If CDs cost £8 where does the money go?

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Despite digital's complete dominance of the singles market, most albums are still bought on CD. The average cost is £8 but where does the money go?

Of 100 million albums sold in the UK last year, 70% were CDs.

Where the money goes - an average of £8 per CD - depends on the deals signed by bands and record labels.

But the agent Jonathan Shalit, who has overseen hundreds of contracts with artists like N-Dubz and Charlotte Church, is in a position to give a typical breakdown.

About 13% goes to the artists, while 30% goes to the label, with a 17% cut going to the government in the form of VAT (applied at 20% and therefore 1/6 of purchase price). About 17% goes to the retailer, while the rest goes to manufacturers (9%), distributors (8%) and the spend on administering copyright (6%).

"It's not an exact science, because it depends on the price structure and the record label," says Shalit.

Pink Floyd's drummer Nick Mason speaks on behalf of the Featured Artists Coalition, which campaigns for musician's rights. He remembers a time when the artists share was much smaller.

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"For our first album I think we were on 5% and for that we got access to Abbey Road. It was a considerable improvement over The Beatles original deal, which I think was one and seven-eighths.

"Like every band, we would have signed for nothing, given the opportunity. But fortunately we did have some management in place who negotiated a deal.

"Most artists start with a pretty poor deal, but it becomes a good deal - if you can survive those first five years."

As well as a proportion of album sales, artists normally get given an advance which is intended to cover their living costs.

According to Jon Webster, a former managing director at Virgin Records now with the Music Managers forum, fantastic deals these days are few and far between.

Woman  buying CDs This woman is still delighted by physical media

Steve Levine is a record producer, best known for his work with Culture Club. He explains that typically producers get paid in two parts - a fee per track, and then a percentage on the sales of those recordings.

"The percentage tends to be in the range of 2% if you are a new producer, and up to say 4% if you are an established producer," he says.

According to the estimates, labels typically earn more than double what the artist does from an album.

But Geoff Taylor, chief executive of the BPI, the industry organisation representing the labels, says it's not that clear cut.

It's a business where the hits fund the misses - and in most cases the record company will lose money, he insists.

"On the few occasions where they make money, they need to have that return to invest it in new artists so that they can keep on releasing new music."

Album sales are just one way that artists make money. Much of the profits they make today come from touring.

Nick Mason of Pink Floyd Nick Mason says artists start with a poor deal

They can also make money from airplay. PRS for Music collects all the money made in this way.

"Songwriters and composers have a more diverse source of earnings than do the record labels," says PRS for Music chief executive Robert Ashcroft.

"And although they have been affected by the arrival of the internet, the advent of piracy, the different business models, it has not been as dramatic an impact on total revenues for the sector, as it has been for the counterparts on the record label side of the business."

So what do labels do for their money? Taylor says labels take a huge amount of risk.

"It's a big investment, marketing music to the public is an incredibly complex business. You have to be an expert not just in traditional channels, but also in digital marketing, and that's where the labels now, in the UK are particularly exceptional."

Alternative deals are becoming increasingly available. Some labels - especially smaller, independent ones - will offer to split record revenues 50/50.

Tim Clarke started his music career at Island Records. He is a founder partner of ie:music, a management company that represents artists including Robbie Williams.

"I think when it comes to digital, and this is where we're going, enlightened companies like Beggars Banquet are already sharing digital sales on a 50-50 basis. That's 50-50 without deductions, so artists are actually getting 50%. That's fair."

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