it well? Let’s take a quick look at some of the types of careers in the industry; most fall into one of three categories—creative, business, and legal. Each career has its own unique set of skills and business questions associated with it.

Creative Industry

What does it really take to create a great song, recording, film, computer game, or live show? Talent (within the industry the term is used to describe actors, technicians, producers, musicians, writers, and the list goes on), money, timing, a modest bit of luck, and you might want to sprinkle on a little magic. Talent, usually working as a team, is very professional at making and selling creative products or your creativity when seeking employment. How does talent look in the industry? Let’s focus on four careers: writers, producers and directors, creative technicians, and performers.

Writers

Customarily, creative and energetic novelists, scriptwriters, and songwriters often appear to be consistently seeking a better way to express a catchy idea or hook. What’s hard to do is to write something career creative types will hang their hat on and businesses will want to invest millions in. However, when the royalty streams come together, great writers and everyone else often make serious money. It is possible everything written, signed, filmed, staged, or recorded is worthless when consumers didn’t get it or ignored it, or it lacked something that made them want to be repeat customers. But if you do connect, then the money just keeps coming to your mailbox, year after year, if you were smart enough to make a good deal.

Producers and Directors

Producers in the film business make the product happen by providing the money, contacts, and important decisions to bring an idea to life. In the film industry, it’s the director who’s responsible to guide the lighting, sound, staging, camera, and computer effects techs, and most importantly, the actors to deliver breathtaking performances in a final product viewers will hopefully enjoy by laughing, crying, getting scared or surprised, or experiencing some level of culturally accepted love. It’s the same in the theater industry, where the producer is the money and the director is responsible for the performance. In the music business, producers intelligently and creatively combine artists, talented technicians, and business executives to create potential hits. Great recordings require the producer to marry the perfect song to the perfect recording artist, remembering at the same time their image and brand. Hiring the best musicians, vocalists, background singers, and audio engineers who get it and renting the right studio for the feel and sound are still important. Then it’s up to the creative team directed by the producer to deliver the “lightning in a bottle” consumers hopefully connect with. In the studio, when you get “goose bumps” you know you’ve got it, and it’s happened to me only once.

What do you have to know to successfully direct a movie or play, or produce a recording session? What do you need to know to stay within your budget? What do you need to know about communication with creative artists, technicians, lawyers, and executives? How can you legally gain the right to use a song or recording of a song in a film? Wow, it’s complex, hard work, and you really need to be smart and experienced. But it’s also a lot of fun when it becomes an Oscar, Tony, or Grammy award winner. Even better if you get paid! By the way, music is used almost every time there is a visual production, and the production company must acquire a sync license for the use of a song from the music publishing company and a master license from the label to use the recording in the film before it is distributed.

Creative Technicians

Technicians are considered creative artists themselves by the producers and directors because they know how to best use lighting, sound, computers, studio acoustics, and special effects to enhance the qualities of the films, recordings, and plays and how to make the singers and actors sound and look their best. It’s amazing how different some film stars look in person. Others look almost the same, as they want to dress the part and be recognized. They are often short in stature, thin, and usually naturally beautiful or handsome. It’s funny as heck to see Johnny Depp, unshaven, in a T-shirt and sunglasses with an old baseball hat pulled down over his eyes. By the way, leave them alone. They are just like the rest of us, and so never ask for an autograph or picture if you want a career in the industry. Just be yourself and, if you need to, shake their hand, look them in the eye, and compliment their talent and work. Usually, they’ll relax at that point and start talking to you. But if you see them eating in a restaurant or they seem to be busy, just wave, smile, don’t say anything, and let them have their space.

Audio engineers are responsible for the technical quality of the recording, just as the producers are responsible for the creative quality of the recording. Their job is to make the artists and musicians sound as good as technically possible. Accordingly, they work with the recording artists, musicians, and producers to capture the artists’ and musicians’ best creative efforts on tape or computer hard disk. Film and stage directors need to achieve the same results for the actors, dancers, and others.

As much as Pro Tools and Logic Pro are changing the recording industry, the creative human element can’t be ignored. The creative artists still need to sing the songs and the great musicians still need to perform them. Producers still need to guide the artists and musicians to sing and play their instruments in a manner that reinforces the emotional message in the song. Same thing for film and the theater producers. Computers may replace the equipment in the studio and even the studio itself, yet they cannot provide the expert musicianship, singing, and audio and visual production of real, live human beings. Yeah!

The musicians in a self-made recording are often “a single computer whiz” hitting the keyboard to create sounds similar to “real musicians” in a studio. Often one instrument is generated at a time, and vocalists and then BGVs (background vocalists) last. Knowledge of acoustics (the science of sound), microphone placement, pickup patterns (how sound enters or is blocked from entering the microphone), and live musicians working creatively together is often lost using computer software programs. Most professional producers and engineers use both for master sessions. Live sessions provide many opportunities for emotional creativity. Pro Tools and Logic Pro software replaces the human creative advantages and opportunities with cognitive digital creative opportunities. The results are similar, but there is a difference in the final content and artistic performance of the sound. Consumers do not seem to notice the differences, and the computer sessions often provide labels with significant recording budget savings.

Similarly, computers are often used in the film industry to sync and match location shots and performances so the movie is a continuous story, not something filmed over a period of weeks in various types of weather and other conditions. Which bring us to the question, what do you need to know to be a successful technician in the production process now? The future belongs to the creative audio and video audio engineers who learn how to provide products that use both the traditional methods and computers. The industries are quickly becoming integrated to the point where everywhere there’s a visual production, there is also music and vice versa. Learn the production skills with innovation and creativity, and then move toward producing something of quality for less money to really enhance your career opportunities.

Performance Talent

Actors, recording artists, and musicians must breathe life into the products they create by conveying the story’s emotional message to potential consumers. Even if it is a three-minute story in a song or a two-hour dramatic stage play, the actors must deliver a believable performance. They must infuse energy into their lines, facial and body expressions, and lyrics, and vitality into the words of the script, or notes printed on the sheet music. BB King (1925–2015) described the emotion in a song in his interview with Ed Vulliamy (2012):

Most acts are signed to a label deal as a work-for-hire, which means the label owns their works. There are some exceptions, which will be discussed ahead, but even major recording artists should have a basic understanding of the copyright laws. Some acts have not negotiated a percentage of those streaming incomes with the labels and thus are not owed streaming royalties. The background vocalists (BGV) are the “oohs” and “ahs” of the recording and performance industry whose vocals enhance the main artist’s performance. They provide the vocal supporting harmony for major recording artists, along with singing live at theme parks and nightclubs, and on concert tours, cruise ships, and even radio jingles and television commercials.

Musicians are the great interpreters of songs. They reveal their emotions and personalities through their musical instruments and performances. They are the backbone of the recording process, supporting both the lyrics of the song and the performance of the vocalists. BB King also describes his love for his guitar and why he kept on playing “Lucille” in an Observer interview (2012):

Session musicians and vocalists are both considered recording artists. Working in the “arts” is often a part-time gig as there are fewer recording studio positions available than players. However, there are plenty of opportunities for musicians to work in bands, orchestras, churches, theaters, and other various types of venues. They are the best in the world at what they do. They use their emotions/feelings to play the instruments in a manner unique to the style of the song, act’s voice, and image. Any musicians can play the same song, but it’s the great ones that stand out and make triple recording scales by the way and manner they play the notes. The Wrecking Crew is one of the most famous studio musician groups, who recorded the tracks for the biggest hits of the Beach Boys, Glen Campbell, The Carpenters, Nat King Cole, Frank Sinatra, and many others.

