A deeper look at how much musicians make online

Information is Beautiful have just published a chart comparing how much artists and labels earn according to the royalty deals of various real and digital music formats. The results are interesting in themselves: to break the US minimum wage of $1,160 every month, a recording artist must sell somewhere between 1,161 and 3,871 retail albums (depending on the deal they strike with their label); but to reach the same figure through Spotify earnings in a month they need to hit over 4.5 million plays. iTunes, Napster, Amazon, Rhapsody and Last.fm all fall somewhere between those two extremes.

That looks like a pretty damning indictment of the digital model of music retail. But it doesn’t tell the whole story.

IIB’s chart doesn’t factor in the relative popularity of digital streams over physical purchases. You might need nearly 4,000-times as many streams on Spotify as you do physical purchases, but is that number achievable? How does it look compared to what is actually happening?

To be fair, it probably doesn’t look like a bridgeable gap at the moment: in the aftermath of Michael Jackson’s death Spotify registered around 10 million requests for Jackson’s music in 20 hours. It’s hard to imagine a scenario more likely to drive Spotify demand, but even then we’re talking thousands of dollars, not even tens of thousands.

But that still doesn’t tell the whole story. Online streaming of music is only likely to grow as a retail model so, even if royalty rates don’t improve (and, as the model increases in profitability, those rates can always be renegotiated), artist revenues are going to increase. At the time of its ‘Michael Jackson moment’, Spotify wasn’t even in the US, so was making those millions of plays solely on its recently-established European market. CD sales, even if they will persist in some small number for many years yet, look likely to decrease or bottom out in the coming years: no one is predicting that sales will increase.

What this means is that although the differential of 4,000 Spotify plays to one CD album sale looks a long way off now, it’s only going to get more and more likely as CD sales drop off and streaming grows. And it doesn’t take much of an increase in the per-track royalty rate to rapidly shrink that figure: while IIB quote artist royalties of $0.00043 per track for Spotify, that increases to $0.0022 for Rhapsody, meaning 732 Rhapsody streams equal one high-royalty physical sale.

So the present may not be rosy yet for artists selling their music online, but we have only just begun in the last couple of years to get this right, and it is only going to get better. What is really interesting from the IIB figures, and something that really should prick the ears of artists, is a comparison of royalty rates between labels and artists over the differing formats. The data for the following table are taken entirely on IIB’s chart. Because I’m interested here in the relationship between artist and label earnings, I’ve left out the entries for self-publishing formats.

Format sale price label revenue artist revenue label/artist
Retail CD (high-end deal) 9.99 $2.00 $1.00 2
Napster/iTunes, album 9.99 $6.29 $0.94 6.69
Retail CD (low-end deal) 9.99 $2.00 $0.30 6.67
Amazon/iTunes, track 0.99 $0.63 $0.09 7
Rhapsody fixed $0.0091 $0.0022 4.14
Last.fm* fixed $0.00015 $0.005 0.03
Spotify fixed $0.0017 $0.00043 3.95

*IIB admit themselves that they don’t fully understand Last.fm’s royalties model, so there is the possibility of error in these figures. Update: And they’re beside the point now anyway, since Last.fm have announced today that they’re giving up on streaming. (Thanks Halvard!)

I’ve added the right-hand column myself to indicate the ratio of total royalty earnings between label and artist. A figure of 1 in this column would mean that the artist and label receive an equal share of the available royalties from each sale. Figures greater than one reflect a larger share for the label; less than one a larger share for the artist.

Several things become clear from this. Setting aside the Last.fm figures as a potential outlier, iIt is clear that the best deal ratio-wise is still to get a good contract on physical CD sales but even then the label will make twice as much as you for each sale. Even a bad deal on retail CDs will give you a better cut, proportionately against your label, than the three main mp3 stores, Amazon, Napster and iTunes (no figures here for emusic). Track sales through iTunes, the model everyone gets excited about, offers the worst royalties ratio for artists of all formats surveyed: labels receive 7 times as much of the available royalties than artists.

Now look at the streaming services. They may, on a sale-by-sale basis, offer much smaller royalties than physical or even mp3 sales, but in terms of how much of the available royalty stream is going into artists’ pockets rather than labels’, they’re a much better deal. Neither artist nor label gets treated well by the current royalty models of the streaming services, but that’s largely a function of new technologies entering unknown markets: there’s not a lot of profit to spread around yet. But, within that, artists and labels are being treated on much more equitable terms than they are by any of the physical or mp3 options available: those 7:1 ratios under iTunes improve to 4:1 or better with Rhapsody and Spotify.

If those Last.fm figures as published here are correct they offer an insanely good deal for artists in the long run. But even if those numbers are open to question, Rhapsody and Spotify offer deals that compete well, in ratio terms, with those for retail CDs. If the market for streaming services grows to replace the collapsing CD retail sector, artists will rapidly see the benefits.

