Retailers included companies such as Musicland Stores Corporation (which included Sam Goody, Musicland, and Media Play stores), Tower Records, Camelot, and Transworld Entertainment (Strawberries and Coconuts stores). This had traditionally been at the end of the value chain for much of the music in the industry. In most retail stores, consumers had the ability to search for music sorted alphabetically and by genre, and could also listen to a portion of the retailer’s collection of music through in store music players. The average consumer price for a CD was $15, while the average cost of goods sold for retailers was 65%. Retailers could return could return unsold CD’s to the record companies for credit.

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Of the 65% COGS paid by retailers, 10% typically went to wholesalers who served as a distribution channel for record companies. The remaining 55% went to the record companies. The expenses paid in the making of the album were as follows:

The most significant expense for a record company was its marketing expense (10% of retail price – 18% of record company revenue. For each dollar spent on marketing, a record company thus generated roughly $10 in sales. This came from the close relationship formed between major labels and music promotional vehicles: namely video and radio stations. Through marketing expenses, record companies were able to promote key artists into heavy rotation on these stations. The record company offered free content in the form of music and music videos, while the stations offered a free conduit to a national audience in the form of airtime. These stations then generated revenue through advertising, while record companies enjoyed album revenue from consumers who saw or heard their music on the air.

Because these radio stations had a limited number of hours for playing music, only a limited number of artists were promoted by record companies for heavy rotation. Although major labels had hundreds of artists signed to contracts, only a handful ever made it onto the air in heavy rotation. This handful of artists made up the majority of a record company’s revenue. It was estimated that just 1-2% of artists accounted for 90% of record company sales.

This accounted for roughly 11% of the CDs retail price (20% of recording company revenue). Reproduction costs included reproducing the master tracks onto the CDs and packaging the finished product.

Sometimes referred to as artist development, A&R accounted for roughly 5% of the retail price (9% record company revenue). This involved scouting for talent in clubs and bars that feature locally or regionally successful musicians, as well as "creating" and packaging studio fabrications such as The Spice Girls and Milli Vanilli.

Based on an artist advance, and per CD percentage, royalties made up roughly 7% of the retail price, and 12% of a record company’s album revenue.

Overhead included items such as general and administrative expenses and inventory carrying costs, and represented 10% of the $15 retail price (18% of record company revenue).

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An average artist only received a 12% royalty from a major record company, although it could range anywhere from 9% to 20% depending on the popularity of the artist. In addition, a new artist might receive advances from a major label to make an album. An artist was responsible for paying her/his management team comprised of at least an agent, a personal manager, a business manager, and a lawyer.

In general practice, most artists worked with intermediaries called artist companies. These companies maintained close relationships and often closed the deals with major record companies. They also managed the recording process. From an album with sales of $2 million generating $240,000 in royalties, for example, the artist company would pay $48,000 to a producer, $50,000 for production costs, and retain $60,000 while passing on $82,000 to the artist. (See Funds Flow for a Typical Artist Company Contract). For an album with lower sales, the artist would receive significantly less, since that portion of royalties which ultimately was passed on to the artist was only the residual after all artist company expenses and profit were deducted. In theory, therefore, an artist could only be left with whatever money had been advanced if sales were less than expected.

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