How much do today’s recording artists make in the new music business paradigm?

Every week I search all over the Internet for news articles that are relevant to ALL artists in the music business. Actually not just artists, but everyone in the music industry. Even business people and entrepreneurs like myself. I try to find a current article to review, discuss it, and then show how it reflects the current trends in the music business. More importantly, I look for important articles that convey the current music business paradigm and where we are headed. I found an excellent one on the revenue artists generate from online streaming services. I found this an extremely compelling and relevant topic because of what I find to be a consistent struggle for both emerging AND established recording artists. The biggest obstacle today is how to generate revenue in the new paradigm of the music business. Working for Fame Wizard, I speak to around 10-15 artists on a daily basis. Majority of them are inquring about our program. Of course there are a small percentage who are stuck in an obsolete business model, with hopes of being discovered, or getting their music “heard by the right person.” The rest are serious and motivated artists who understand that you need to first learn the business, then build a fanbase, and most importantly monetize on those things to generate consistent revenue. You will still make money from selling records, but recent analysis shows that this will eventually become a smaller part of your total income. Playing shows will always be a staple for all artist careers. A hurdle for seemingly everyone is how to generate revenue from internet sales and online streaming services.

TurntablePieIn the so-called “golden era” of the music business, it was much easier for artists to keep track of how much money they are making. It basically came down to CD/album sales, merch, and touring. Those were the main sources of revenue, with CD/album sales being the main source for majority of recording artists (major stars would generate tens of millions by doing large scale tours, but always remember there is a huge expense in doing that). Fans used to go to local record stores like Tower Records, Warehouse, Sam Goody, Blockbuster Music (man how cool was it to go there and listen to the cds before you bought them), and numerous other major chain stores and “mom & pop” shops. They would purchase a CD at around $15, and then few dollars would end up on that artist’s royalty sheet in the coming months. How much usually varied depending on the artist’s royalty rate (I.E. what their contract states they make per album sale). Then iTunes version 1.0 (formerly called SoundJam, developed by Bill Kincaid, and released to the public by Casady & Greene in 1999) came out in 2001 and revolutionized all of this. It actually made things easier and also allowed artists to be more profitable. It basically breaks down like this: every time someone downloads your song for 99 cents, a few pennies (again the amount varied based on an artists contract) were deposited into an artists account with their label. But times are not that simple or straight forward anymore. In today’s music market, fans both play artists music videos and stream music online for free. Sites like Spotify, Pandora, MOG, Rdio, Slacker and tons of other online streaming services are some of the more popular sites that fans use to listen to music of their favorite artists, as well as find out about new and upcoming ones. The small amount of pennies to the dollar that artists make today is virtually impossible to track. This has been an extremely frustrating issue for both artists and labels. But recently there seems to be a way to track it with more accurate and fair results. According to Jeff Price, founder of TuneCore (TuneCore, a digital distribution service which charges artists to place songs directly into iTunes, Spotify, etc.), “People like to simplify this and say, ‘There’s no money in it.’ But it’s complex, it’s complicated and it’s still being worked out.”

Here is an example: Let’s say you are current pop phenom, Justin Beiber (check out this cool acoustic version of a song of his I admit I kind of dig…don’t hate!) and you are selling tons of albums, getting mad radio play, tons of YouTube views, and your songs are streaming like crazy on all the online streaming services.

Well, how much are you supposed to get paid? Rolling Stone Magazine recently interviewed numerous sources in the music biz and received a few different answers to this question. Take a look the graph below from to see a typical breakdown of an average recording artist’s royalties. Many online streaming sites are generally free, but they will then feature ads around your music and videos. You can pay a fee and you will be able to receive unlimited streaming of music and videos. The current “estimate” is “if a song gets streamed 60 times, the songwriter receives 9.1 cents in mechanical royalty payments. And the performing artist gets 38 cents (or splits that money, half and half, with a record label, per contract).” Although we have estimated figures here, the realty of it is that the actual formula that is used to determine artist royalties from streaming services is too ridiculously complicated to explain. Jeff Price of TuneCore admits, “It is beyond complicated. It took me literally three months to understand this thing.” TuneCore charges artists $9.99 for the distribution of a single, and $29.99 for distribution of a full album (that is current rate for the first year only, with each year after that for $49.99). Their distribution deal includes placement into online stores like iTunes and, as well as online streaming subscription services such as Spotify, MOG, Rdio, Google Play, international streaming monster Deezer, among many others. Check out the “How it Works” link from TuneCore.

services fees

CD Baby (another digital distribution company), is a competitor of TuneCore. CD Baby’s rates are very similar, but they take 9% annual earnings. Check out this link for more info on CD Baby’s Digital Distribution model.

I have used both. I think both have their strengths, and any way you go, you will be just fine. TuneCore seems to be more straight forward, more user friendly, and obviously has an advantage by not taking a percentage of sales, but they charge an annual fee. CD Baby allows you to sell vinyl, has some excellent user-friendly Music Store widgets, does NOT have an annual fee, and they send weekly articles that will empower you with a consistent stream of music business knowledge. Take a look at both. It is really an “apples vs. oranges” scenario. It depends on what you fits your business model best. Either way, you will be in control of your music business, and both will give you worldwide distribution that includes iTunes, Spotify, Amazon, etc.