Related Business Models

Once the product has been created the next business questions are to whom and how are you going to sell it? The traditional business side (business system) consists of entrepreneurs and business-minded individuals who publish songs; fund the development of films or computer and Internet programs and games; finance the artists, their recordings, shows, and concerts; and distribute, promote, and market the entertainment products through traditional retail outlets, traditional media, and social and streaming media to various consumer markets. It used to be the purchasing of recordings, films on DVDs, and downloads made the profits; now it’s the streaming, ticket sales, merchandise, and rights management royalties that provide the revenues and profits to the industry.

Success as a creative artist, actor, scriptwriter, and so forth is based on how well scripts, songs, and recordings are seen by the industry gatekeepers (e.g., artists and repertoire [A&R], talent agents, booking agencies) as a tool for profit. You can’t take rejection personally as decisions are based on what it’s going to cost to make, promote, and sell products and what the odds are of making a reasonable profit. It’s strictly a business deal. Most sane people when they see the risks and potential financial losses never invest their money or time into the industry unless they are looking for a tax write-off. Here’s an example of what I mean. I was flying into New York City a few years ago and sitting next to me was an attorney whose address was 1 Rockefeller Center. Huge attorney. He represented investors who’d put serious money into what became a very successful film. Sorry, I can’t give you details. Then he said, “We know the film made millions, but according to their accountants it lost money. Now you know why they say in Hollywood, ‘If you don’t like it, sue me, baby.’ ” In business, also create a win-win-win situation by knowing who your customers are, what they need and want, and what price they’ll pay. If your customer is another business, then know what their needs for production are and help them solve problems to increase their profits.

Research and Metadata

Metadata is defined as “Data that describes other data, as in describing the origin, structure, or characteristic of computer files, webpages, databases, or other digital resources.”⁷ Many types of research provide insights into who, what, where, and when consumers buy, use, listen, view, or steal entertainment products.⁸ Acts are supplied with tour support money and enough promotion and publicity to give consumers an opportunity to discover them and their recording(s). Labels use the information to direct additional advertisement buys, and promoters use it to research fan bases for hiring acts for staged events, which is often tied to content sales in various regions or zip codes. Providers such as iTunes, Amazon, and Spotify use metadata to determine consumers’ behavior and their specific uses, viewing, and listening preferences (buying, selling, and stealing habits) and that metadata may also be used by promoters. The RIAA (Recording Industry Association of America) in the United States and the IFPI (International Federation of the Phonographic Industry), which covers 57 countries worldwide, employ big data to research unit sales for labels they represent. Finally, labels use this and other research and data at their weekly meetings to discuss each act’s unit sales and other generated revenue. Surprisingly, it takes only two to four weeks to determine sales trends and to know if the act is a “hit.”

Consumers are drawn to entertainment products for totally different reasons. They find the products stimulating, funny, or entertaining (what a concept)! The definition varies, but in all honesty the word entertainment has to do with some type of “performance” and “occupation of the mind.” And if we like it enough, as an emotional cognitive “feeling,” we’ll share it with everyone we know, which is what social media is all about. By the way, the word “fan” is derived from the word fanatic, which is a descriptor of the level of intensity of the emotional connection. Entertainment is about perceptions and not necessarily reality, because what we imagine can be a lot more fun and interesting than the certainty of our daily life. So, the business-balancing act is matched with what the label or the company speculates will sell with what it has researched and is sure the consumer wants.

Administration

Who really gets the work accomplished in a business? The executives make the decisions, but who does the work once the decision has been made? The administrators at most labels, film production companies, and other industry-related enterprises are the people who punch the time clock, work eight to five and make things happen—except in the entertainment industry, where the typical office hours are from 10:00 a.m. to 6:00 or 7:00 p.m., plus all the industry functions, parties, and channels of networking you’re expected to attend. What the heck—you’re young and crazy and it’s fun. Well, the first few years it’s fun, but after that it is almost a duty or something you need to do to be “seen” and to stay current. The late lunch is almost always the power lunch for the executives and it’s catch-up time for what needs to be completed before the boss returns.

3. Who Is My Ideal Customer?

One summer, on a flight to Berlin, I sat next to a tall, attractive woman in her late twenties. I was surprised to discover she was flying to Germany to sing as the featured artist with the Berlin Opera. As we exchanged pleasantries, she was surprised to learn that I teach classes about the business of entertainment and music. It was one of those magical occasions when you meet someone and find out how much you have in common.

As I congratulated her on her success, she explained how her college professors had taught her how to sing, but not how to make a living as an artist in the business. That she had to learn herself. She taught herself about networking and the legal, marketing, promotion, management, and accounting aspects of the business. In the end, she found out that nobody was coming to “discover her,” and she realized that to be a financially successful artist, she first had to become an entrepreneur, own her business, and learn how to manage and market herself. It was a hard lesson to learn and it took many years away from her singing career.

Ask yourself who will buy your products or services, or, in our opera singer’s case, who hires the artist. She found out that her ideal customers were not the fans; they were second after getting the gig. Once she got the gig, then she had to satisfy the ticket buyers. Without the gig, there were no fans to entertainment and impress. She had to find out who runs the opera world and how to request and receive an audition. Where would she work if she didn’t network to find the movers and shakers in that niche industry? They were not coming to look for her, so she had to proactively meet them, built a reputation, and earn creditable reviews. It’s the same for film and stage actors: if you don’t have powerful agent representation the people looking will not waste their time trying to find you.

Talent Representation

Creating something such as a song, movie script, recording, or even a live show we own is wonderful. However, can you sell it? It takes time and money to self-promote our products and us as songwriters, scriptwriters, performers, or whatever. Most try it and then discover they are not ready. Just think who, what, where, when, and how (see Table 4.2)!

To initiate an opportunity to be noticed, first have your work (product or service) evaluated by an expert in the industry. Is it any good or is it a waste of their time? Who might actually give it a listen, view, or shot? Who can make the decisions at the company? What are they looking for? Where can we find them and when is a good time to connect? Here’s a clue: most of the entertainment industry (business executives) are too busy finishing up the year’s business by Thanksgiving and are missing in action through the holiday. In addition, they won’t answer the phone, return your emails, or book an appointment if they do not know you or have at least heard of you. So, what are you to do? Realize that you have power because you own what you created. Remember our six exclusive rights and because you own what you have created, either you can collect money if someone else wants to use your creative work; or, you can have representation place and monetize your creative works for you. What’s it worth? We don’t know until the public or major production companies use it in a recording, a film, or a computer game. The best way to make serious money is to find professional representation.

