Royalty-free stock photo courtesy of the smashing folks at Wix.
WARNING: If you’re an artist who prefers to record and/or perform for free and pay for all your own expenses, this article is not for you. For the rest of you, here’s the lay of today’s musical landscape and how many artists are now making money.
Hint: If you’ve ever ordered a value meal, you already have a sense of how some artists are making the most of their hard-earned cash to build bigger audiences and put more money in their pocket.
To start, I should clarify that making money from streaming generally plays a small to microscopic part in this income, because it’s true. Music streaming has changed how people now buy and consume music, and that change has all but killed music sales as a viable source of income for even established artists.
The Rise and Explosion of Streaming
Before the Stockholm-based startup Spotify launched its music-streaming service on Oct. 7, 2008, music streaming was still in its infancy and accounted for just 1% of global music sales. Physical formats (predominantly CDs) still accounted for nearly 80% of global music sales, and according to Nielsen SoundScan, digital album sales in the U.S. totaled $66 million in revenue and accounted for 15% of total album sales (a 5% increase from 2007).
Referencing the growth in digital sales, the IFPI informed artists in its 2009 Digital Music Report that “the music business is moving from a model based on sales to one of ‘monetizing’ access to music.” However, while the IFPI got the “access” part right, they sighted the wrong channel.
By 2013, Spotify had roughly 30 million active users and 8 million premium subscribers. One year later, according to the Recording Industry Association of America, music streaming revenues surpassed CD sales for the first time in the U.S., and from there, streaming pretty much washed the competition off the map like a torrent. From its highest sales point of 943 million units sold in the U.S. in 2000, CD sales plunged annually by 90% to 99 million units sold in the U.S. in 2016, when streaming represented 51% of total music sales in the U.S.. And across the board, sales of all music formats (CDs, LPs and digital albums) fell from 331 million units sold in the U.S. in 2001 to just under 169 million in 2017.
And Still the Steamroller Streamed Ahead
By June of 2018, Spotify dominated the streaming market with 83 million paying subscribers worldwide (up from 57 million in June of 2017), and were valued at $28.9 billion on the New York Stock Exchange. And they weren’t the only company into whose pockets music fans were stuffing handfuls of cash.
According to Statista, competing streaming services in 2018 included:
- Apple Music (19% of the world market)
- Amazon (12%)
- Tencent (8%)
- Deezer (3%)
- Pandora (3%)
- Google (3%)
- MelON (2%)
- Others (14% combined)
To paraphrase the 1947 song by the Ink Spots, it was all over for CDs except for the crying.
In 2018, U.S. retail giant Best Buy informed its suppliers that the company would no longer sell CDs, and for millions of people who loved CDs and still wanted them, the announcement felt like the final nail in the CD coffin. Yet streaming fans likely didn’t notice the hammering (or even care) because music streaming companies had captured people and their wallets by delivering the same two attractions that marketers have used for decades to sell everything from Polaroid cameras to DQ Blizzards. Namely, convenience and instant gratification, which made music streaming the biggest source of income for the music industry in 2018.
That’s “big” with a capital “B.”
In the first half of 2018, Universal, Sony and Warner jointly made $3.24 billion from streaming, according to Music Business Worldwide magazine. And according to a June 2018 report by the Merlin Network, the UK-based group that negotiates streaming services on behalf of more than 20,000 indie labels and distributors, the company had paid out $1.5 billion to its member labels.
Said another way, streaming had created a banquet for record labels and companies like Spotify where every course came as a dump truck of money. So it was no surprise that industry press offices and a few journalists had called streaming the savior of the music business. But what about the artists who actually create the music that generates all those billions? How big is their chair at the banquet?
“Musicians are essentially giving away their music in return for pennies.”—Kabir Sehgal
Sure, some top artists have seen major paydays from streaming. Taylor Swift, for example, reportedly earned between $280,000 and $390,000 from 46.3-million streams of her song “Shake It Off.” And according to a June 2017 Music Business Worldwide article, Ed Sheeran generated over $5 million for himself and his music business partners from a half-billion streams of “Shape of You,” the lead single from Sheeran’s third album, Divide.
Music journalists enjoy citing such figures as “evidence” that music streaming is profitable for musicians, and that may be true if you’re a chart-topping artist. Yet for the average artist with even a decent fan base, the music stream can represent a disproportionate trickle by which many artists would be challenged to fill teacup.