When looking at the graph above, you will see that the royalties are broken into 3 shares, with the third being the songwriter. Obviously, if you sing your own songs, you will receive this share in addition to your artist royalty. In today’s pop and urban driven market, many artists have outside songwriters who contribute either the songs, lyrics, or tracks (in urban and pop market, or synthesized music, the beat maker/track maker is also credited as the producer), or in many cases artists will have a co-writer contribute a hook. Songwriters in those cases will receive the songwriter share of the royalty. In most cases, songwriters will receive 10.5% of an online streaming service revenue (sites like Spotify, Pandora, MOG, etc.). TuneCore’s Jeff Price states, “however, each service has to run literally five formulas each month — on calculation number one, they have Subsection Number One and Subsection Number Two. They throw out the higher of those and then compare that one against the other three. After that, they have to run this formula five different times.” As you can see, the music business is breaking new ground and entering into relatively unknown territory trying to work out the calculations online revenue royalties. The difficult aspect is that much of these formulas are pretty archaic. The music business is playing “catch-up” to the advancements in technology. Artist royalty payments from much of the current revenue coming from online platforms are very small when they appear in label accounting. Just a handful of artist managers and attorneys truly understand how much they could make from current or future online streaming services. But everyone knows it is extremely important and crucial to figure it out. The current trends show that in the future, a core of artist’s revenue will be coming from theses online platforms.

Despite all this confusion and the cloudiness in world of the amount of revenue  an artist will receive from online services, there is a clear silver lining. Music business entrepreneurs like TuneCore’s Jeff Price are encouraged by the fact that fans can utilize these services to explore unknown and up and coming artists. Fans can listen to songs that they otherwise would never have purchased or never were even exposed to through services like Spotify, Pandora, MOG, etc. No, it’s NOT the big money that we all fantasized about when venturing into this volatile business, but it is some income. Even powerhouse artist managers like No Doubt and Nine Inch Nails manager Jim Guerinot think it’s great. He is optimistic about what the future holds with the growth and development of these sites. Jim Guerinot says, “Is it big money? I think it could be! I really do.”

I am really encouraged by this. Not only is there a clear development of another source of revenue for artists, it is only going to get better from this point forward. The more these platforms develop, and the more we work out the numbers, the more income you can receive as an artist. The key is learning how to earn the money. I have stated before, and I will say it time and time again, this is a VERY fruitful and exciting time to be a recording artist. Yes, recording sales are declining. Yes, labels are not looking for unknown artists. But, you have more access to your fans today than ever before. I remember when I was a kid and my world revolved around the music I listened to and the artist who made it. Whether I was wearing Z-Cavaricci pants attempting to look like the hot artist’s in very early nineties, or I was wearing a dew rag and Chuck Taylor Converse trying to emulate gangster rappers, it was all in an attempt to feel like I was part of that artist’s movement. Back was I was young and just a music fan, there were limitations imposed on us. You could only buy music, go see shows, join a WACK (and usually not truly official) fan club, or occasionally buy merch when you could find it (ordering it from magazines or the flyers included in the albums made it SUPER expensive). Die-hard or “evangelical fans” as we call them in Fame Wizard’s fan based pyramid will support you in any and every way possible. The less grip major labels and big corporate companies have on you, your music, and your career, the more you can control what you do and how many people you can get it to.  When looking at the business of your music career, always remember to think back to when YOU were a fan. How did you feel about the music you loved? How did your feel about that artist that you idolized, and wanted to be like? What would you have given to be able to communicate directly with your favorite artists? To communicate directly with other die-hard fans all over the world? To be able to help your favorite artist spread the word about their music to new fans who might not have heard of them? Or even to discover new music that sounded similar (I loved doing that!). Didn’t you ever want to show your support in different ways aside from just buying music or seeing their shows (remember that most artists did not really get much of that revenue)? Ever feel like you wanted to walk up to that artists and tell them “I am your biggest fan! I have all of your music!!” Well the fans that you are trying to reach still want to do that. The great part is today they have so many more ways to be able to show their support and help you succeed. People still want to be diehard music fans. You have your diehard fans out there. You just need to learn how to reach them, and learn how to allow them to show their support. Although there is much confusion and uncertainty with these new forms of technologies, the continually development and growth of the new music business paradigm allows you the ability to reach fans in an unprecedented way.

Check out some of the other breakdowns published by Rolling Stone…

All images by Rolling Stone

3 Responses to The new economics of the music industry

  1. jamie says:

    Hey Nice article, glad I found your site. I’ll be stopping by again.

    I think that artists and musicians need not be thinking about the new music business “Traditionally,” as that model is old and doesn’t work very well for most anymore.

    I think it’s more about building a lifestyle type business that allows us to have freedom and fulfilment doing what we love, for those who love what we do.

    It’s not just about making a cd, and trying to make sales at shows… It’s about creativity and detemination applied to continue to do what you love. If you approach it from that lens you’ll see that there is an almost infinite amount of possibilities available.

    we should connect and chat, swap knowledge and ideas from time to time. add me on skype: jamie-leger

    • The Wiz says:

      Hey Jamie – thanks for your comment, I couldn’t agree more. I’ll shoot you an e-mail before the end of the week to touch base and swap ideas.

  2. The TYNER Band says:

    Good lookin’ out!

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