In 2021, How Musicians Make Money – Or Not at All –
The word that was once the most boring in music is now the buzziest.
Copyright, which is the right to use songs or albums as creative works, is a complex web of rules and processes that the music industry has. The players are more diverse and intricate than the average fan might realize. While Congress is mulling over Music Modernization Act and plagiarism fights between major music songwriters are raging, Wall Street is scrutinizing Spotify’s inability to be profitable as a public company. Wall Street is also scrutinizing Spotify’sa href=” https://www.rollingstone.com/music/music-news/spotify-hits-180 million users and loses even more money –703781/”>inability to be a public company. It’s important to have a basic knowledge of the U.S. financial system to help you think about its future.
Let’s start with “Royalties”, which are sums that rights-holders receive when their creations are distributed, embedded in media, or monetized any other way. This Rolling Stone guide will show how digital musicians, producers and songwriters make their money.
Recording and writing music
A song is a song for music listeners. For the music industry, each song is divided into two distinct copyrights compositions, including lyrics, melody, and audio recording, which means the audio recording.
Let’s begin with the last. Recording artists and record labels own the copyright to sound recording copies. Other types of sound recording licenses can generate royalties. These include performance rights (for songs to be played on streaming services like AM/FM radio, satellite broadcast radio, and Internet radio), reproduction rights (for the sale of physical CDs or digital files), and sync rights (for song usage in film, television, and other media).
These parties might not have anything to do with the composers of the lyrics or melody and, therefore, the copyright. Sometimes they are the same party, in which case the lucky party receives double the cash flow. If they are separate, as with most chart-topping and pop songs, the sound recording copyrights are split between artists or record labels. The composition copyright is divided between the songwriters or publishers. For example, Joni Mitchell gets composition royalties, while the band receives sound recording royalties.
Both types of copyright kick in when a listener hears a song. This generates two sets of royalties which are paid to each party. This handy chart shows both the earning and receiving of copyright. Citigroup’s research team created it for a recent report about music finances.
… and Getting That Music Posted
Let’s look at the most common ways listeners contribute money to music creators. When someone purchases a song on iTunes, Google Play, or another digital store, they pay creators both through copyrights. These rates depend on the size of the distributor, label size, and any other negotiations between them. Sometimes labels partner with agents who can license larger catalogs at once. This saves time and effort but incurs an additional fee.
The same dual copyright payout occurs in the case of on-demand streaming and when a song plays in businesses and retailers, such as grocery stores, hospitals, or the background of a startup website. These deals will pay a specific percentage depending on the service provided and the negotiation power of all parties.
A.k.a. synchronization is the use of music in commercials and film. “synchronization” involves a license negotiated between content producers and publishers/songwriters. A fee is a payable upfront, and royalties are paid after the film or TV show has been distributed. Sync licenses are a lucrative option and can also be used to discover under-the-radar artists since most filmmakers choose music based on personal preferences.
Radio services are subject to a different process. They typically use blanket licenses with buffet-style payment rates. The current copyright rules for broadcast radio (AM/FM) and Internet radio (Pandora and SiriusXM) make an important distinction. Terrestrial radio broadcasters are not required to pay sound recording copyright holders, but the second group is. This is a significant difference that the music industry considers unfair. When a song is played on the radio, it makes money only for the writers and not the artists. So when Counting Crows’ “Big Yellow Taxi” is played on AM or FM radios, Joni Mitchell gets paid while the band does not.
Perform Live Music
Live events are rapidly becoming the most lucrative venue for musicians in today’s digital-music era. This is because dedicated music fans want more intimate experiences with their favorite artists. This is why tours are getting bigger, and music festivals draw crazy crowds, even though they have the same lineups. This is also why ticket and concert companies such as Live Nation are growing like mad.
While album sales are declining and streams may only pay fractions of cents at a time stream, live shows — whether it’s festivals, tours, or one-off concerts — command some of the most expensive tickets.
Musicians were not often interested in being associated with corporate brands during the golden age of rock and pop. But that is changing as rap has become America’s most beloved genre. Brand partnerships allow artists to endorse or sponsor a brand they like and provide an additional revenue stream. YouTube monetization is another way for musicians to make a side income. YouTube videos get a share of the revenue from any ads they tag onto them. Psy’s “Gangnam Style” reportedly earned $2 million from the 2 billion YouTube views. YouTube’s music head Lyor Cohen stated last year that YouTube’s payout rate is as high as $3 per 1000 YouTube streams.
Fashion, Merchandising and Other Direct Sales
For decades, artists have used the easy-to-make-money strategy of selling non-musical products such as perfumes, paraphernalia, and clothing lines. But in today’s digital age, musicians can be more creative with their methods. They don’t need to limit themselves to traditional merch tents at concerts or posters on a site.
Artists can also ask their fans for money directly via crowdfunding or by creating customized communication channels with them. This is not possible on social media platforms such as Instagram and Twitter. The Voice star Angie Johnson has raised $36,000 via Kickstarter to record an album. More groups are releasing apps and subscription packages to their music or selling bespoke products such as artist-curated festivals, email subscribers, or limited music releases. Pitbull has his very own cruise.
Also, where’s all the money?
These are just a few of the many ways artists can make money today. However, it is now much easier to change lanes and produce or write music for another artist. This happened with Bebe Rexha’s transition from songwriting to recording, or the American R&B hitmakers’ move into South Korea’s Kpop industry. Although this complicates the royalties splits, it still brings in significant income. Many streams of income available to musicians are greater than ever before.
Yet, the average artist today is still short of cash.
Recent research shows that U.S. musicians take home only one-tenth of national industry revenues. This is due to streaming services, which, while reinvigorating the music industry overall, aren’t very lucrative for artists unless they are chart-topping figures like Drake and Cardi B. One Spotify company filed stating that the average per-stream payouts are $0.006 to $0.0084. Similar numbers are available from Apple Music, YouTube Music and Deezer. This creates a situation where big artists can make millions while small ones cannot earn a living wage. This is not a new phenomenon — although one could argue that it was the same in every era of music, the numbers are much more dramatic.
Another reason is the sheer number and complexity of middlemen, brokers, and other players in the music business. The black box of royalties in the streaming era is another reason. This pit of unpaid cash has yet to reach artists due to faulty metadata and poor communication between the various services involved in reporting proper numbers. Its value has been estimated at the billions. If you trace all the dollars, the artist gets around 10% of the money. “That’s amazing,” Jason Bazinet, Citigroup’s media and satellite researcher, tells Rolling Stone. “These young artists — they don’t understand the intricacies of the music business or how the dollars flow. It’s unlikely that you will make that much money. The whole thing is leaking.”
Good news: The music business has accepted streaming as its main revenue source and is now poised to adapt. Many analysts and experts believe that the business will become more efficient and lucrative through rewrites of laws, new royalties negotiations and mergers. The bad news is that no one knows when it will happen.