MGO CPA | Tax, Audit, and Consulting Services

Topic: Guidance

From Artist to Enterprise: How Top Business Management Advisors Help Today’s Music Artists Monetize Their Brands

Executive Summary: 

  • The music industry has changed drastically, with artists now having more control over their careers and revenue streams beyond deals with record labels. 
  • Artists today need to view themselves as enterprises with diverse income opportunities including live shows, merchandising, licensing deals, streaming royalties, content creation, and catalog sales. 
  • To fully capitalize on these opportunities, artists must surround themselves with a team of expert advisors to help navigate all the financial, accounting, and business intricacies involved.

~

The journey to success in the music industry is no longer a straight line. While the path to earning substantial revenue previously only had one route — through a major label — those days are gone. The digital age has ushered in a new era, where artists have many direct pathways to their fans and an array of new revenue opportunities. 

But with new opportunities comes new challenges. Today’s artists have to figure out how to navigate, manage, and optimize numerous complex revenue streams with little guidance. This is why having a trusted team of advisors is essential to ensure you are getting the most from your artistic output — both in terms of building your fan base and your financial future. 

Here’s how working with a top advisor can help you transform from artist to enterprise, adept at building diverse income streams and overcoming any associated financial hurdles.

1. Live Performances: Looking Beyond the Spotlight

Live performances and touring remain pivotal for musicians to generate income. However, the financial success of a tour is not just about what you’re getting paid; it’s also about what you’re spending. That’s why meticulous planning is essential. From production costs to transportation, a trusted advisor ensures every dollar is accounted for before signing any contracts. Artists can also leverage performances for additional revenue through avenues like live streaming, behind-the-scenes access, or even concert films (i.e., Taylor Swift’s Eras Tour film). Advisors can help structure those deals to optimize the highest take-home payout.

2. Merchandising: Capitalizing on Brand Appeal

Merchandising offers a lucrative avenue to capitalize on an artist’s brand and deepen fan connections. Advisors can guide artists through various merchandising paths — from direct sales to brand collaborations to affiliations — to help them determine the best financial option. While direct sales may seem the most appealing on paper (where you might see numbers like “90% profit”), the associated responsibilities, such as sales tax management and warehousing, shipping, and staffing considerations, need careful evaluation. A seasoned advisor helps strike the right balance between profit and practicality.

3. Licensing and Sponsorships: Negotiating the Right Deal

Licensing and sponsorships have become integral to the music industry, with brands using music to sell everything from cars and sneakers to movies and fast food. Advisors play a crucial role in evaluating and negotiating these deals — ensuring you are getting fairly compensated for your name and image, and the opportunity aligns with your brand and goals. The evolving licensing landscape—with artists now able to self-publish and go through Spotify, Apple, and other platforms—has made getting licensing deals done easier. One independent artist we work with got a six-figure deal when a network went to TuneCore looking for music to use in a TV show.

4. Streaming Revenue: Making the Most of Royalties

Music streaming platforms dominate the music consumption landscape today. While streaming royalties may be lower than what an artist receives from radio spins, terrestrial radio cannot touch the real-time data streaming provides (providing demographics of who is listening to your music, where they are listening, etc.). When it comes to managing streaming royalties, it pays to have a trusted advisor to track your royalties across all platforms — analyzing streaming data and royalty statements to ensure proper payment and identifying any discrepancies. Advisors also can strategize royalty planning, including estimated tax payments on royalties to avoid penalties, and help negotiate more favorable distribution deals with streaming platforms, exploring creative arrangements and exclusive partnerships.

5. Creator Content: Creating a Consistent Revenue Driver

In today’s creator economy, valued at over $100 billion, creating content is a powerful revenue stream. Many music artists are augmenting their income to the tune of six-to-nine figures a year by creating content for TikTok, YouTube, podcasts, NFTs, as well as a variety of other media and platforms. Advisors can guide you in navigating the challenges that arise from managing online content revenue — which often trickles, and then floods in, from multiple sources, and can quickly become unwieldy without a system in place to manage it. Proper financial management, including tax planning and budgeting, becomes crucial as content creation becomes a more prominent income source.