Finding Representation

Once you better understand the administrative structure of the industry and who the important executives are and what they are seeking, connect with the industry-related “agents” who can put a copy of your creative work directly into the right leader’s hands (see Figure 4.3). This is a strange industry; so if you’re a songwriter, pitch new songs to established music publishers, who may represent you and your material to labels, acts, movie production companies, and many others. If you’re a recording artist, music publishers and established personal artist managers may pitch you to A&R at major labels. Authors and scriptwriters usually need literary agents to present their creative works to publishing houses, movie directors, and others. If you’re a new band trying to get some gigs in your local town or on a nightclub tour, start with a booking agent to represent you with an electronic press kit and sample recordings to club owners.

Table 4.2 Talent Representation. It’s best to find professional representation (booking agent for live acts), someone who knows someone in A&R at a label, a music publisher if you’re pitching a song, a talent agent if you’re an actor, director, or production specialist, and a literary agent if you’re pitching any type of script or book. They will evaluate, pitch, and place your stuff to the right executives quickly if they perceive your creative work as potentially valuable to the industry. On the other hand, one really great song may create enough consumer buzz even if you give it away on YouTube, and they may start calling you.

Record Label	Song: Mechanical license from music publisher (Harry Fox Agency).	Music Publisher	Job is to find great songs and license them.
	Music Recording: Contract with artist (percentage of revenue after recoupment).		Single song contract.
	Label owns the recordings.		Usually 50% of revenue.
	Live Show (360 Deal): Booking agent (10% of gross revenue) with approval of personal manager (15%–20% of gross revenue).		Give copyright (ownership) to the music publisher. Other types of deals are available once you become successful.
Figure 4.3 You now have these because you created an original creative work that you own because of the copyright laws.		Booking Agent	Pay is 15%–20% of gross from ticket sales.
			Represents acts to talent buyers and promoters.
			Usually works with approval of personal manager.
			May have to be paid to represent new acts for club appearances.
Talent Agent	Best are SAG-AFTRA, Equity, WGA associated.	Literary Agent	Finds best representative for the company in each genre.
	Pay is often limited to 10% of whatever talent is hired or paid.		Pay is 10%–25% of gross authors’ advance and sometimes a percentage of royalties paid over several years.
	Alerted by producers & directors for stage, film acting, directing/production auditions.		Don’t pay upfront for a literary agent, as it’s his or her previous success and industry contacts that provide successful placement. Give only a percentage of what is earned.
	Will know and connect with booking agents, personal managers and literary for representation in other types of media entertainment.		Great agents will know the types of manuscripts, plays, books, and scripts executives are seeking.
			Don’t provide associated rights (screen rights as an example) until book has a determined market value.

Connecting the Dots

The companies in the representation of creative works circle, such as the talent agents, music publishers, and others, usually work for a percentage of the sales price, which is sometimes a percentage of royalties, or they may want to “buy” the copyright outright. You can really get nailed if you do not know what you’re doing when offered a contract, so learn what you need to know by looking closely at the following chapters. Because the representation companies make their money based on a percentage of what your “creative work” may generate, they do not waste their time with creative works pitched to them by creative authors and artists who are not at an appropriate level of professional artistic quality to generate value.

Potential Markets

Here is the place where you apply what you learn through metadata collection. Remember, if you’re selling a product, you need to look deeper into lifestyle research that divides the population into segmented markets based on consumer preferences. The basic theory is that “birds of a feather flock together” or people who “think the same” form a unique market to sell to. Think of the money spent on advertising and the time you can save if you can use these resources effectively. In this case, it is all about knowing your fan base, how large it is, and what they like to spend money on, such as merchandise and live shows.

4. What Products or Services Will My Business Provide?

Who is your ideal customer? What’s the need or problem that might draw the customer to your product or service? Whatever you are marketing has got to solve their problem. Being in business is about solving consumers’ problems, with the highest quality at the best price, as quickly as possible. Really bored out of your mind with your current ride? Maybe a really fun, quick, two-seat sports car will solve the problem? Think German cars, such as Porsche. However, if you’re tight on money and just want basic transportation from point A to point B, almost any inexpensive car will do. In addition, the more specific you want the product to be, the more it’s going to cost. You could easily buy four or five cars for the price of a new Porsche. But remember, we usually get what we pay for and it’s important in life to have a little fun. It’s the same in the entertainment industry, whether it’s the star power, great story, recording artist, promotion, marketing, or something else needed to create and sell an entertainment product. The creative side of the industry is really a package of different types of businesses working together to create products of entertainment. The writers, product creators, producers, technicians, marketers, media, and retail are in the businesses of creating the artistic products. The other hand in the handshake is the industry-related businesses that market, promote, sell, and might pay you (creators) if they sell enough “units” to break even and then profit. Where will you or your company’s products or services fit in? Here are some businesses considered vital to create profitable recordings, TV shows, movies, live shows, computer games, and other money-generating events.

Publishers

Publishers bridge the creative and business systems. On the creative side, they screen treatments and ideas to cultivate writers of print and music. Publishers filter the best materials, often rework them, and then pitch and license them to industry production houses and labels. They find new songs in the music industry from independent songwriters, hire staff writers to write new songs, demo record accepted songs, place them in print (through sheet music), and pitch the songs to artists, record labels, managers and producers, music supervisors, film production companies, and advertisement agencies. They also register copyrights, issue licenses, market songs, and pay writers.

Labels and Music Companies

Labels and now music companies (labels that offer 360 deals) tend to define talent by the money and profits their recorded act’s image generates. An act with limited musical or vocal talent is as important to a label as any of its other acts if they can creatively connect with consumers and sell millions of units. A unit is how labels describe one CD, digital download, or vinyl recording sold. Labels desire to make the most profit for the least amount of investment. Thus, the need to use expensive recording studios and sessions that add hundreds of thousands of dollars to the debt of an artist’s account is ending. Basic rhythm instruments are recorded with AF of M musicians (American Federation of Musicians) and AFTRA vocalists (American Federation of Television and Radio Artists). The rest is done with computer programs (discussed previously) to provide quality recordings and lower the cost of the recordings, and may quickly make new artists more profitable. Major labels have quickly moved away from the old business model of developing an act (development deals) in favor of signing only new acts with a proven successful fan base. Only niche labels still cover recording and tour expenses, and then recoup their investments only from record sales. The newer 360 business model gives the labels (now, music companies) better returns on their investments by gaining a share to the artists from concert tours, merchandise, endorsements, corporate sponsorships, and other royalty streams. Recording acts now live in a different world. The burden is on them to create their own success independently before a major label gets serious about a deal. Then the labels analyze the act’s financial and fan base psychographic (typologies) to determine the act’s potential total investment (cost of doing business with the act) and its potential ROI or return on its investment. It’s a business after all.

The Film Industry

Film production companies are also a business; they just create a different product from a simple recording. There are as many deals written as could be both good and bad, but to be successful, movies and film have to compete with the major’s products and at the same time contribute to the growth and success of the established industry. So, once again, become part of the system. Get to know the right people, how to hire and use the most talented technicians, find funding, and make a deal for distribution and licensing with Sony, Universal, Time Warner, or an independent. Become part of the industry instead of trying to reinvent the wheel; learn everything possible about how the business works. The financial risks are similar to other business models in the entertainment industry as the companies often have to expend significant capital for the production and marketing before they know if they will make even a marginal, much less, substantial profit.

