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Introduction
In
a recent L.A. Times article entitled “Demand for ad jingles turns L.A. songwriters into music factories,” I found some rather interesting insights
that I want to share with you. I thought you might benefit from some of the
opinions and ideas I discovered in the article and want to bring them to your
attention. Ironically, this is an article written and
addressed to two sets of musicians (a) those who are and want to remain
employees and freelance artists, and (b) those of us who want to create more income with much lower tax liabilities in order to
achieve financial freedom.
In my previous article “The Cash Flow Quadrant - What Is It? And What Should It Mean to Musicians and other Artists,”
I talked about Robert Kiyosaki’s description of the ‘S’, self-employed person,
and how most musicians fit into this category. I also discussed the
similarities between the ‘E’, or employee, and ‘S’ quadrants as well as the differences
the left and right sides of the quadrant. In general, the ‘E’ wants security,
whereas the self-employed person wants to do things their own way,
unfortunately both get taxed at the highest levels. These 3 factors combined – the
desire for security, doing things their own way and paying high taxes – damages
the E’s and S’s ability to build wealth fast and efficiently. In contrast, B’s and I’s (business owners and
investors) seek freedom their approach towards work is to use other people’s
time and energy and other people’s money to work for them. These 2 factors
working together and the motivation of freedom is what accelerates the B’s and
I’s accumulation of wealth exponentially higher. In seeking freedom, they
liberate themselves from the need to work and the need for money.
To
begin this discussion I want to provide a brief profile of a resident musician
and the company he works for – Mophonics. The reason I want to profile both the
artist and the company is to identify the unique characteristics of each as
presented in the article to show the difference in perspective between them.
Primarily, the benefit to the artist in this sort of arrangement is in being
able to earn a living from a peripheral activity related to music and hone
their professional skills. While the primary benefit to the company is in
generating passive income from the talents, time, and effort of others, along
with enormous tax advantages.
A Profile of a Freelance Composer
In
the L.A. Times article we follow Casey Gibson whose 25 and plays keyboards for
the band Filligar. The band recently opened for
Counting Crows, has finished a new album, and has recently signed with Red Light
Management and the Windish Agency, two of rock music's top management and
booking agencies. When Filligar goes on tour Gibson brings a mobile recording
setup with him so he can write and submit new material for commercials from the
road.
Gibson works for the commercial composition company Mophonics,
where he started as an intern and is now called an "artist in
residence." It's a small music factory in Venice housing four studios
stocked with instruments and recording gear. Mophonics’ executive producer Michael
Frick and creative director Stephan Altman started the company in 2002. They
soon saw that commercial licensing was crowded with labels and bands looking to
make some money. So, rather than pitching existing material, they decided
Mophonics would offer tailor-made original compositions at a fast pace.
The self-employed musician, like most other self-employed people,
is a business system where in order to continue being successful means
increasing one’s amount of work. If the idea of filling one’s waking hours with
work is a desirable condition then the self-employment approach is right for
you, but what if you want something else. What other paths are available to
musicians?
A Peak into Mophonics’ Financials
To answer that question, there are 2 basic solutions. One approach
would be just to become legally savvy about the laws that protect the artist
from copyright infringement and the laws that guarantee the right of the artist
to get paid for the use of their works through royalties. The other approach is
to establish a business built around hiring other musicians to work for you,
where they produce assets that you own – per contract - and can profit from. If
you think that this second approach can be your vehicle to your financial goals
then let’s look at some of the incentives that await you should you follow
through with a clear-cut business plan to get there.
Mophonics employs four composers in-house and at least 20
freelancers working from home studios. The company is responsible for scoring
hundreds of television and Web ads by major companies such as Apple, Mitsubishi
and Bacardi. The company makes as much as $180,000 for single songs. Those that
receive repeat licensing, much as a hit song would, return more than $500,000.
Creative assignments vary drastically, Frick said, but usually
include a video clip of the commercial and a text brief, broadly describing the
client's wishes. One recent brief sent to Gibson which said, "Think
Williamsburg indie rock. Start simple, build organically. Look for nice scoring
moments that you can accentuate and take advantage of within the track."
Though exceptions come through, most direction is typically the same. The
emails he receives are comically generic, he says.