6. Catalogue Monetization: Structuring Your Ideal Sale

High-profile artists like Dr. Dre and Justin Bieber have recently sold their catalogue rights for large chunks of change. Catalogue monetization is the one time you are in complete control of your asset; you can carve out whatever deal you want (10-year, 20-year, 50%, 80%, etc.). Advisors guide artists in choosing the right partners, structuring deals, and determining the extent of the catalogue to sell. Your advisor will also help you weigh the tax considerations of collecting royalties versus selling all or some of your catalogue (royalties are taxed at 37%, while catalogue sales are taxed at 20%), and set up your sale in the most tax-efficient manner possible (for example, installment sale vs share sale). This one-time opportunity demands careful deliberation, and having the right team advising on nuances is paramount.

Building the Team Around Your Team

Moving from artist to enterprise means building a team to help you succeed. Your advisors are your team around your team. Much like a corporation brings in consultants, having seasoned business advisors available when you need them will help you make informed decisions to grow your brand and secure your financial future.  

How We Can Help:

Our Entertainment, Sports, and Media (ESM) practice helps music artists at all stages, from rising stars to legends, offering financial, tax, and business management services to help you build your brand and maximize opportunities. Contact our ESM team today to learn how we can help take your music career to the next level.

The Real Oversight is NOT Having an Audit Committee

By Jim Godsey, CPA, CGMA, Partner, MGO

Everything changes, except when it doesn’t

Time and time again we’ve seen reactions to various accounting scandals, after which new policies, procedures, and legislation are created and implemented. An example of this is the Sarbanes-Oxley Act (SOX) of 2002, which was a direct result of the accounting scandals at Enron, WorldCom, Global Crossing, Tyco, and Arthur Andersen.

SOX was established to provide additional auditing and financial regulations for publicly held companies to address the failures in corporate governance. Primarily it sets forth a requirement that the governing board, through the use of an audit committee, fulfill its corporate governance and oversight responsibilities for financial reporting by implementing a system that includes internal controls, risk management, and internal and external audit functions.

Governments experience challenges and oversight responsibility similar to those encountered by corporate America. Governance risks can be mitigated by applying the provisions of SOX to the public sector.

Some states and local governments have adopted similar requirements to SOX but, unfortunately, in many cases only after cataclysmic events have already taken place. In California, we only need to look back at the bankruptcy of Orange County and the securities fraud investigation surrounding the City of San Diego as examples of audit committees that were established in response to a breakdown in governance.

Taking your audit committee on the right mission

Governments typically establish audit committees for a number of reasons, which include addressing the risk of fraud, improving audit capabilities, strengthening internal controls, and using it as a tool that increases accountability and transparency. As a result, the mission of the audit committee often includes responsibility for:

  • Oversight of the external audit.
  • Oversight of the internal audit function.
  • Oversight for internal controls and risk management.

Chart(er) your course

Most successful audit committees are created by a formal mandate by the governing board and, in some cases, a voter-approved charter. Mandates establish the mission of the committee and define the responsibilities and activities that the audit committee is expected to accomplish. A wide variety of items can be included in the mandate.

Creating the governing board’s resolution is the first step on the road to your audit committee’s success.

Follow the leader(ship)

In practice we see a combination of these attributes, ranging from the full board acting as the audit committee, committees with one or more independent outsiders appointed by the board, and/or members from management and combinations of all of the above. While there are advantages and disadvantages for all of these approaches, each government needs to evaluate how to work within their own governance structure to best arrive at the most workable solution.

Strike the right balance between cost and risk

The overriding responsibility of the audit committee is to perform its oversight responsibilities related to the significant risks associated with the financial reporting and operational results of the government. This is followed closely by the need to work with management, internal auditors and the external auditors in identifying and implementing the appropriate internal controls that will reduce those risks to an acceptable level. While the cost of establishing and enforcing a level of zero risk tolerance is cost prohibitive, the audit committee should be looking for the proper balance of cost and a reduced level of risk.

Engage your audit committee with regular meetings

Depending on the complexity and activity levels of the government, the audit committee should meet at least three times a year. In larger governments, with robust systems and reporting, it’s a good practice to call for monthly meetings with the ability to add special purpose meetings as needed. These meetings should address the following:

External Auditors

  • Confirmation of the annual financial statement and compliance audit, including scope and timing.
  • Ad hoc reporting on issues where potential fraud or abuse have been identified.
  • Receipt and review of the final financial statements and auditor’s reports
  • Opinion on the financial statements and compliance audit;
  • Internal controls over financial reporting and grants; and
  • Violations of laws and regulations.

