-Mike Turner

Everyone loves a soundtrack album, but they’re less common (and different) than they used to be…

The Official Soundtrack album, or ”OST” as it is commonly referred to in “the biz,” is surrounded by a lot of mystery when it comes to the details of just how one is made and sold… and who makes the money?

Soundtrack albums can be part of the responsibilities of the Music Supervisor, but there are a lot of moving parts involved in getting one to market and their economic viability has evolved considerably over the past 20 years. I’ll break that down for you here as much as I can.

When licensing music for a film or series, soundtrack album rights are almost never included (they sometimes are for major “front-line” studio films). Synchronization rights and OST rights are negotiated separately and generally happen at different times. Artists and music rights holders want to know the full scope of distribution and marketing for the property before agreeing to participate in an OST, and these details often aren’t known during the production of a film or series.

When the time does come for wrangling an OST, there are a couple of different levels of involvement for a music supervisor. Most of the time, whether we produce the album or not, we are credited as the music supervisor of the property in the album credits, and that generally comes with a percentage of net profits or “points” if our work from the property is represented on the album. The amount of points granted depends on the music supervisor’s contract with the production, but it’s generally between 1% and 5%, with around 2% being most common these days.

If the production company or studio requires the help of the music supervisor to get the album produced, there is generally a separate upfront fee negotiated for that service and the additional credit of “soundtrack producer.” That said, studios don’t always engage the music supervisor on the project to do this. If they have a robust enough music BA department, they may just opt to handle it internally.

Here is what that service entails

1.) Finding and contracting the appropriate record label partner:

The commercial release of any record, and especially a compilation album, is a job that requires specialized accounting services, marketing, and distribution. That’s what record labels do.

Every recording appearing on the compilation needs to be paid a certain advance on sales (or agree to waive one), and then mechanical royalties need to be paid for both the master (recording) and publishing (composition) side based on physical sales or streams after the label recoups its costs.

The label also needs to get the physical record into stores or the digital album to the appropriate streaming services. None of this is something that a film production company or movie studio is set up to do.

2.) Contracting the recordings for the compilation:

Since the music supervisor has already worked with these rights holders to negotiate the synchronization deals for the songs in the film or series, it only makes sense that they would be the most expedient party to circle back with labels and artist management to recruit participation for the OST. The music supervisor communicates and negotiates the advance that the record label is willing to pay for each recording, as well as negotiating the royalty rate and communicating which formats are needed for the album to exploit.

Is it just a physical album? If so, will it be both vinyl and CD or just one of those? Will it be physical and digital?” Maybe digital only? Each one of these scenarios may have pros and cons for the rights holders and impact their willingness to participate.

3.) Mastering:

This might be something the record label partner will already have on hand -especially if the label specializes in soundtracks. But perhaps it’s a smaller label without a specific go-to mastering engineer on tap for compilations. In that case, the music supervisor will need to find and contract a mastering engineer. Even though the commercially released songs that appear in the film or series will already have been mastered, when a compilation album is put together, everything needs to be remastered to ensure consistent dynamics across the collection. You don’t want to have to reach for the volume knob every time the next song comes on to turn it up or down. Vinyl mastering in particular is its own specialty.

With all of the above in mind, we can now dig a little deeper into the economics that make OST albums a challenge.

Some historical context

*The OST that made 13yr old Mike want to be a music supervisor / 1992 (Epic Soundtrax)*

There was a time when almost every movie commercially released had a soundtrack album to go with it. The peak of that was the 1990s, which just so happened to coincide with the price-fixing collusion perpetrated by all of the major record labels. The Federal Trade Commission brought a multi-million dollar class action lawsuit on behalf of American consumers in the late 90s, which was finally settled in 2002 with a nearly $200M RIAA payout.

At the peak of CD sales in the 90s, a CD might sometimes cost $25 or more. Record labels were making money hand over fist because their production costs dropped dramatically when the market shifted from vinyl to CD, which cost pennies on the dollar to make comparatively. They figured nobody would really notice that they were charging even more per album while their overhead plummeted (Hey! New technology!)

The illegal bit was prohibiting retailers from allowing any discounts on a product that was controlled by what was essentially a single cartel monopoly. In other words, “price fixing.” If you lived through this era and kept your receipts from Tower Records, you may remember getting a settlement check from the RIAA for varying amounts of money. I remember getting mine.

