How much revenue do artist really earn through traditional/non-traditional retail outlets?

By John Bejarano / November, 8, 2011 / 4 comments

I hear tech companies and outside the industry critics argue that the digital revolution is helping artists make more money than they could ever make with a major label deal.

Consequently, this digital revolution is giving the power back to the artist and cutting the chord of dependency on the record labels. This sounds great in theory for artists to have complete creative control over their own music, artistic direction, artwork and promotions, while keeping the largest share of the profits. Who wouldn’t want that? Especially with advances in digital marketing platforms giving artist and managers the tools necessary to help them promote their music to the masses.

We’re hearing stories of ”Do It Yourself” becoming recurring themes in the industry. With the digital music era upon us, let’s look at the numbers and see if all these great stories the media displays of artists taking their careers into their own hands are accurate or just fairy tales.

The federal minimum wage in the United States is $7.25 per hour. Let’s take a look at the info-graphic, which breaks down how many units an artist would have to sell to earn a US monthly minimum wage of $1,160.

If you take an artist with a major label deal but with, “low royalty points,” meaning they are a new artist and have signed an agreement entitling them to a low royalty profit on their CD sale (possibly due to not having leverage during the negotiation process) It would take the sale of 3871 units to equal a minimum wage salary.

Now, let’s look at a self-pressed CD. It would take 145 units (the info-graphic says 143, but that is incorrect) to equal the same $1,160 minimum wage salary for the month (145 units x $8 profit = $1,160), A profit ratio of 27:1 in favor of the indie artist.

So a major label artist selling a Gold album which is 500K units would make roughly $149,832 if he/she is on the low end royalty scale, while the independent artist would make $4,000,000. A major label artist with a, “higher royal point,” meaning a contract more suited in his favor would make $499,562 for selling 500K units of his/her CD.

Gold Selling Album (500K Units)

$150,000 in revenue generated for a major label artist with low royalty point deal

$500,000 in revenue generated for a major label artist with high royalty point deal

$4,000,000 in revenue generated for a indie artist self pressing his CD

While on paper this looks great and would have you believe indie is the way to go, who can resist the lure of 4 Million Dollars? Pundits will argue you can never make that kind of money selling your CD through a major label just based off CD sales. Unfortunately, the real world is not as black and white. While in theory the indie artist on paper should be making this figure, in reality, indie artist do not sell even half of that figure.

The likelihood that an independent artist will sell that many units is unrealistic. As it takes mass-market penetration, mass media, & mass awareness to reach sales of those heights. The indie artist will have to pay for various items out of that $4 million as well such as video, radio, publicity, marketing materials, distribution to get product carried by retail, and all the other departments a traditional record company would be providing.

Traditional, physical CDs are dying as a medium, so what’s even more telling of future revenue projections for musicians is the digital distribution models. As new artists whether on major labels or indie musicians are selling fewer physical albums than their previous counterparts, they are relying more and more on digital sources of revenue whether it be ITunes, digital sales or music streams through online radio stations such as Pandora or Spotify.

Again, using $1,160 minimum wage as a benchmark for artist revenue, let’s analyze how many streams it would take an artist just to make a minimum wage salary.

Rhapsody  849,817 streams

Last.FM  1,546,667 streams

Spotify 4,053,110 streams

A whopping four million plays for an artist to see $1,160 in revenue!

Yet countless articles speak about the digital music era ushering in new prosperity in revenue for musicians, unfortunately I have yet to see these new digital mediums make up for the loss in physical sales. Though to be fair, it is early in their life stages, but it also marks the shift in consumers mind from ownership over to a renting model.  A great example is Netflix where consumers buy into the idea of no longer needing to own a movie, they can merely stream it whenever they want from multiple sources.

The future of the music industry will revolve around creating experiences with the brand of an artist, as well as figuring out new methods to extend that brand beyond traditional thinking. It will be a fragmented industry, with no model working for every artist, which makes what we’re doing all the more exciting, as we position ourselves to help artist/managers, labels, brands, and products make sense of this new industry. It will be a process for artist/managers to learn how to properly reach consumers, create new revenue streams and cut the fat in cost, FCA will be your partner in this endeavor, as we provide services and departments that you would  receive from a traditional record company, we will be helping you do more with less.

This info-graphic just looks at income from one source, the sale of music as a commodity. Artists make money from multiple sources, but some areas remain exclusively reserved for major artist. Indie artist do not typically receive the brand, endorsement, commercial deals that major artist do. As brands look toward notable artist that can have a big influence on their product, thus requiring artists with strong brand recognition and loyalty, but there are other ways independent artists can begin to gain their share of cross promotion revenue.

That is a subject for another day.

- Hollywood Henry

4 Responses to How much revenue do artist really earn through traditional/non-traditional retail outlets?

  • [...] by a paid user or someone using the service for free.  This means it will take upwards of 3,500 streams of a single song on Spotify to earn $1.00 versus that same revenue for one iTunes song purchase [...]

  • [...] streamed by a paid user or someone regulating a use for free. This means it will take upwards of 3,500 streams of a singular strain on Spotify to acquire $1.00 contra that same income for one iTunes strain [...]

  • @ryanmbrewer

    spotify is a tool to garner exposure. not a revenue generator. it’s as simple as that. furthermore, if you’re an indie artist hoping to sell 500k copies of your album and make $4mil…you’re probably in the wrong frame of mind. i also find the evaluation on selling albums to make minimum wage maddening. an indie artist makes money from live performances (if you arent playing 80 shows a year bare minimum, you don’t deserve to be a full time musician. diy or otherwise) and from the sale of more exclusive merch (tshirts, posters, stickers, handwritten lyrics, etc) to hardcore fans. not simply album sales. it’s time to face this fact – if consumers want your music for free, they will get it for free. better from spotify where you at least get something that simple pirating. any argument otherwise is bogus and counterintuitive.

  • Henry "Hollywood" Cedeno

    To you it may be as simple as that, but to countless record companies and rights holders the issue is more complex than a simple promotional tool. While your recording cost might be relatively low, for others the cost are higher, even if they are signed to small indie’s so it absolutely matters how much money their music is able to generate in the various digital mediums, as traditional sales continue to die off, these other streams must supplement the loss. The minimum wage was used in context as a frame of reference to demonstrate how low the royalty rate really is for these emerging technology pay-outs, by comparing it to something everybody has a clear understanding of, ie minimum wage.

    This post was also just highlighting one revenue stream of the music industry, and one alone. It was stated as such as well within the article.

    “This info-graphic just looks at income from one source, the sale of music as a commodity. Artists make money from multiple sources”

    I am big advocate of touring and merchandise so I understand what your trying to say, which also was mentioned in the article, “The future of the music industry will revolve around creating experiences with the brand of an artist, as well as figuring out new methods to extend that brand beyond traditional thinking. It will be a fragmented industry, with no model working for every artist,”

    I do thank you for reading it and feeling passionate enough to comment on it.

    – Hollywood Henry

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