The DJ just finished another banger-dropping set at your favorite music festival. Though the lights are blinding, when standing in the perfect spot onstage, the DJ sees an endless sea of neon that seemingly extends for miles, and the experience feels electric. For the DJ to celebrate this moment, business was not just done on that stage, but also behind the scenes, with artist, tour, and financial management – each a different type of art. In 2012 alone, DJ/producer Calvin Harris earned $46 million dollars. When this amount of income is on the table, comprehensive and cost-effective representation of Harris’ financial interests is crucial to future success. Therefore, it is paramount to examine how the artists’ managers are compensated so that each player on the whole team can work toward a common goal and not be financially rewarded based on competing interests.
An artist typically has three types of representation: an artist/talent manager (more commonly referred to as their manager), a booking agent, and a business manager. The artist manager typically fulfills all three of these roles until the artist reaches a level of success that demands a booking agent, and the artist can afford to give 5% of gross to a business manager, which is standard in the music industry.
The artist manager is compensated in a way that allows them to act in the best interest of the artist. Receiving 15% of everything the artist makes before all expenses, the artist manager has one of the most daunting and grueling jobs of all: not only are they advancing shows, they are making introductions, forming strategic alliances, and doing everything in their power to help the artist succeed and become sustainable. The artist manager should not be tasked with managing the interests of the business manager, who is compensated by receiving 5% of gross, which is the total income of the artist before any expenses. The third key player on the management team is the booking agent, who is compensated in a way (usually 10% of a show guarantee) that will almost always allow for them to be acting in the interest of the artist by fighting for higher show guarantees, which happen to be the largest revenue stream for most DJ/producers these days.
It is human nature to change behavior based on incentives and rewards. Regardless of what someone’s intention is, they will ultimately shift their work to focus on what will be in line with their method of compensation. Therefore, if a business manager is paid based on a percentage of gross income, they will be driven to focus on revenues rather than expenses.
Economists might say that the music industry has fallen prey to the principal-agent problem. Our principal, the artist, cannot ensure that his agents are acting directly in his best interest without a certain degree of supervision. This is especially true when the artist is interested in remaining sustainable so that he or she can continue to pursue their craft. In the existing structure of how the agents are paid, the main concern is raising the bottom line (profit), which requires increasing revenues and decreasing expenses.
Below is a pie chart, demonstrating the amount of money an artist takes home. For example, if you are a touring DJ/Producer, making $10,000 a month, after you pay for management and taxes, you are left with $4,500. This amount does not include all expenses such as travel to and from any of your shows, meals while on the road, studio time, equipment, rent, etc.
It is in the best interest of the artist to have someone pay very close attention to these expenses while also providing concierge service and helping the artist plan for the future.
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The structure of the game has to change. The way business managers are compensated must be altered so that they can police themselves, allowing both artist manager and artist to spend more time at what they do best: revenue generating activities. Business managers should be able to provide their clients with transparent, high quality services at a fixed price. The relationship component between the artist and their business manager should not be perfunctory, but rather a partnership where the artist is taken care of and feels in control of and supported in the management of their finances. With a tiered payment schedule, artists would know what to expect for the level of service that they want, and allow business managers to act with the best interest of their client in mind.
With this proposed new structure, despite the fact that the business manager now works for flat fees, there still is major incentive to provide high quality service. Top line numbers do not reflect the true growth or stability. By working hard to raise the bottom line by cutting costs and increasing efficiency, the business manager is helping the artist to become more sustainable in the long run. As the comprehensive financial health of the artist increases, the business manager can expect incentives in the form of more services. They can collect more fees, as the artist needs more services to support their growth.
If we change the structure of the game, the artists we respect become sustainable (and some of them become very wealthy), while their management stays fairly compensated for their labor. In a world where artists can earn nearly $50 million for work that involves an incredible level of touring, along with other streams of revenue, an artist should reconsider the payment method that is used to compensate their business manager.
I propose that you open up this discussion with your management team if you are an artist, or a manager. There is no reason for the music industry to operate on a system of conflicting interests; a flat-fee payment schedule protects the interests of the artist while incentivizing the business manager to provide high quality, personalized service. A strong long-term rapport is cultivated. Everybody wins.
Kate Ross is the principal of Ross Business Management, a boutique firm that specializes in financial and operational solutions for artists, musicians, entrepreneurs, and small business owners. Kate can be reached at kate@rossbizmgmt.com or at 757-810-0399.