Think about the business questions behind a movie production. How in the world do movies make hundreds of millions of dollars or in some cases lose millions? Once again there isn’t a formula of ingredients as if we were making a cake. However, we know we’ll need a script, producer, director, and film technical production experts to shoot, edit, and provide postproduction, unions, distribution, retail, research, marketing, promotion, publicity, and talent agents. Oh, yes, and lots of investors providing serious money.

Authors and Scriptwriters

Just as the foundation of the music business is a wow song, a wow script is the foundation for a wow movie. Remember it’s all about the story, even if it’s only a three-minute song or a three-hour major film. That’s really what the business of entertainment is all about, converting wow stories into different forms of media products. The song is brought to life by the artist’s vocal performance, the musicians’ hearts, guts, and soul played in every note, the engineer’s ability to use the right microphone in the perfect place based on the act’s vocal abilities and room acoustics, and the producer, who’s got to pull this creative mess into a wow recording. Same thing for the movie production process, except different media, different talent from the actors, totally different knowledge and skills for the techniques, and a director who has to create a wow movie out of the egos, screwups, and final scenes takes. It’s also expensive, usually 100 times more than it costs to launch a recording act for a label. When it works, movies profit by hundreds of millions and once in a while by more than a billion dollars. I like the sound of the “b” instead of the “m” on millions! Remember that scriptwriters should join the Writers Guild of America (WGA) so scripts can be registered and copyrights protected by the Library of Congress Copyright Office.

Producers

If your passion is making movies, the first step is to have a script optioned by a producer, who will pay a fee of $1,000 to $5,000 for unknown writers’ scripts and $250,000 or more for a hot script from a famous writer. More money is paid if the film is actually made, as the option to make the story into a movie is completed, and the producer then controls exclusive rights to turn the script into a feature-length movie and to control all the corresponding rights for a period of time. In the music business, the producer controls and supervises the recording process. They also pay for the creative team of musicians, vocalists, and engineers. They own the “master recording” and then try to sell it to a major label or form their own label and make a distribution deal with the major labels. Same process (somewhat) in the movie industry, except the producer usually hires a production company to make the movie and pays all the production and actors’ expenses. A major film production can be financed one of two ways: the producer can finance and create the film, and pitch to the studios; alternatively, studios that find a great script can then finance the producer and create the film itself. What the film studios prefer is the rich producers spend their money on the product, and then if it doesn’t turn out, for whatever reason, they can pass on it without investing in the project. What many people don’t know is that foreign rights to show a film are often collected before the first foot of film is shot. That gives the producer or the studio the money to create the film, and then they try to make more money to profit from the film.

Directors

The producer is the money person or venture capitalist who usually hires the director to make the movie. It’s the director’s job to hire and use the technicians, actors, film crews, studio lots, and locations to deliver a wow movie to the producer. Actually, they just tell their assistants who to hire and what to do. But to be a director it takes an amazing amount of industry-related knowledge, talent, skills, passion, innovation, creativity, and communication skills to make millions to hundreds of millions in profits for the producers and production houses. The financial risk is a little similar as the music industry but at a much higher level of investment, risk, and potential profits.

Movie Companies

Once the movie is made, then the business side of the film company distributes it to cinema outlets, and then later to foreign countries, and simultaneously, to the media networks to cover expenses—all in hope of serious profitmaking. The channels of distribution of DVDs are about the same as CDs, except those retail outlets such as Best Buy and others are dying as streaming continues to increase. Once again, we’re witnessing an industry moving through the creative destruction process as much higher-speed broadband is added into cities’ fiber-optic networks. A movie on a 5-MB system will take about four times the length of the movie to download or eight hours for a two-hour movie. A song downloads in about five seconds. However, with the new 1-GB broadband, we’ll be able to download a two-hour movie in about 36 seconds and a bunch of songs in two seconds. We know what happened to the value of the record labels after the technology developed that allowed hundreds of millions to illegally download their favorite recordings. Labels and creative artists lost billions. Remember the value of a company is often in ownership of the copyright of the master recordings or movies they invested millions in to make. However, if the technology continues to improve, then the film business may suffer the same fight to survive. The real downside is that it costs so much more money to make a film than a recording that it’s questionable if the industry will be able to reinvent itself if what they’re creating is worthless before or as soon as it’s released.

Agents

Agents sell everything from scripts to books, videos to feature-length movies, to the actors, singers, directors, and technicians who create them. The positive side is that they act as a filter system to represent only the best, and therefore the industry executives use them for their casting calls and film shoots. The somewhat negative side is that they take a percentage of the salary of whomever they represent, so prices keep increasing to cover the expenses.

Promotion

Once there is something to sell, then it’s time for the business side to let the public know through promotion, publicity, and distribution there is something worth marketing. Promotion is the variety of processes used to alert the public to the label’s new recording artists, recordings, and other products commercially available. Providing consumers a free sample through radio station airplay, music videos (YouTube), 30–60-second clips on the Internet (iTunes), and other digital retail websites gives prospective consumers an opportunity to “discover” the act and their recordings. Radio airplay and streaming sites (Spotify, Pandora, Beats, and many others), plus YouTube videos and many websites (where recordings are posted free), provide consumers an opportunity to discover it and then talk/text about it, which may create a buzz. The key to promotion, as you know, is to get consumers talking about the recording.

Younger consumers tend to hype each other about the artists and their recordings, which may increase consumer awareness and potential unit sales or theft. Yes, even units being stolen are an indication consumers are enjoying the recording. Providers such as broadcast radio, streaming services, and others are not in the music business. Instead, they are in the advertisement industry. Any marketing strategy that allows labels to buy airtime, or get views, visits, and hits, as well as advertisers, increases the visibility and the demand for a hip, hot, new product. The larger the audience the more the providers charge for their commercial time, hits, views, and space. Paid advertisements in trade magazines, local newspapers, the popular press, and on the Internet (websites, blogs, news outlets, music reviewers, and chat rooms) provide believability, visibility, interest, and validation that may increase consumer buzz.

Publicity

Promotion is tied tightly to publicity that provides consumers with the act’s backstory about their life, connected to their image, such as hero, rebel, lover, good guy, bad guy, cowboy, teen idol, or ideal partner. Once again we are back to talking about emotions tied to products and content sales. Both promotion and publicity are used to exploit the act’s “brand,” which is then sold as clothing lines, merchandise, endorsements, and so forth. As an example, talk shows book celebrities to gain a larger audience, while at the same time, the label and the acts’ branded products are introduced to potential consumers. Even the questions asked and the answers are usually tied to the act’s “brand” and image. Welcome to “shameless-self-promotion.”

Artist Managers

If an act becomes popular, then another part of the business is cranked up. Managers bring representation, administrative supervision, and surrogate control to a recording artist’s complex image and long-term career. A business plan tied to a marketing plan for the business side of the artist’s career is regularly developed. Career plans and goals are established based on the perceived commercialization of the artist’s image and talents. Managers approve the artist’s personal appearances and concert tours through booking agents (who are part of the manager’s team). They use the act’s and recording’s success to emphasize the image of the artist to potential concert promoters, who, in turn, use their money to create and promote tours, shows, and festivals. Once again the “fame and success” of the act are used to create win-win-win situations.

