Audiotalk-business

The Studio Business
What does the client want?
Economic Reality
Real Life Business Models
Additional Income
How to save money
Your Market Survey
The Digital Time Bomb
Advertising and Sales
Marketing means to listen!
The Future Studio
Record industry crisis
Band Legal Status
Myths of the Industry

       Real Life Business Models      

Cl;ick here to go to the introduction!

Click here to find out about the studio building!

Click here to go to the studio business chapter!

Click here to go to the chapter on studio types!

Click here to go to the chapter on people!

Click here to go to the index!

Click here to find out about types of equipment!

Click here to go to the project chapter!

Click here to go to all the links and downloads!

 
I did it My Way
 
Here are some outlines of what has happened in the real World.  These are all real business models taken from studios that have succeeded or failed.  All the names and some key facts have been changed to 'protect the innocent!'
 
The 100 per Day Demo Studio in a Rented Rehearsal Room
 
This is possibly the most popular idea for young pro-audio graduates that want to get their feet on the ladder to becoming owners of a big and internationally acclaimed super studio. The idea is that if you are in a rehearsals centre where twelve other bands are thrashing away every night and weekend, they are bound to come to you for that all important demo CD.
 
Well, as a Texan friend once told me: `The turkey don`t fly and I`ll tell you why!`
 
The best case scenario is that the customers come flooding in and every weekend and six weeks are booked. Given a fast build-up time, that comes to 36,000 turnover in the first three years.
 
The worst case scenario is that the customers stay away in droves and only every second weekend is booked. Given a slow build-up time, that comes to a measly 12,000 turnover for the first three years.
 
Realistically, a studio owner/operator who knows what he is doing and is able to drum up trade, should achieve 24,000 turnover in the first three years. Given the desire by the demo customer to record only on the weekend, this may seem a little optimistic, but perfectly achievable.
 
The room is to be rented for 60 a week, all-in (i.e. heating electricity etc. included). So rent and other incidental costs for three years come to at least 10,000. Insurance for that period should be about 1,000 and other costs such as repairs and servicing of equipment comes to another 1,000. So all fixed costs, but not the cost of the equipment, comes to 12,000 for the first three years.
 
Three possible budget priced equipment setups suggest themselves for a good, but cheap studio.
 
1. Used analogue equipment with an old 2" reel-to-reel, a good used desk and some used outboard. Total cost about 12,000 including all fittings wiring and mics etc. The residual value of this equipment after three years is about 5,000.
 
2. New, cheap digital hard disk recorder and a suitable desk and outboard. Total cost is also about 12,000. Residual value is about 3,000.
 
3. Professional standard DAW with 24 IOs and all effects as plugins. Total cost is about 18,000. Here the residual value after three years is about 6,000.
 
The cost of repaying the money for the studio equipment at an interest rate of 10% p.a. is 14,000 for the two cheaper options and 21,000 for the DAW. Three years is a typical loan agreement for a small, first time business.
 
So here is what is left of your money and hard work after three years (turnover - costs - repayments + residual value of the equipment):
 
1. (old analogue) 24,000 - 12,000 - 14,000 + 5,000 = +3,000
 
2. (cheap digital) 24,000 - 12,000 - 14,000 + 3,000 = +1,000
 
3. (Good DAW) 24,000 - 12,000 - 21,000 + 6,000 = -3,000
 
This model assumes that all three systems will attract the same amount of trade. My suspicion is that the old reel to reel system would do quite well as there has been considerable growth of interest in using older technology and that the cheap digital system would do less well as it is more or less the sort of system that many musicians already have at home.
 
The cash flow situation is worse because you cannot add the residual value of the equipment (unless, of course you sell up). So the two cheaper options would leave you `in the hole` for 2,000 after three years and the more expensive DAW option would leave you no less than 9,000 short.
 
After the three years, the owner could be earning 8,000 p.a. once the equipment is paid off. Hardly a living wage and no allowance is made for further development or replacements.
 