“Most musicians won’t generate that many streams in their lifetime,” wrote Grammy Award-winning producer and bestselling author Kabir Sehgal in a January 2018 commentary for CNBC. “Another calculation shows that 1 million plays on Spotify translates to around $7,000, and 1 million plays on Pandora generates $1,650… When people bought albums and even MP3s, there was a glimmer of hope that a musician could earn a decent income on sales. But now musicians are essentially giving away their music in return for pennies.”
Actually, it’s more like fractions of pennies.
As evidence, Digital Music News founder and publisher Paul Resnikoff posted an unsigned band’s submitted Spotify royalties statement to his website in May of 2016 to show that for 1,023,501 streams, the band earned $4,955.90 (or an average stream payout of $0.004891). Resnikoff further urged artists to share their royalty statements from streaming with him to “help other artists and the industry to get a better sense of what streaming platforms are paying.”
So the reality of streaming is that it’s a super volume game that so undermines streaming’s viability for average artists that Taylor Swift pulled all her previous albums from Spotify on Nov. 3, 2014, in public declaration that streaming is not good for artists. Still others cite streaming as evil and would see it torn down or abandoned altogether. Yet that seems unlikely to happen.
With smart speakers making music streaming at home even more convenient, and given the insatiable consumer appetite for new technology, a recent forecast by the Industrial Development Corporation predicts that the market for smart home devices will double in size between 2018 and 2022.
In other words, music streaming isn’t going to go away any time soon, which generally places streaming into the category of unpaid promotions for artists, like giving a free interview to a music journalist. Yes, such opportunities offer important exposure to build audiences, and if artists are lucky, they may even earn gas money for their trouble. Yet for the average artist or band hoping to earn an adequate income in the arena of fickle and marginally invested streaming fans, services like Spotify are simply an unrealistic way to reach that goal.
So how are some artists now making money and even thriving in the age of streaming?
The Niche Business Model
In 2013, Canadian-born cellist and composer Zoë Keating published her recorded music earnings as a public document on Google Drive to show that 92% of her income that year ($75,341.90) had come from music sales (singles and albums) on iTunes, Bandcamp and Amazon, with $6,380.82 from seven different streaming services adding a bit of gravy to the mix. Keating accomplished sales not by trying to appeal to billions of fans in the dispassionate gladiator arenas of streaming services but by differentiating herself and establishing such a deep sense of connection with a small, focused fan base that those fans were happy to pay more to buy downloads.
The niche business model is just simple math. You can build a connected fan base of 37,500 people happy to pay $2 to download a single (the average price for a single on Bandcamp) for $75,000 in total income, or you can attempt to compel 18.9-million people to pay $0.00397 per stream (the average that Spotify paid per stream in 2018) to earn roughly the same amount of money.
When CDs were king, artists could generally make the bulk of their income from record sales, and live performance was a way to promote those sales and make some additional cash along the way. With the collapse of music-sales income created by streaming, more bands now rely on live performance for income, and ticket sales are growing.
According to the concert industry trade publication Pollstar, 2017 was a record-crushing year for the live concert business. The top 100 worldwide tours alone generated 66.79 million ticket sales (up 10.4% from 2016) and generated $5.65 billion in revenues (up 15.8% from the previous year). Across the board, Live Nation Entertainment (the world’s largest event promoter) announced five consecutive years of revenue growth from 2010 to 2015 (when Live Nation reported $7.6 billion in revenue). The same year, Ticketmaster reported a 12% growth in global gross transaction value, and according to projections by Statista, live music ticket sales revenue will reach $9.1 billion in 2021.
Even small and relatively unknown indie artists are profiting from live performance. In Canada, for example, the National Post reported in March of 2013 that the average indie artist earned $7,228 from playing music 29 hours per week, which National Post reporter David Berry criticized as a ludicrously small amount of money. Yet pocketing $7,228 from part-time performance is a decidedly more profitable investment of time than spending months or years trying to compel 1,820,655 Spotify users to stream some song to make the same amount of money.
Apart from pure economics, the growth of live performance evidences a desire that music streaming can’t fill. In contrast to the dispassionate and de-personalized nature of streaming, live performance offers music fans an authentic, close and undiluted connection with their favorite artists, and the growth in live concert revenue indicates that fans are now craving this more and more.