The Management Team

Managers build a team of accountants to balance the books, financial advisors to invest the profits in long-term investments, stocks, and money markets, and attorneys to negotiate, draft, and oversee the process of executing contractual agreements. Event coordinators, security, merchandisers, union stagehands, road managers, roadies, arts managers, and thousands of other niche occupations are available on the business side of the industry to anyone who has the knowledge and the desire to make positive and profitable things happen. The key is what can you (your company or you individually) contribute to the industry to make it better and more profitable? Of course, the manager will represent the artist through a power-of-attorney agreement in their contract. However, all the managers usually do is provide advice, as consultants, to the act on how to build a successful career. It’s the manager who recommends to the act who to hire as a booking agent, attorney, business manager (who takes care of the finances), road or tour manager, security, publicity, and other required entrepreneurial business-related decisions. Personal managers usually receive 15% (solo act) to 20% (band) of the gross generated income. Business managers often receive 5% of the act’s gross income.

Music Business Agents

Booking and talent agents encourage promoters to produce concerts in various markets. Agents with an AFM booking license generally book union musicians for concerts, nightclubs, and other types of personal appearances and tours. The AFM contract provides protection to the union musicians who are playing the gig. Nonunion musicians and booking agents do not have the full protection of union attorneys if the promoter or club owner fails to fulfill their contractual obligations. Agents work as part of the management team to “pitch” an act’s show or performance to event promoters. Prices range from a few thousand dollars per show to millions, depending the act’s fame and status. Agents usually receive 10% of the cost of the show to the promoter.

Event and Concert Promoters

Independent promoters and promotion companies, such as AEG Live and Live Nation, provide the money required to fund concerts, festivals, and tours. They are the industry’s high rollers, betting big money on the popularity of an act to sell seats in local venues and arenas. Booking agents representing specific acts call the promoters to set up concert tours. A retainer of 50%–100% of the band’s payment is customarily required to secure the date for the promoter. The promoter is also required to fulfill the obligations of an artist and provide the technological rider, which is the instructions to the promoter about the act’s specific needs for the concert relative to staging, lighting, sound, and load-in and load-out, plus any dressing room requirements and security. Additional riders may detail specific requirements that must be satisfied before the artist will perform, and all riders are part of the contract. Promoters pay everything, including radio advertisements, media promotion, the venue fees, security personnel’s and stagehands’ salaries, and ticketing costs. Promoters often sign deals with acts and bands based on a straight guarantee, 50% to 95% of the gross income, minus expenses, or some combination of the two. Prices are often based on the fame of the act, size of the venue, availability, timing, culture, types of fans, and lots of other things, including luck.

Tour Support Crews

Acts bring their own support personnel or may hire them locally. Stage crews, lighting, sound, security, road managers, and others are required to put on a successful show. It’s not an easy job, but a great experience for young people to break into the business. Most large-venue productions are controlled by the International Alliance of Theatrical Stage Employees (IATSE) union, which represents crews behind most of the entertainment shows, films, and events created and staged in the United States and Canada.

Media

The media consists of streaming networks, radio, broadcast television, cable, the print media, Internet, social media, and others who profit off entertainment industry creative products, such as recordings and films. The entertainment industry profits off of the promotion and publicity of the industry’s use of their products as they try to build an audience in order to sell advertisements in the full range of media available. Success for both the media and the entertainment industry is often based on the number of impressions (the number of times a consumer hears, views, or uses a product) tied to the success of and amount of product(s) used or units sold. There are additional royalties generated. As an example, a number-one hit recording on broadcast radio is worth about a half million dollars in blanket license fees split between the music publisher and songwriter(s). There are also fees collected on digital transmissions paid to the label, artists, and recording musicians.

Legal

It’s vital to know the copyright law and how to legally acquire a song, recording, book, script, or even an actor to be used in a new entertainment product. Most of the written, filmed, or foundational ingredients owned by others are licensed to production companies, labels, or networks. The business runs on lengthy contracts and almost never on a handshake or spoken word. It’s also wise to know the tricks of the trade before you get shafted and have to spend more money to legally get paid what you should have been paid in the first place. It’s that simple—understand the business and how it works. Know whom you can trust and have a good lawyer (maybe two) look it over before you sign anything. The more you understand the laws, licensing, personalities, contacts, business practices, and the unique, creative, and innovative structure of this crazy business, the quicker you have a shot at career and financial success.

Here’s an example. Say your band is offered a recording deal. Cool! The label’s attorney asks, “Who owns the band and the name of the act?” Usually the band members just look at each other in a blank stare. Not smart, as they need an answer before they can actually offer a deal. Once again, the band needs to be a legal form of business and the owner of the band (all the members or none) needs to have agreed.

Let’s look at the rock band Paramore and three of its members, Hayley Williams, Taylor York, and Jeremy Davis. Now, the band has gone through eight members from time to time.⁹ So who owns the band and, in this case, who owns the name? The answer is Hayley Williams. The rest of the band members are hired employees of Hayley Williams and her corporation. So whom did the label sign? Hayley Williams. Who do they pay and deal with whenever they want to change or offer a new deal? Hayley Williams and her legal representation, as they own the name and business of the band. Starting to see how important understanding business and legal issues really is? So, by all means dive in, but first make sure the pool is full of water.

5. Am I Prepared to Spend the Time and Money Needed to Get My Business Started?

Starting your own business as a performer, tech, writer, or producer will be the hardest thing you’ve ever done for the least amount of money. You’ll probably fail several times (as most start-up ventures do) before you score success. Remember that for the creative people in the industry, almost everyone is on their own, in competition with everyone else who wants to do the same thing. You’re probably going to simply sell your script, novel, poem, recording, or film to a network or production company or be hired as an independent contractor as a skilled technician if you’re a lighting, sound, or stage manager, camera operator, computer effects wizard, or a combination of some or all of these things or something totally different. It takes time, passion, money, and connections within the industry to have a shot at it. You’ve got to be the best, have a good reputation, be respectful toward coworkers and the bosses, and quickly be able to accomplish the task. Your reputation is everything, your last movie, recording, or book is your resume, and your track record is your calling card that may determine how “hot” you are and how much you can charge for your work.

6. What Differentiates My Business Idea and the Products or Services I Will Provide From Others in the Market?

It is the artist’s total package—the image, sound, stage name, backstory, and persona (who and what he or she represents in the minds of the fans)—that drives the industry’s profits. It’s called a creative advantage in business terms, and it’s usually tied to price, quality, and ego; in the entertainment industry it’s tied also to fame, glitz, and glamor. Great singing is more than just hitting the notes correctly. Remember, the music business is really the emotion business. Great songs are the foundation of the business. However, it is the marriage of the great song to the right recording artist that allows consumers to emotionally connect. Actors do the same thing in movies (slight body and face movements, led by eye movement) and stage actors with dramatic body and vocal presentations that would look silly in a film. Superstars often have a recognizable voice, delivering a favorite emotional connection to the fan base. For the business side of the industry, the superstar’s image, story, and recognizable face and voice become the marketing tools to generate profits.