Big City Film Post Production
 
Hans lived in the largest city in a smallish European country with a sickly, but active, local film industry. He left college with a shiny new degree in audio and media and while at college, made friends with a host of aspirant film makers for whom he did all the audio post production on his trusty old quarter inch reel-to-reel four-track.
After leaving college (and writing the inevitable hundreds of job applications that were completely ignored) several of his former fellow students asked him to help them make their show reels. Working from his small apartment, paid for by shelf stacking at the local supermarket, he pieced together the audio using a cheap digital multitracker on a PC.
 
After a few paying gigs, he was able to buy a bigger and more professional version of the same PC system. The system was simple and he got to know it very well. Some of his former student buddies got jobs with the local public broadcaster and began to commission Hans to do the A for V on local dramas and documentaries.
 
Soon those same former student buddies were making budget priced films on proper film stock. But, because they had very tight budgets, everything had to be shot on location and nearly all dialogue had to be added afterwards. That meant lots of bread-and-butter post production work for Hans. They also came to Hans for their music post production work and the budgets started to look more like the real thing, i.e. thousands instead of just hundreds.
 
Then one of the films Hans had worked on hit big. Really big. It was a dark, yet humorous look at the local crime and drug scene and it received international distribution despite having been shot on 'Super-16.' The male lead became an international star and after a couple more films was pulling down what Hollywood calls 'double figures' (more than $10 million).
 
Now Hans could invest in better equipment and he was able to move into better premises with more rooms and air-conditioning. He employed two of his former fellow students as engineers, but stuck with the simple, cheap and reliable PC system. A rival post production studio invested in an expensive DAW system and built a state-of-the-art studio complex, in anticipation of the rush of business that they assumed would come their way, but never did.
 
Today, Hans continues to serve a small, but growing local film industry and proudly boasts that nearly two thirds of the films made in that small country come through his studio.  He now has DAW systems of all types and caters to a very wide range of customers.
 
City Centre Super Studio
 
These are the real figures from a real studio. For obvious reasons I cannot reveal the name of the studio, or even the name of the city - if you knew which city, it would be clear which studio we are talking about.
 
Again, it is a rented property. At the height of the CD boom, a major label bought the studio for $2.4m with hopes of churning out a never ending stream of hits and orchestral pieces that would sell in large numbers for decades. It soon became clear that it was all just pie-in-the-sky dreaming. The rent for the studio building is $120,000 each and every month. Parts of the building are sublet to other businesses for a total of $50,000 per month. The running costs of the studio (staffing costs, heating, lighting, maintenance and a set-aside for new equipment) also come to $50,000.
 
That means that there are still $120,000 to cover each month.
 
There are four rooms in the building and their rates are $3,000, $1,500 and two production suites at $750 per day. So if every room is rented out, the studio has a daily turnover of $6,000 and if every working day is booked for every room, the studio is able to cover its costs.
 
This is a very successful and popular studio, so it is able to rent out its studio capacity for about 75% of the time. That is a fantastic bookings rate, but most of that is to the parent company and they could get independent studios just as good at less than half the price. So on paper the studio is `only` losing $30,000 a month. In reality it is probably almost double that figure.
 
And you thought that only youngsters running demo rooms were dreamers! (By the way, anyone want to buy a prestige city centre studio complex? I hear it is going cheap!)
 
Rural Mid-Sized Studio with restaurant and small seven-room Hotel
 
This model is based on a real studio. The figures have been updated to reflect the cost of equipment and housing today.
 
The hotel and restaurant were bought in a very rural location as a going concern for the equivalent of 500,000. The existing turnover was meagre as the previous owners were getting old and could not sustain the energy levels required for a thrusting business. The location allowed for some local fishing, but mostly the money came from tourists wandering in looking for somewhere to eat and somewhere to stay.  Turnover had dwindled to about 60,000 p.a.
 