The financial risk for putting out a CD soundtrack to go along with every movie in the 90s was fairly low, and since all the major movie studios also had major record labels, and all music back then was physical, the upside was compelling to say the least. The film industry was booming, and it was typical that an average film soundtrack would hit gold status. That’s 500k units at $25 each (at least), resulting in millions of dollars in revenue per release.

The RIAA settlement was the first crack in the dam for the soundtrack business (they had to drop CD prices), but the digital download and, ultimately, the streaming era of the 2000s busted it wide open.

Once CD sales took a nosedive as digital downloads gained popularity, the whole concept of a compilation album became a tough business model. If all of the songs on your album also exist on other albums, and consumers are just buying songs they like for 99 cents each on a website that has ALL the songs, then it doesn’t matter that you’ve compiled a bunch of cool songs from a movie on a single collection. Nobody cares what collection they’re on anymore. The concept of the “album” was collapsing, but the compilation album collapsed faster.

Streaming made that even worse because now there is no money being exchanged for any particular recording, and instead it’s all coming out of a single royalty pot. So artists and labels needed to consolidate their streams to make sure they are maximizing that revenue. Allowing a song to appear on a digital compilation where a 3rd party label is taking 50% to 75% of the royalties per stream only dilutes their income.

The promotion/exposure vs. revenue argument becomes a lot harder to make at that point. Maybe still worth it for smaller artists, but for famous artists who already had their hit songs on an array of available collections, it was becoming a mess.

Today’s reality

The result of all of this is that commercially released soundtrack albums featuring a compilation of existing songs started to disappear, except for the very biggest titles, where the release is largely a marketing expense and the P&A on the film is so huge that it forces market saturation for the OST, giving it better odds for success.

CD sales in general continued to dive, so ironically, the only physical option that made sense for an OST was becoming vinyl again. Vinyl could be sold at a premium like a collector’s item, and movie fans like the format because it’s more substantial memorabilia for a film they loved.

Vinyl has more room for cool art in the packaging and written details on the film and soundtrack. Nobody bats an eye today at paying more than $30 for a vinyl LP with cool packaging. A lot of people will buy these records without even owning a turntable. Artists are far more likely to participate in a physical OST release than a digital one because the units sold are finite and do not interfere with their streaming numbers.

However, the problem is that even with the resurgence of vinyl, the numbers for physical music sales are still nowhere near what they were in the 90s. Vinyl is expensive to manufacture (even more so now, thanks to oil prices and inflation), and the movie business has also changed dramatically with the advent of streamers like Netflix, making OST sales far less predictable.

Keep in mind that with a compilation album, half of the profits are being split between the songs licensed for the record and the film studio that put out the movie. The record label calculation for the OST business is: A.) lower profit margin due to increased payouts + B.) Increased sales market pool of movie fans and a marketing partner (the movie studio), amplifying the reach of the record.

Except that in the post-1990s entertainment landscape that increased market of film consumers “(B)” is no longer reliably there. It’s worth noting that record labels generally hate losing money!

The response to these conditions in today’s soundtrack economy has been to release mostly just the music assets that the production actually owns (rather than those licensed). This reduces the amount of royalties owed and increases the profit margin. So, for example, the film’s underscore… these are almost always contracted with the film composer as works made for hire, which the film studio owns outright. Or original songs written for the film, which are also usually contracted as work for hire, or at least the studio will have some equity stake in the recording or publishing (or both).

When the film studio controls these assets, they can put them on streaming platforms without pushback from the artists and release physical albums without re-licensing rights.

So, while licensing music for movies and TV remains as popular as ever, we are also seeing an increase in original songs created for bigger film and series properties as the studios attempt to recapture what’s left of the fractured soundtrack market.

Soundtrack Math

Below is an example breakdown of soundtrack royalty math on a traditional ’90s-style OST with only licensed tracks.

To keep it simple, I’m using physical sales (specifically vinyl) and a small number of units. There are different ways to do this, but this one isn’t uncommon:

Hypothetical (but plausible) numbers:

The per-unit cost of the album is $25 PPD or “price per dealer” (wholesale):

The retailer then marks this up and sells the album for maybe $35. But the royalties are based on the PPD price.