7. Where Will My Business Be Located?

Today, you can be in your pjs on the Internet, adding your guitar licks to a master recording, so are we really tied to a location? The answer is yes and no, depending on what part of the industry you are in. However, in most cases you need to be where the deals are made, meaning LA, New York, Nashville, Paris, London, or whatever place is “hot” or happening. As examples, in the past San Francisco, Seattle, Memphis, Detroit, Miami, Tokyo, Chicago, New Orleans, and other cities were the sources of new acts, and rode the wave of creativity over the last 50 years. So, create something so great that the industry moves toward you (almost impossible) or stay there and connect to the established industry (your product or service better be a killer) or move to where the industry is located.

8. How Many Employees Will I Need?

You. Remember if you need an agent, manager, and so forth, they earn a percentage of everything you receive, so word to the wise as you launch your career and business. Some in the trade book publishing industry may say if you’re an artist trying to break in, you need a manager, booking agent, attorney, and others. Really? Successful industry personal managers, business managers, and booking agents are paid a percentage of what you make. But you’re just getting started and make zip. So why would they want to work for you? In addition, as soon as you hire your first full-time employee, tons of laws and regulations are activated, depending on the country and state you reside in. It costs more than a dollar to pay an employee one dollar. Add another 15 to 20 cents paid to the local, state, and federal government for unemployment compensation, taxes, and lots of fun other stuff. Oh, joy! Don’t forget that depending on the product or service your employees are providing to customers, there may be licenses issues and union regulations.

9. What Types of Suppliers Do I Need?

That depends on what your product or service is and how you can best deliver it. Creating products may require a manufacturing process, but that means lots of money invested in something that may or may not sell. Remember, try to solve a problem and you’ve got a creative advantage toward success. I remember once asking the CEO of MCA Records why they didn’t buy a recording studio. Bruce looked at me as if I was crazy and said, “Why in the world would I want to be in the studio business?” Then he explained how most studios are money drains, and besides most of his artists have their favorite studio already, so they wouldn’t even use it. Just like almost everything, the answer is usually tied to the budget. Film companies rent their cameras, lighting, sound, and other equipment, and touring acts rent their busses, sound, and lighting or use the venues’. The tax advantages and expenses are much better, and if something breaks, they’ll replace it quickly and free.

10. How Much Money Do I Need to Get Started?

Once again it depends on the purpose of your company, but the real answer is usually found when you complete a business plan with financials. Business plans take us step-by-step through the process of starting a business. Most business plan software helps you do the following:

• Create who you are
• Determine what your product or service will be
• Define your competitors
• Know the competitive advantage
• Describe your ideal customers and the size of the possible market
• Analyze trends, industry needs, marketing plans, milestones, and financials

Business plans are really your best guess when you answer the stated questions (as shown in Table 4.1). A good business plan is a guide to the strategic possibility of your proposed business becoming a success or a failure. They are always worth the effort to create and to share with other entrepreneurially minded people when you can. The best templates I have found and use in my classes are at liveplan.com. Good luck.

11. Will I Need to Get a Loan?

You wish you could get a loan! Banks don’t want to give a loan unless you back it with collateral. Banks use the business plan financials and your credit application to determine approval. If you own a house, land, or even a valuable copyrights, banks may take them as collateral and provide the loan. Banks are not risk takers; venture capitalists are, but be careful there also. Most start-up ventures are funded with family or your own money. Of course, if your business plan (concept) is unique or a wow, then venture capitalists may jump in, if the profit margins and potential profits are substantial. Venture capitalists or “angels” sometimes lose, but when they back a winner, it’s serious money. That’s because the details in the deal are often written in favor of the people providing the money. In addition, venture capitalists prefer to take over successful businesses and then sell them for a profit. So the amount of the payments to repay the loan may be difficult to make and if you miss one or two, they might take away your business. Use your own money first to retain 100% ownership of the business, and if you can’t do that, try for a bank loan supported by the Small Business Association (through the U.S. government), and lastly pitch your plan to venture capitalists.

The SBA

The U.S. Small Business Administration (SBA) is a great source for helpful information and it may also provide 80% support for loan requests. If the SBA approves your business plan and the added paperwork, you’ll need only 20% for collateral to get the entire loan from the bank to start your venture. You can also get a 50% loan quickly, if needed. Starting a business often requires the hardest work and longest hours, for the least amount of money you could ever imagine. However, you’re the boss and if it works, the sky is the limit.

12. How Long Will It Take Before My Products or Services Are Available?

It depends on some interesting variables, such as time to set up the business model, develop your product or service, advertise, promote, network to set up a team of advisors or managers, distribute to retail or other businesses (who may actually be your ideal customer), establish a price point, find financing, register with government agencies, and acquire licenses, and then … cross your fingers. About 10% of your customers will either be late or not pay at all, which can really kill your cash flow. That’s the number-one reason ventures fail, even if they have great products or service: too little money to survive the time it takes from product creation to sales and payment.

13. How Long Do I Have Until I Start Making a Profit?

Usually it takes at least a year, sometimes forever.

14. Who Is My Competition?

Everyone! Honestly, what drives industry insiders crazy is when creative artists who don’t have a clue about how the business works or about the corresponding laws, markets, and procedures found in this off-the-wall yet wonderfully fun industry approach them. Here’s a page out of my daily life. Often, I am asked to help young artists, songwriters, engineers, bands, and producers with specific concerns they have when they want to sell their “goods” and “services” to the industry. I am not a lawyer (thank God)! So after referring them to an attorney for legal advice, I usually try to understand their issues and offer some basic knowledge. As an example, let’s say you are the cowriter of a song, and at a meeting with Warner Music Group, the VP of A&R asks if the song is copyrighted. You should already know the answer is yes, as a copyright is valid at the time it is created and fixed into a tangible medium.

However, what they are often assuming is that you do not know the copyright law and what they are really asking is if you have registered your “claim of ownership” with the Copyright Office. You know the answer in both cases; yes, it’s copyrighted and yes or no, depending on if you’ve registered your claim. If you say no, what might they do? Remember the U.S. government supports the first to claim the copyright as the owner. If they try to steal your song, what can you do? The “burden of proof” is then yours to prove in a court of law. However, most of the people in the industry are decent and will not openly deceive you, but they are in competition with you, so protect yourself and always try to create win-win-win situations.

Now, let’s assume the music publisher offers a single-song contract. Can you make the deal? It depends. If you cowrote the song with another writer, then probably not as you do not own the entire song or have the administrative rights. Get it—you have to understand the law in order to make the deal. Making a deal without the legal right to do so (even if you were not aware of it) will not save your tail end from visiting a courtroom. If the other writer has half ownership, Warner Music Group will probably sue you, as you never told them you shared authorship and ownership. In other words, it’s important for the two writers who own the song they created together to have a written agreement between themselves before the song is pitched. The best solution to competition is to always look at deals from both sides, be honest, protect yourself, and create a win-win-win situation.

