The myth of the royalties?
To make it short, the notorious royalty is usually calculated as a fixed percentage of an album's wholesale price, when a quantity of albums is ordered by various distributors/diffusion channels that are responsible to forward the album in the markets. I should mention that music revenues have been decreasing because of increasing piracy phenomena, but this is another story to be discussed in a future post.
I personally assume that not all labels deliberately strive to screw their artists, since the legal terms concerning royalty checks/statements, constitute a large and very detailed part of any contract that individual artists or bands, sign with their company (licensor).
It can easily be perceived, that only a very small percentage of the potential pool of artists out there, fulfill the gatekeepers (music labels) standards & achieve to release their artistic product. Only 10% of a company's signed artists (the so called roster), raise significant profits while covering various costs such as promotion, distribution, packaging, which companies have to offset. Big labels prefer investing time, money & resources in already established artists or the next promising superstars. The rest of a company's roster just feeds the label's operating costs & sometimes even hits below.
Honestly, on the base of how the music industry is structured nowadays, bands should rather forget the advance payment of royalties, because the excess supply of groups around the globe, certainly does not guarantee or minimizes the possibility that they will make it to the top & become cash cows for their labels. In plain words, the artists nowadays cannot certify (''Sign me please... I will deliver Gold and Platinum sales...'') that the advance money he will receive from the company, will be recouped from the record sales of his album.
Next in line, lies the fact that royalty rates vary & depend on the popularity of an artist. The "bigger" the artist, the higher the royalty rates that he may command or bargain with his company. Normally, for small artists, the royalty rates are set to 10% of the wholesale price of an album that reaches a distributor, which has to be sold in order to retrieve royalties back. The problem is that music labels, receive very delayed sales statements from the distributors that they partner with, so this creates a chain reaction which inadvertently affects the royalty payment of the artist too, who waits to collect what is left from sharing the "pie".
Royalties are usually estimated annually & distributed in different amounts. It is also common, that distributors receive unsold copies of albums from retailers, thus companies are forced, as a precaution, to withhold almost 40% of an artist royalties for a long period of time, leading to usual disputes between them.
According to Harold L. Vogel, a researcher, author & specialist in the Entertainment Industry sector, one of the main reasons that the music industry started declining in regard to sales during the 1970's, was because artists couldn't recoup the huge amounts of advance money they had received upfront, through their album sales.
Even if an artist received advance money from his company, this amount should be considered as a "loan" which somehow has to be recouped from the album sales. Therefore, the company will start estimating royalties to be distributed to its artists, only if the advance amount has been recovered.
Major technological advancements keep changing the music industry, restructuring & redirecting the points of sales. Keep in mind that an artist today, has the advantage of exploiting his music via internet & through multiple online e-tailers, thus skipping old business or distribution models. Last but not least, artists can directly negotiate with online distributors (up to 50% royalty share). A major trend is also perceived that contracts are becoming more artist - friendly.