Many artists don’t like the idea of paying to advertise their music for two main reasons (said here with the utmost respect):
- Advertising feels like “selling out” their integrity and principles.
- They think they can’t afford to advertise, or don’t want to spend a few dollars, but don’t want to say this. So they use the phrase “selling out” as a cover-up.
Instead, many artists prefer to make the occasional post on their social channels and hope to build fans and sales organically, and there’s nothing wrong with this approach. The problem is, social-channel algorithms keep changing, and that dramatically impacts organic reach.
When Facebook changed its algorithm in March of 2018 to prioritize “meaningful interactions” between Facebook friends, family and groups, millions of subscribers were shocked to discover that many posts from friends and family suddenly dropped off the planet. In fact, Facebook’s algorithms have changed so many times since the platform launched on Feb. 4, 2004, an entire industry of consultants and bloggers has evolved to help people better navigate Facebook’s constantly shifting landscape to improve organic reach. And Facebook isn’t the only social channel changing its algorithms. In June of 2018, Instagram changed how its algorithm displays photos and videos in user feeds, and Twitter followed suit in 2018 by changing its algorithm to choose the tweets a user is shown based on accounts with which a user has interacted the most.
Against this backdrop of uncontrollable vagaries, let’s compare two music-income scenarios—organic reach and paid advertising—based on reasonable and real-world numbers:
Scenario 1: Organic Reach
You’ve just finished an album and want to promote sales on your social channels. So you write and post on those channels over 4 weeks. If 2000 people see your posts and 10% (200 people) decide to check out and buy your album for $10 (the average album sale price on Bandcamp), that’s a gross profit of $2000.
Scenario 2: Paid Social Advertising
You spend $200 over 4 weeks to run an ad to gain more exposure past the filters of algorithms and expand your reach on social. If 5000 people see your ad and 10% (500 people) click through to buy your album for $10, the total is $5000. When you subtract the original $200 investment for advertising, that’s a gross profit of $4800.
Here’s why I’m saying “gross profit” at this point.
Your time is worth money. (Yup, it is.) So let’s work out the net profit comparison.
According to Trading Economics, the average hourly wage in the U.S. in October of 2018 was just over $22 per hour. (Your time may be worth more per hour, but for the sake of this comparison, we’ll leave it at $22.) If you spend 4 hours per week either writing posts for organic reach or managing an ad campaign, that’s 16 hours over 4 weeks for a total labor cost of $352. When you subtract this expense from the above scenarios:
- Net profit for organic promotion of album sales = $1648
- Net profit for paid promotion of album sales = $4448
Naturally, there are variables in either profit scenario that may increase or decrease your returns. If you’re already a headlining act or getting your songs played on the radio, you may not need to spend a dime on paid advertising to promote sales. Yet for the average band competing against so many others, I think you can see the income difference that paid advertising can make—even if you’re not an artist that performs live. Case in point:
In an April 2018 article by Louder magazine, guitarist Dan Hepner of the UK metal band Kill or Cure said that Facebook advertising was pivotal to kick-starting exposure and interest in the band, which was created as a studio-only project. “We had an album to promote and no prospect of gigging,” said Hepner. Yet by experimenting with small amounts of money and testing the effectiveness of different ads on social, the band built an audience, broke out of the studio and hit the stage so they could promote album sales and expand their audience for future song sales—all from a small initial investment in social-media advertising.
If you’re still with me at this point, you should give yourself a big pat on the back.
Seriously. Go ahead. I’ll wait.
I say congratulations for a few big reasons.
First, in a world where the instant gratification of technology has eroded and sabotaged attention spans across the globe, many artists won’t bother (or avoid) spending a few minutes reading an article like this. Instead, they go looking for answers in small, if not useless tweet-size bits and easily fall to any number of quick-fix peddlers willing to prey on their wallets. The fact that you have spent a few minutes reading means you’ve just placed yourself in a more informed position to make better decisions about your music and financial health.
(This is where you give yourself a loud, “Booyah!”) 🙂
Secondly, it’s easy for artists to buy into the tired, biased and purely situational notion that “there’s no money in the music business,” often regurgitated from the mouths of people who have never been in the music business, or gave up, or aren’t even musicians.