15. How Will I Price My Product Compared to My Competition?

Better quality if possible, better customer service, and all at a lower price. Use the business plan to determine profit and losses. That will help determine, as an example, the cost of recording, pressing, distribution, promotion, and creating a website for an album; then simply determine the total cost of the album divided by the number of units pressed, add a profit, and then compare it to the price of the competition. Throw darts at the wall and figure the number of albums you’d sell. Sell them through iTunes and you receive 70% of the listing price, or $7.00 on a $10 sale. There are different price margins for Amazon.com and SoundCloud, and others have their own policies. However, it really boils down to the balance sheet and the profits or losses, depending on how many “units” sold, at what cost to you, and for how much profit.

16. How Will I Set Up the Legal Structure of My Business?

There are three basic forms of business: a sole proprietorship, partnership or limited liability company, and full corporation (see Table 4.3).

A Sole Proprietorship

The type of business owned by most independent contractors working as songwriters, musicians, vocalists, and music producers is a sole proprietorship (you’re working for yourself; see Table 4.3). In addition, great musicians usually work as independent contractors often represented by a union, such as the AFM, and artists working in media and recordings are represented by AFTRA. Yet both the musicians and singers are still in business for themselves as sole proprietors or freelance artists.

Advantages of being a sole proprietor include that you’re the boss and you get to collect all the profits. It is the simplest and most cost-effective way to enter the industry as a business, and most legal costs are limited to state and local permits and licenses. You may also write off many business expenses (see an accountant) as income and expenses are considered the same as your personal IRS federal taxes. Of course, you’ll have to file for income tax and maybe a couple of the others unless you want to barter in employees trading cows, which is an agricultural form that (for some strange reason) is also included. Setting the humor aside, IRS.gov and SBA.gov are amazing websites that provide most of the answers to your questions when starting a small business.¹¹ However, you are also personally responsible for all expenses billed to you and your company and you are not protected against lawsuits.¹²

There is not a legal difference between your business income and other income, which means you are personally liable for your business and employees’ (if you have any) debts. A corporation (form of business) is different as only the assets of the corporation are liable in case of a lawsuit. However, there is double tax as the IRS taxes both the profits of the corporation and your wages or income.

Table 4.3 A Sole Proprietorship. Sole proprietors still need to pay taxes and in most states and cities file for state business licenses.

If you are liable for:	Then Use Form:	Separate Instructions:
Income tax	1040, U.S. Individual Income Tax Return (PDF) and Schedule C (Form 1040), Profit or Loss from Business (PDF) or Schedule C-EZ (Form 1040), Net Profit from Business (PDF)	Instructions for 1040, U.S. Individual Income Tax Return (PDF) Instructions for Schedule C (Form 1040) (PDF)
Self-employment tax	Schedule SE (Form 1040), Self-Employment Tax (PDF)	Instructions for Schedule SE (Form 1040) (PDF)
Estimated tax	1040-ES, Estimated Tax for Individuals (PDF)
Social security and Medicare taxes and income tax withholding	941, Employer’s Quarterly Federal Tax Return (PDF) 943, Employer’s Annual Federal Tax Return for Agricultural Employees (PDF) 944, Employer’s Annual Federal Tax Return (PDF)	Instructions for Form 941 (PDF) Instructions for Form 943 (PDF) Instructions for Form 944 (PDF)
Providing information on Social Security and Medicare taxes and income tax withholding	W-2, Wage and Tax Statement (PDF) (to employee) and W-3, Transmittal of Wage and Tax Statements (PDF) (to the Social Security Administration)
Federal unemployment (FUTA) tax	940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (PDF)	Instructions for Form 940 (PDF)
Filing information returns for payments to nonemployees and transactions with other persons	See Information Returns
Excise taxes	Refer to the Excise Tax web page

Source: IRS.gov (2015).¹⁰

As a sole proprietorship you may also be required to file a DBA (doing business as) form if you use a different name (e.g., a stage name or a business name) other than your given name. It is often difficult to find start-up funding for a sole proprietorship, and although you are your own boss, it may also take lots of work and weekends to succeed. It’s best to start a business as your passion, which then makes it a much more enjoyable situation, especially if you write a hit song or sell entertainment products you’ve also created.

You’ll need an EIN number from the IRS to open a bank account in the name of your business (instead of your real name). According to IRS.gov (2011),

Partnerships and Limited Liability Companies

File for a partnership when more than one person owns the business, such as a family-owned bar, record label, or promotion company. You may also form a LLC (limited liability company), which is a legal hybrid business structure between a partnership and a corporation. It’s the best of both worlds, offering the tax advantages of the partnership (no corporate tax) and the legal financial protection of a full corporation. The definition is also somewhat confusing, as one person can also own an LLC, as can two or more people, who are legally called members.¹⁴ However, that’s where things change, as an LLC has additional federal and sometimes state requirements. According to the SBA website (2015), while each state has slight variations to forming an LLC, they all adhere to some general principles:

• Choose a Business Name. There are 3 rules that your LLC name needs to follow: (1) it must be different from an existing LLC in your state, (2) it must indicate that it’s an LLC (such as “LLC” or Limited Company”) and (3) it must not include words restricted by your state (such as “bank” and “insurance”). Your business name is automatically registered with your state when you register your business, so you do not have to go through a separate process.
• File the Articles of Organization. The “articles of organization” is a simple document that legitimizes your LLC and includes information like your business name, address, and the names of its members. For most states, you file with the Secretary of State. However, other states may require that you file with a different office such as the State Corporation Commission, Department of Commerce and Consumer Affairs, Department of Consumer and Regulatory Affairs, or the Division of Corporations and Commercial Code. Note: there may be an associated filing fee.
• Create an Operating Agreement. Most states do not require operating agreements. However, an operating agreement is highly recommended for multi-member LLCs because it structures your LLC’s finances and organization, and provides rules and regulations for smooth operation. The operating agreement usually includes percentage of interests, allocation of profits and losses, member’s rights and responsibilities and other provisions.
• Obtain Licenses and Permits. Once your business is registered, you must obtain business licenses and permits. Regulations vary by industry, state and locality. Use the Licensing & Permits tool to find a listing of federal, state and local permits, licenses and registrations you’ll need to run a business.
• Hiring Employees. If you are hiring employees, read more about federal and state regulations for employers.
• Announce Your Business. Some states, including Arizona and New York, require the extra step of publishing a statement in your local newspaper about your LLC formation. Check with your state’s business filing office for requirements in your area.¹⁵

Bands are another great example of a partnership if all the members in the band are equal partners and owners of the band’s business. According to IRS.gov (2015),

Many bands select an LLC instead of a partnership as all the members receive limited protection from personal liability and profits can be shared as the members agree.

Thus, some members may be paid more or less based on contributions to the band as a whole or may own more of the band’s debt. From time to time, one member may take advantage of another, so everything needs to be in writing and fully agreed to before being filed. Each member is considered self-employed and must pay his or her own Medicare and Social Security taxes based on the entire company’s net income.¹⁷ LLCs are usually dissolved if a member leaves, which in the turbulent world of rock and roll means once you’re offered a label deal (if the label is signing the whole band instead of the lead singer) the LLC is converted to a full corporation.

