Packaging Deductions in Record Deals

Album Release Guarantees
by Jeffrey and Todd Brabec

One of the single largest items deducted from an artist's royalty base before computation of the actual per-album royalty is the cost of the covers, sleeves, and containers in which the recording is packaged. These packaging deductions (also known as "container deductions" or "container charges"), are always expressed in percentage terms rather than actual dollar-and-cents figures.

The percentage ranges from 15% to 25%, varying from company to company depending on the type of configuration being sold. On rare occasions, a certain configuration will not have any packaging deduction (e.g., a single packaged in plain whole stock paper).

Because of their impact on an artist's royalties, packaging deductions should be a major consideration when negotiating the artist's royalty computation provisions of any recording agreement.

For example, it is more than possible for an artist with a high royalty rate and a high packaging deduction percentage to make less in royalties than an artist at another record label who has a lower rate but also a lower deduction.

Actual Packaging Percentages.
Packaging deductions usually range from 10% to 20% for vinyl records, 20% to 25% for analog cassettes, and 25% for CDs and other nonanalog configurations, which in many record company contracts include new technology distributions.

The actual percentage is usually based on and deducted from the suggested retail list price of the particular recorded configuration that is sold.

Other variations may specify the type of price point and definition on which the container deduction is applied (e.g., the actual selling price, the list category price, the advertised price, the constructed price), but for the purposes of this discussion, we'll focus on the suggested retail list price calculation.

Operation of the Packaging Deduction.
To illustrate how the packaging deduction works and how it affects the royalties paid to the recording artist, the following chart sets forth the calculations under the scenario of an artist having a 20% royalty with a 25% suggested list price packaging deduction and selling one million full-priced royalty bearing CDs (after taking into account promotional copies, free goods and other reductions in actual sales). See below.

Packaging Deduction on a Million-Selling Album
Without Packaging Deduction
	$18.98 x20% $3.79 x1,000,000 $3,790,000	Suggested list price Artist royalty Artist royalty CDs sold Actual royalty
With Packaging Deduction
	$18.98 x25% $4.74 $18.98 $4.74 $14.24 $14.24 x20% $2.84 x1,000,000 $2,840,000	Suggested list price Packaging deduction % Actual deduction Suggested list price Packaging deduction Reduced royalty base Reduced royalty base Artist royalty % Artist royalty CDs sold Actual royalty

The same formulas can be used for each type of configuration (e.g., analog cassette, vinyl, digital cassette) that is sold, the only differences being the suggested list price of the specific audio format and the container deduction percentage applicable to that type of configuration. For example, if the configuration is an analog cassette or reduced-price CD and the artist has a 20% packaging deduction and 20% royalty rate in his or her agreement, the same formula would be used as above, but with different figures inserted into the suggested list price and packaging deduction percentage lines.

© 2005 Jeff Brabec, Todd Brabec This article is based on information contained in the new, revised paperback edition of the book "Music, Money, And Success: The Insider's Guide To Making Money In The Music Industry" written by Jeffrey Brabec and Todd Brabec (Published by Schirmer Trade Books/Music Sales). www.musicandmoney.com

Reprinted with permission from TAXI: The Independent A&R Vehicle connecting unsigned artists, bands and songwriters with major record labels, publishers, and film & TV music supervisors.