Soundtrack album label retains 50%:

The label gets 50% of all profits after recoupment of manufacturing, advances, and mastering

Production company/film studio retains 25% of profits: (after recoupment)

Music supervisor points come out of this portion. Alternatively, another way to structure this is known as a “studio override,” where the studio cut of around 20% or 25% comes off the top and compresses the rest of the percentages as a part of the “standard deductions” fine print. This allows more favorable-looking percentages to be presented to rights holders like 50% rather than 25% -except that 50% might really just be 37.5% after the override.

Also, a secret THIRD way to do this would be that the studio just licenses the rights to the OST sale to the record label for a flat fee and does not participate in profits. The label then lumps that fee into its recoupable costs. This probably doesn’t happen much anymore because it just adds to the financial risk the label is taking.

Each master is paid 25% (PPD):

This percentage is pro rata based on the number of tracks on the compilation. If there are 10 songs on the record at $25 PPD unit price, then the sale price of each master is $2.50. 25% of that is about 62 cents per recording (after recoupment of course). NOTE: Each recording royalty percentage can be negotiated individually so they may not all be the same across the album in the real world; that’s just a realistic flat figure for the sake of simplicity.

Advances and mechanical royalties:

Advances are negotiable, but they’re much smaller than they used to be following the contraction in profits from record sales. In the ‘90s, maybe it was a few thousand per recording; now it’s more like a few hundred.

So let’s say $300 per recording in this example. This is an advance on mechanical royalties for the recordings (the masters) that the soundtrack label pays up front to either the artist directly or the label that controls that recording. After the advance is recouped (along with manufacturing) then royalties for the masters are paid at the agreed upon 25% PPD rate

Publishing mechanical royalties:

These are different than mechanicals on the master side because they are set by the Copyright Royalty Board, authorized by Congress. In the U.S., that is currently 13.1 cents per composition if it’s under 5 minutes long. Publishing mechanicals have to get paid regardless of recoupment, but in the U.S., these royalties are paid based on the number of units sold, while in Europe, it’s paid based on the number of units pressed.

Marketing/advertising:

I did not include marketing costs in this example because it’s too much of an unknown. In some deals, marketing can be recoupable (to a point), and in others, they are not. The sky is the limit when it comes to spending money on advertising. It should supposedly increase sales, but it could also just plunge the whole release into the red.

Union residuals (SAG & AFM):

This is another one that I’m not including any firm numbers on for a couple of reasons. For one, not all recordings have union musicians on them, in which case it’s moot, and secondly, the fees totally depend on how many union performers are on the recording so it’s too many variables for this hypothetical example. But just know that SAG vocalists and AFM musicians do get paid a residual for normal record sales and streams, or for “secondary market use” if it was a song originally recorded for a film/series and now being sold retail on an OST.

Hard Costs and Totals

10 songs on the OST at $300 advance per master = $3,000 in master advances

A limited run of 3,000 records is pressed for $10,000 (conservatively)

Obviously, the per-unit price goes down the more records are pressed, but it’s hard to sell even 3k copies of an average soundtrack these days.

Mastering: $2,500 for the new vinyl master

That’s $15,500 to get the product made

If stores sell every copy for $35 each, that’s $105,000 gross, but the PPD (wholesale) price was $25 so the label revenue was $75,000, which becomes $53,000 after master royalties and the film studio’s cut. Since royalties aren’t paid until after recoupment, you take half of $75k $37.5k) and subtract the $15.5k recoupable costs (the studio then made $11,000 minus points they gave away, and another $11k was paid in master royalties).

Then subtract another $4,000 in publishing mechanicals for 10 songs (not bulleted above because this isn’t advanced in the U.S.), bringing us to $49,000.

That’s IF every unit was sold, but probably up to 100 copies will be promotional giveaways, so let’s subtract another $2,500 for that

The grand total profit for the OST label in this scenario is now:

$46,500

Let’s hope they didn’t spend more than that on marketing!

[Many thanks to Brian McNelis from Lakeshore Records for checking my hypothetical math on this and making sure I haven’t lost touch]

How Do Soundtrack Albums Get Made?