A standard commercial composition can pay handsomely if it's
selected for a big campaign. A job for the insurance company Progressive had
Gibson writing nearly 100 tracks over six months, but it earned him a
five-figure paycheck. Part
of the trap the self-employed musician experiences is that the more success
they achieve the more work they have to do. This means they do more of what
they love (music), but they don’t really have time for anything else. Moreover,
the money which is earned as a self-employed musician acts as a drug creating a
temporary euphoria diminishing one’s drive to achieve financial freedom. One of Mophonics freelancer’s says it best about writing music
for commercials. Last year, when he landed four commercials in a row he said he
"was living like the king of Silver Lake for a little bit."
Now let’s take notice
of the financials as described in the article so far. Remember, the company
makes as much as $180,000 for single songs, but the ones that receive repeat
licensing can return more than $500,000. In contrast, the artist or a resident
musician like Casey Gibson gets a five-figure paycheck for 100 tracks over a
six month period, but only if the campaign is successful.
Since we don’t know
the exact figure Casey Gibson was paid, let’s assume he was paid somewhere
between $200 – 999 per track. I got these numbers by guessing what his
five-figure paycheck might have been. On the low end, I guessed that it might
have been $20,000, and on the high end, I assumed the highest five-figure
number $99,999. Now if you divide both numbers by 100, which was the number of
tracks he composed over that 6-month period of time, we get two numbers $200
and $999.
Now let’s compare and
contrast the difference in income between the artist pay and the revenue the
company made on the musician. Remember the company can make as much as $180,000
per song, but if that song is repeatedly licensed that figure can grow to
$500,000 (per song).
So the financials for
Mophonics can look something like this:
$180,000 – 999 (paid
to Casey Gibson) = $179,001 per song as revenue to Mophonics.
But if the song is
repeatedly licensed we get this result.
$500,000 – 999 (paid
to Casey Gibson) = $499,001 per song as revenue to Mophonics.
Now just imagine how
these numbers multiply when we consider that Mophonics employs
four in-house composers and at least 20 freelancers working from home studios. As
a business, the financials definitely favor the owners, but when we consider
that the tax advantages merely augment actual revenues, then passive income for
Mophonics are conservatively $5 million per year.
I suppose
as long as everybody is happy in this arrangement then it’s an ideal situation
for all musicians looking for a reliable source of income and flexible hours.
However, as brief a look as we’ve taken at Mophonics financials shows us how
much the company benefits from the artist’s talents, while at the same time the
owners maximize profits without needing to work. Isn’t it amazing how much
money can be made when you focus less on a personal passion for music, fame, and
fortune and instead develop good business skills and hire talented people to
work for you. This was what I wanted to illustrate to you in this article,
which was that in a free market economy the laws are written to benefit those
who do 2 things: provide financing (investors) and create jobs (business
owners). Consider becoming one or the other, or both, and watch yourself
prosper because of it.
Conclusion
In the Mophonics office lobby there is a platinum record hanging
on a wall for the Foster the People song "Pumped Up Kicks." The
band's leader, Mark Foster, wrote and recorded that song in a single afternoon
— while on the job at Mophonics as an in-house composer. The song became a huge
hit, and Foster's band became one of 2011's bestselling rock artists and landed
a deal with Columbia Records. Mophonics' Altman says he's happy to have cultivated
Foster's songwriting abilities. "We saw this raw talent that [Foster] had,
and after a few months his abilities really skyrocketed," Altman said.
"Foster and Casey Gibson and all these guys think that they're learning to
make jingles or beats. It turns out they are actually honing these incredible
skills."
Of
course, the impetus underlying the creation of Mophonics and other companies
like it, is to find talented musicians, hone their skills, have those skills
flourish in-house and profit from the artist’s development. It’s the skills of the artist that the owner’s
at Mophonics can harness and turn into an asset generating passive income, all
under contract. That’s the goal of the business owner and it should be your
goal too if you are thinking about becoming a music entrepreneur and starting
your own music business.
Here
are 2 Rich Dad books that I highly recommend as a great starting point for you
going forward:
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Related Articles:
3 Types of Income:How Music Royalties Can Help You to Achieve Financial Freedom
The Cash Flow Quadrant - What Is It? And What Should It Mean to Musicians and other Artists
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Marc
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