None of us live in a world of absolutes, meaning there’s no one “truth” by which absolutely all of us live and die regardless of how we feel. There are only common truths based on choices. People like to believe, for example, that certain professions guarantee a comfortable income and life, like being an accountant or civil servant. Yet if an accountant makes $100,000 a year but pays out $100,000 a year in bills and mortgage payments, then the argument could be made that there’s no money in the accounting industry. And if someone manages to put $50,000 into savings each year but hates their life, that’s the worst possible form of poverty that no amount of money can cure.
Joy in playing music is always a paycheck.
Yes, the naysayers are always eager to dismiss the idea as foolish, and enjoy dolloping out their “sage wisdom” by saying things like, “Well you can’t pay the bills with happiness!” So let’s return to the financial world for a moment longer and say that, by all the clear third-party evidence you’ve just read, you undoubtedly realize that you can make money playing music. It’s always a matter of the choices you make to realize that income, and one of the easiest and most effective ways to do that is by carefully managing your budget and expenses…
…which brings me to why I started this article by mentioning the value meal.
Consumers the world over take advantage of value meals every day for one reason:
They make budgets go farther.
If a customer was to separately order a burger, fries and drink at some food franchise, for example, and that franchise sells each item for $5, the consumer would pay $15. If the franchise offers the same three items value priced as one group order at $10, the customer saves $5.
The practice is called bundling—the same practice widely offered to people by car companies, computer sellers and the smartphone industry.
Record labels essentially offer bundling to artists as well for recording, promotional service, music distribution and/or sales. Yet in contrast to other industries, labels commonly offer their options in a costly and restrictive way to artists, which is why many artists avoid record contracts or struggle to break free from them. They choose independence for creative freedom and the potential for greater income through entrepreneurship, meaning that bundled services outside of the record-label system would greatly benefit indie artists, helping them get to where they want to go easier and faster by maximizing budgets and reducing expenses.
Here’s a simple scenario to illustrate.
You’re an artist who’s decided to capitalize on a niche market and perform live to both earn money from that and prepare to record and promote an album. So naturally, your first step is to secure a proper rehearsal space to practice songs and have a place to securely store your gear and save yourself (and any band mates) the time, trouble and expense of moving gear back and forth from a friend’s basement or garage every week.
Next, you Google local rehearsal spaces and manage to find a decent space with security and a few amenities like amps and a drum kit. You settle in and start rehearsing, and three months later, you’re ready to start gigging, but a few basics remain.
- You know you need a website with graphics and regular content.
- You know you need a social-media presence, also with regular content, images and other assets.
- You know you need press releases for music journalists and online magazines, and you know that you need demos, band bios and other material for club owners and concert promoters.
You know that all of these things are essential marketing tools for discovery, engagement and promotion for all future musical endeavors, but you also know that they take time and expertise, and even if you have that expertise, you know that time spent working on all that marketing collateral is time you’re not working on your music. So you search for an agency or individual who can cost-effectively handle it all for you, and what you find is what exists—or rather doesn’t really exist in the indie realm. Namely, companies offering cost-effective, bundled services to artists that serve a broader range of needs from rehearsal to gigs and beyond.
There are many music marketing agencies out there, for example, who’ll send out press releases and content on behalf of a band but can’t hook artists up with a good deal on a rehearsal space. Conversely, there are plenty of rehearsal spaces out there happy to take a band’s money and rent them gear but don’t have the creative staff or equipment to help bands with writing, graphics and other marketing essentials.
By and large, indie services for indie artists offer stand-alone pricing for a small range of services that, while often bundled within this small range, do not offer the convenience and savings of bundled services that cover the broader spectrum of artist needs from rehearsal to marketing support in all its forms.
As a result, the untenable nature of combined stand-alone costs forces bands to settle for less than they need and deserve to see the most from their work and music. It makes life more complicated than it needs to be by managing it all, and it even causes bands to give up when expenses stand too high and budgets don’t go as far as they could.
The good news in all of this.
Just as any industry tends to evolve to serve the changing needs of customers, so too is the music industry. Just as Spotify announced the formation of a new department in January of 2018 to oversee marketing and promotion on behalf of artist and label partners (without announcing any changes to its fractions-of-pennies-per-stream policy), rehearsal studios and other artist services around the world are slowly beginning to broaden their scope of offerings to help artists lower expenses and maximize budgets.
Simply put, the more services you can find under one roof, the faster and cheaper things get done for you. You have more time for your music and the stronger you align yourself with artists who are actually making money in the age of streaming.