To form an LLC remember to file “articles of organization,” which is simply a form requesting your business name, address, and the name of the members, with the Secretary of the State in the state you reside in. The federal government does not view an LLC as a separate tax entity, such as a person or a corporation. Thus, LLCs are not taxed, but each member’s income is designated either as personal, partnership, or corporation income by the federal government.¹⁸ You have to decide which! However, some states do tax LLC income, so if your LLC is in one of those states, you’re getting taxed twice, first with the federal government and second with the state. Figures! Nonetheless, according to the SBA web page “Choose Your Business Structure” (2015), “Certain LLC income are automatically classified and taxed as a corporation by federal tax law.” In this situation you do not get to declare the type of business structure you’re being taxed as. Bummer!¹⁹ Additionally, different forms are required for various types of LLC declared income. Obviously, I am not mentioning this stuff to blow your mind, just to let you know that to be successful in this industry you do have to play by the rules of the game; thus it is simple when starting out as a creative artist (sole proprietorship), but it can quickly get complicated as you become more successful as an LLC or corporation. It is best to have the advice of an entertainment industry attorney and a business agent when the time arises. Table 4.4 is a simple chart about tax forms; for guidelines about how to classify an LLC for taxes, visit IRS.gov.²⁰

Corporations

Corporations are a separate entity owned by stockholders. In other words, the shareholders own the company, not the members, as in the LLC, or a single person who owns his or her own DBA business as a sole proprietorship. Corporations are administratively and financially complex. However, we live in a great country with a very high quality of life usually provided by the investments of stockholders (in hopes of profits) in new and innovative products and services. Guess what types of national governments do not allow corporations, and therefore their citizens often live a much lower quality of life? Think about copyrights! In addition, in most free societies where corporations are allowed, the government requires double tax, one on the profits of the corporation and another on the shareholders’ profits and salaries employees earn.²² Regulations vary from state to state and the company is registered in its home state. Obviously, all the paperwork, licensing, permits, taxes, and name (trademarked) are required. Paperwork and accounting records are available and often filed with the government.²³

Table 4.4 LLC. Most bands today file as LLCs instead of as partnerships for legal purposes.

If you are an LLC	Use Form	Separate Instructions
To elect a classification for paying federal taxes	Form 8832	Can also be used if you want to change tax classification
Single-member LLC	Form 1040 Schedule C	File as a sole proprietor
Partners in a LLC	Form 1065
Filing as a corporation	Form 1120	Standard form for corporations

Source: IRS.gov (2015).²¹

However, there are different types of corporations, which makes things more complex see (Table 4.5). These may seek financial investors (stock or ownership) and according to Greenberg (2011), “S Corporations may transfer profits and/or losses to the individual shareholders’ tax return in proportion to stock ownership.”²⁴ Of course, this is more information than most want to know; you just need to be aware that to be successful in the industry, you’ll also need to be an entrepreneur who owns your own business of one type or another or you’ll be an employee of an industry-related business. Legal action can usually be filed only against the corporation’s assets, not the owners’ personal property, which is typically record labels, major recording artists, and stockholders in this industry. Thus, the corporation’s business structure gives successful recording artists and entertainers a way to protect their personal assets from financial claims against themselves.

Table 4.5 Corporations. Once an act hits professional levels the other forms of business, such as a sole proprietorship, partnership, or LLC, are often turned into corporations for tax and liability purposes.

If you are a corporation C or an S then you may be liable for:	Use Form:	Separate Instructions:
Income tax	1120, U.S. Corporation Income Tax Return (PDF)	Instructions for Form 1120 U.S. Corporation Income Tax Return (PDF)
Estimated tax	1120-W, Estimated Tax for Corporations (PDF)	Instructions for Form 1120-W (PDF)
Employment taxes: • Social Security and Medicare taxes and income tax withholding • Federal unemployment (FUTA) tax	941, Employer's Quarterly Federal Tax Return (PDF) or 943, Employer's Annual Federal Tax Return for Agricultural Employees (PDF) (for farm employees) 940, Employer's Annual Federal Unemployment (FUTA) Tax return (PDF)	Instructions for Form 941 (PDF) Instructions for Form 943 (PDF) Instructions for Form 940 (PDF)
Excise taxes	Refer to the Excise Tax web page

Source: IRS.gov (2015).²⁵

17. What Taxes Do I Need to Pay?

All that is required. You’ve got to pay taxes, which may include city, state, and federal, plus in California there’s an entertainment tax. Oh, joy!

The Competition

The competition is everyone who is currently in the established industry, plus everyone who wants to become a part of the business or as a creative indie contractor, owner of a label, club, and so forth, or a promoter who creates his or her own distribution processes, working as an entrepreneur. Your product, be it a recording, book, script, or film, is also in competition with all of the great products that have survived over the last couple of hundred years and all the new stuff the traditional industry and independent creatives are writing, producing, shooting, drawing, and trying to sell or give away to get noticed.

Name of the Company

Once you’ve decided on your form of business and filed the corresponding paperwork and forms for a partnership or corporation, it’s time for the next step. Deciding on a name for the business is important, as the name should say something about what your business is, such as the Rolling Stones as a band or Rolling Stone as a magazine. Notice the only difference is the “s” in the band’s name. To make sure the name is available, check with the U.S. Patent and Trademark Office to determine if a name is already owned by another company. I once received a phone call from a fellow who owned a business in the name of the domain I had for a totally different business. Let’s just say he wasn’t very nice. He explained (loudly) that he had the trademark name for his company and that I was infringing on his trademark. I explained that my company was not a bar in Nevada, but a totally different form of business, not related to his in any way. I explained I had no intention of infringing on his business and that a name can’t be copyrighted (remember). He had chosen for his business name a commonly used phrase found in many different types of businesses and even in publications. I assured him that if I ever opened a bar, I would not use the name. In addition, I was using the name as a trade name for my DBA business, not as a trademark to protect a “brand name,” as he was trying to do for his bar business.²⁶

Registration of Business Venture

Don’t forget to register your company name with the state you live in if you want to incorporate. If it’s a DBA then many states require you to use your own name or file the required form, and of course, you may want to apply for a trademark, which if you do yourself, costs about $300. If you’re into certain types of businesses (e.g., broadcasting, agriculture, aviation) file for a federal license or permit.²⁷ Almost done! Register with your state agencies. The SBA has a great site for all of this information and links to federal and state sites and requirements. You may also have to register your business within the city you live in by obtaining a business license. My guess is that you’ve already figured out that you’ll be taxed on profits and income from your business.

Having a solid business plan is key to your success in entertainment as much as understanding how the entertainment business works. While you really can’t change the way businesses do business, you can use your entrepreneurial interests to come up with products and services that people will want and you can protect what you do by making good use of resources in the entertainment industry network: lawyers, the federal government, other artists, business leaders, agents, and the like.

Breaking Into the Industry

So, if you are convinced you have what it takes and you want to find your place and bring your message to people, let’s find out what it takes to make a deal. If you’re an artist, creative writer, producer, director, or whatever, how can you earn your shot at a career in the industry? Let’s start with songwriting and music publishing as an example of the types and complexities of typical industry-related deals.