When RZA, the lead voice of the iconic rap group Wu-Tang Clan, announced that the band would create a completely one-of-a-kind album, the artistic world divided. Wu-Tang promised a 31-track masterpiece in a hand-carved book that came with a 174-pages of liner notes bound in leather, and set up an auction to sell it to the highest bidder. Some said this move was bad for fans, some said it was an affront to rap, some said it was just a bad idea.
But auctioning off their masterpiece album was good business—regardless of who bought it.
This morning, Bloomberg reported that the WuTang Clan album Once Upon a Time in Shaolin sold to 32-year-old pharmaceutical executive Martin Shkreli in May for a rumored $2 million. Since its sale, Shkreli has been outed as a ruthless capitalist who increased the price of a drug used to treat some AIDS sufferers by 5,000%, making a $13.50 pill cost $750. Raising this price is a whole other debate about morality and capitalism, but suffice it to say that there was widespread moral outrage. Especially when Shkreli said he should have raised the price more.
This is the man who bought the Wu-Tang album—a man making his vast fortune off people trying to pay for pills to save their friends and family members dying of AIDS.
“The sale of Once Upon a Time in Shaolin was agreed upon in May, well before Martin Shkreli's business practices came to light,” RZA emailed to Businessweek. “We decided to give a significant portion of the proceeds to charity.”
For his part, Shkreli said he hasn't even listened to the album. “I could be convinced to listen to it earlier if Taylor Swift wants to hear it or something like that,” he told Bloomberg News.
Unsurprisingly, his purchase has made people angry. No one likes it when a very rich person takes away something beautiful from the general public. It's frustrating when private collectors don't show masterpiece paintings in the same way it's frustrating that Shkreli is sitting on an album that is presumably a brilliant piece of art. Spencer Kornhaber at the Atlantic called the sale a "horrible mistake."
But here's the thing: Wu-Tang Clan probably made more money selling their album to a jerky hedge fund manager than they would have releasing it in a traditional format. Even with a "masterpiece album"—even with the best album they've ever produced—the group would have trouble making the same amount of money they made at this auction. It may sound crazy, but here's why.
The Clan sold the album to Shkreli for a rumored $2 million.
We don't know how much the Wu-Tang Clan generally spends on making an album, but let's assume that this album cost $100,000 more than normal. That's a very high estimate: the real number is probably lower.
We'll also chop off 10%, or $200,000, of the revenue to Wu-Tang for fees they had to pay to Paddle8, the company that managed the auction.
In this scenario, Wu-Tang would need to make at least $1,700,001 to beat what Shkreli paid. Albums are pretty much worth $10.00 now, but just for grins let's round that up to $12.00 to incorporate potential vinyl sales.
That means that in straight sales alone, Wu-Tang Clan would have to move 141,667 copies to do better than the Shkreli deal.
Maybe you think that is a reasonable number of copies for the Wu-Tang Clan to sell. You are wrong.
Wu-Tang Clan is a popular band. Their first album Enter the Wu-Tang and their second album Wu-Tang Forever both sold more than 2 million copies. But they sold those copies in 1997, and the sales climate in 2015 is not what it was in 1997. In 1997, the iTunes store didn't exist. In 1997, YouTube didn't exist. 1997 was before Napster came and went; before streaming services were even a glimmer in the eye of venture capitalists. In other words, album sales have plummeted since 1997 for a myriad of reasons and only a few bands can move significant copies anymore.
Wu-Tang Clan is a popular band, but they are not Adele. They are not moving 2 million copies in 2015.
A more reasonable way to calculate how many albums Wu-Tang could be expected to sell would be to look at Wu-Tang's most recent album, A Better Tomorrow, released in 2014. It sold 60,000 copies in the United States. That's right: the album this group released last year in a traditional format didn't sell half of the number they would need to break even on our very low estimate.
"What about streaming?" you say. Okay! Let's add in streaming.
To once again be generous, we'll say that Wu-Tang Clan could sell 100,000 copies of Once Upon a Time in Shaolin. That means they still need to make $500,001 in streaming revenue. This is a shit-ton of money in streaming. We'll ignore the fact that most artists get a tiny portion of the revenue from streaming because their label takes a big cut and just assume that every fraction of a penny goes straight to the Wu-Tang Clan.
Spotify admits the average "per stream" payout to rights holders lands somewhere between $0.006 and $0.0084. Let's take the big one and round it up to one cent per stream because some services (Pandora, Apple Music) do pay slightly more.
That means Wu-Tang clan would need 50,000,001 spins on streaming services just to get that half a million dollars they'd need to match the Shkreli deal. The most popular song on Wu-Tang's Spotify: "C.R.E.A.M" has (as of publish time) 26,616,866 spins. The 10th most popular song as 989,000 spins. No songs from their 2014 release are in the top 10.
So, ultimately, the only way Wu-Tang would break even against the Shkreli purchase on this album is if it was not only a critical darling, but so popular that at least two songs on it became more popular than their No. 1 song of all time. Is this possible? Maybe! Is it probable? Nope.
Which is how Wu-Tang Clan ended up in this situation to begin with. You do not auction your album off to the highest bidder if you think you can make as much money selling it in a traditional format. Wu-Tang Clan tried traditional in 2014 and it failed. So they tried exclusivity, and they guaranteed themselves an amount of money that would be very difficult for them to make in the modern music market. Even though the final auction price was lower than they had hoped, Wu-Tang Clan were still pretty savvy about this record.
Is that a comfortable truth to live with? Nope. But is it good business? Absolutely.
Kelsey McKinney is a culture staff writer for Fusion.