There was a barn-come-stable building ideal for conversion to a medium sized studio. The conversion costs (lots of hands-on DIY here!) came to 20,000. The studio equipment costs came to 120,000 which included 10,000 for a nice Steinway baby grand, 50,000 for a good used desk and 25,000 for a multitrack. The rest was spent on keyboards, amps, mics, outboard and fittings.
 
The whole project was very much a husband and wife affair, with the wife running the hotel and the husband working on and in the studio. The wife took care of book keeping and bookings for both hotel and studio and the husband did all the renovation work for both sides of the business. He was a theatre manager, who had risen to that position from being the sound director and she was quality controller and hygiene officer for a large hotel chain, so they had that most important ingredient for success in business - they understood what they were doing!
 
They had about 250,000 from the sale of their city apartment, which they used to equip the studio, upgrade the hotel and renovate the rooms and cover initial living costs. The purchase of the property was covered by a 100% mortgage which cost them 4,000 per month. Running costs for the hotel came to 2,000 per month, so the modest turnover just covered mortgage and day-to-day costs, but left them with nothing to live on.
 
The total costs of all renovations and studio equipment came to 160,000. They also had additional costs (move, lawyer, planning permission for studio etc.) of 10,000. That left them with 80,000 in reserve for day-to-day living expenses for the first year and possible future investments.
 
The studio took a whole year to build, equip and for the husband to feel happy and familiar with the setup. The hotel was closed for six weeks in the off season for renovations, but the bar was kept open. When the hotel was reopened, it actually could provide them with an income of 1,200 pm. in the first year and about 2,000 pm. in the second year.
 
The studio earned almost nothing in the first year, but had about 100 days of bookings a year at 250 a day within three years. About a half of those customers also stayed at the hotel, so hotel earnings were boosted yet again.
 
After ten years, the old equipment was taken out and used to build a second cheaper studio. The couple were now employing others to do most of the donkey work and had combined gross earnings of the equivalent of 50,000. Their debts (the rest of the 20-year mortgage) came to 320,000, but the hotel building and studios were now worth about 1m. Fittings, equipment and goodwill for both sides of the business had a combined value of about 250,000.
 
So in ten short years, this hard-working couple had created equity of nearly 1 million and a very healthy annual income with a starting capital of 250,000.
 
However, this studio may have looked profitable, but careful analysis of their business revealed that they would have earn more money, had the studio not been there!  I discuss this in the 'Economic Reality' chapter.
 
The Have-Studio-Will-Travel Flightcase
 
John studied music at one of the World`s best music schools. Whilst there, he learned about ProTools and began using it. Although he was an excellent pianist and very good at orchestrations and arrangements, he got deeper and deeper into ProTools and other audio DAW systems. One of his professors began to use him when he recorded music for a classical label and soon many of the professor`s musical friends were asking for John`s services. On graduation, he spent 5,000 on a small, used ProTools recording system and set himself up in business. He was able to earn 10,000 in the first year and about 15,000 the year after that, just recording music. He then landed a large film project and so borrowed 24,000 over three years (monthly payments 775) to buy a larger ProTools HD3 rig with 24 IOs and all the processing power he needed for such a big project.
 
Originally he was to be paid 18,000, but he ended up writing some of the music as well, so he received another 12,000, which gave him enough to pay off his debt after just twelve months and left him with 3,500 to live on while looking/waiting for the next job, which as it turned out was another, even bigger, film. He became popular with producers and directors, not just for his competence, but also for the speed with which he worked. Because he knew his own equipment inside out, he could go to any studio, plug the DAW into their desk and get going almost instantly.
 
To cut a long story short, John bought a small house, built a private studio in the house (by converting the garage and making the car sleep outside) and became a very popular music editor and audio engineer. The home studio was built to fit his exact needs and the living room had tie-lines to the studio so that he could record his piano.
 
He continues to travel around Europe with his DAW in the back of his car and earns a very comfortable living.

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The Byre Recording Studio