Internal Auditors

  • Review of updated risk assessments over identified areas of risk.
  • Review of annual audit plan, including status of the prior year’s efforts.
  • Status reports of ongoing and completed audits.
  • Reporting of the status of corrective action plans, including conditions noted, management’s response, steps taken to correct the conditions, expected time-line for full implementation of the corrective action and planned timing to verify the corrective action plan has been implemented.

Establish resources that are at the ready

Audit committees should be given the resources and authority to acquire additional expertise as and when required. These resources may include, but are not limited to, technical experts in accounting, auditing, operations, debt offerings, securities lending, cybersecurity, and legal services.

Taking extra steps now will save time later

While no system can guarantee breakdowns will not occur, a properly established audit committee will demonstrate for both elected officials and executive management that on behalf of their constituents they have taken the proper steps to reduce these risks to an acceptable tolerance level. History has shown over and over again that breakdowns in governance lead to fraud, waste and abuse. Don’t be deluded into thinking that it will never happen to your organization. Make sure it doesn’t happen on your watch.

Create an Honest Brand

What is a “brand” and how does one go about creating it? A brand is a footprint. A brand is how you are seen, perceived, and remembered. It involves both real world and social media interaction and whether people are aware; we are all creating a brand for ourselves every day of our lives. Putting a stamp on it, and owning it as a brand is just a more definitive step.

Some have questioned the value of creating a brand for yourself. Does it really need to be done? Is it something that anyone actually looks at? Is it simply a social construct for media purposes that has no genuine bearing on the real world, and your life?

There is a simple answer. While your brand may be a “social construct” it can have an indelible impact on your life and career. When planned and utilized correctly, your brand is an essential part of the early journey in defining your vision for yourself and your continued financial success and security. The first step when approaching yourself as a brand is to decide what that brand and you will stand for. It should serve as a reflection of your current values and also what you aspire to achieve your dreams.

Develop your brand by watching and listening

Conceiving your brand starts with basic tenants you learned in elementary school: watch and listen. Take a look at people in your world and your chosen field. Look beyond any pre-conceived notions you may have and really look and listen to who they are, and the message they are projecting to the world. Examine them in person as well as via any kind of digital or social media and decide for yourself whether that person is succeeding or failing to represent what they are putting into the world. Look at any kind of context they put out in terms, of public goals, mission statements, and information for their personal journey and vision.

Doing your homework ahead of time and developing an understanding of what works and what doesn’t, helps you determine the trajectory of your brand and how it will propel you forward in living your vision. Remember, you are your own mid-sized Fortune 500 Company, and you need to run your business affairs as such. No one invests personally or financially in a company that has unfocused goals, trajectory, or has a brand that seems off the mark or undefinable.

Be honest and truthful when creating your brand

The most important element in creating a brand for yourself is to be honest in what you are doing. There’s no lasting value in creating a brand and financial path that is no more than smoke and mirrors. Social media and the impression that you give people through your brand will appear hollow if you are not being truthful in what you are creating. Make sure that your brand represents your personal voice and views. Truth and hard work will always reap you a tangible benefit in the end. You can’t build a vision of the future on lies and public opinion. It’s much easier and more effective to maintain a brand that is honest and true. Sustaining falsehoods and superficial façades requires ten times the work and creates unnecessary risk and complexity.

Package your brand and create goals

Once you’ve decided how you are going to brand yourself, and what path you are taking; start working out a step by step financial plan with your advisors. There should be a series of definable goals and markers along the journey into living your vision. Working with your team of financial advisors, decide the duration of time you would like to spend on each element or part of your goals, and where exactly you see these goals fitting into the much larger picture of your present and future life.

Create your plan so that it is a package deal. It has to meet your needs, the needs of your financial vision, and all elements need to align correctly. All elements of your vision and financial scope need to feed into and allow your brand to exist on multiple planes and levels. Again, your finances should be run like a company’s, and there will always be elements that exist on separate levels but need to work in harmony for everything to move forward.

Earn your reputation for your brand

Reputations are earned, not just freely given. They take work, time, and patience. Creating and building your brand for yourself and your finances is no different. Stay true to what you and your financial advisory team have worked to create for you. This brand is a way to represent yourself in the world, and as such is as much a part of you as your body of work. In having others help you establish your brand, make sure you are doubling back to check on others and let everyone know that you are invested in them, just as much as you are in making this brand a reality and a success. Treat others well as you forge ahead to give your brand a life and longevity and keep it rooted in a reputation that you are working hard to maintain.