Update, 28 March 2014: Since this post was written, Spotify have revealed much more about how their royalty system works for artists. I’ve made some remarks on this in this post.

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32 comments

  1. Interesting as always, Tim. My concern with this, as with many similar discussions, is that they take the numbers across the sector without looking at genres and sub-genres. The data that you’re analyzing, as best as I can tell, is generalized across the field, but surely the data for classical music (as a niche market) and new music, improv, experimental music, etc. (as _substantially_ smaller niche markets) operate very differently. The mass data is normalized and generalized, with the few massive successes covering the losses of the rest of the field. In the niche markets, where this ‘balance’ doesn’t exist, I think the numbers are probably quite different.

    At some point recently I saw a statistic (I can’t seem to find it at the moment, despite the google) that something like 90% of digital downloads on providers like iTunes and emusic are of a miniscule percentage of the overall available mp3s (I remember it being in the single digits … 5% or lower? … I’ll see if I can dig up the article and repost here). If the big sellers are removed, the financial argument changes significantly.

  2. Hi James – Sorry the column headers aren’t clearer – I need to give the html a tweak at some point.

    Aaron – you’re absolutely right of course. One of the issues with the whole music/copyright debate that needs addressing is that almost the whole debate is framed – and thus legislation determined – in the terms of the big labels and big artists. (Disclosure: I’m working on writing something along these lines.)

    Emusic is slightly better on this score in that they only sell music on independent labels, so the niche labels/artists are slightly nearer the surface. I don’t know what their royalty rates are like, but I know that a couple of labels have terminated their arrangements because they’re not happy with those rates.

    The big question would be how that miniscule percentage of mp3 and streaming sales for niche artists measures up against physical units for the same artists. If percentage is bigger in favour of online retail then it is an improved way to sell: what needs to improve is the basic royalty rate. But if the numbers are pretty similar then the argument that online retail works because it raises the profile of smaller names just collapses.

    On the other hand, as Zoe Keating commented on Twitter: “I read this from it > Musos, if you still want a record deal, you’re insane.”

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  5. Hey Tim,

    Great post, are you talking about copyright royalties in the US? I’m confused at how an artist would otherwise get 9 cents on a iTunes download. It is important to realize the split between writer and performer if that comes into play.

    • Hi Chris,

      According to the original data used by Information is Beautiful – available here: http://bit.ly/DigitalRoyalty – the 9 cents quoted is the artist’s royalty from a single track iTunes download. On top of this there is the publishing revenue, which in this case is also 9 cents. The relationship between artist royalty and publishing revenue differs across the different retail models; they’re not necessarily the same.

      According to the same data, the writer’s cut is typically 50% of that publishing revenue. (The rest presumably goes to publishers, performing rights associations etc.? I’m not sure.) So as a performer you get 9 cents per track; if they’re also your songs you get an extra 5 cents on top of that.

  6. Hate to be a pesimist but..slowly but surely the internet is killing music. A server can be set up in minutes in any part of the world. MAC, ethernet and IP addresses are not static and can change on a regular basis. The bad guys have been ahead of everyone and will continue to do so. Music on the internet is free. Did I mention that music on the internet is free? There is absolutely no incentive for anyone to buy any music online. Talk amoungst yourselves some more while we grasp this concept. When good musicians get tired of this, so goes music. Hey, bucket drums, a washboard and louder yodeler may have to surfice. There is also 100 years of popular music in the can to keep the next few generations happy. I’ve been a musician for over 40 years but am damn glad I hold a degree in electrical engineering, you know, just in case.

    Jimmy

  7. Nice article! Finally someone who is saying the truth about how the music industry rips off the artists that make the music that the industry make billions from. Then they wonder why there is so much piracy. They just don’t get it. Give more of the money to the artists, pay them fairly, have most of the money go directly to them. Only then will you see piracy decrease.

    • Hey Average Joe,
      As the Manager/Father/Admin of a popular indie/underground Hip Hop artist, I can tell you the artist that do attempt to sell their music without the assistance of a label do make a larger piece of the pie, but unfortunately their songs get illegally pirated and or downloaded for free just as much as the artist signed to a label. So label or not something better needs to be worked out so every creator, every single person involved in the creation of any idea not just a song or a film, but everything from patents to copy writes need to be protected internationally, so everyone involved gets their fare share of the profits.

  8. So it seems the best option for a new band/artist is to avoid the label, use CD baby (get on digital download services and sel CDs) and a good marketing service (whether a manager, self, or internet marketing team). This on top of live shows and merchandise could support a decent artist and band. Bandzoogle could also cover a lot of this except live shows.

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  10. There is a new website out there that bucks the establishment of artist not getting their fair share. http://www.hotstylzmp3.cm actually gives the artist 80% per CD download and 54.5% per single download. Seems like they just took the greed out of it. They are looking for new independent artist, and they actually promote the artist worldwide, not just stuck in a digital catalog.

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  15. Sir –

    Thank you kindly for this article. Can you explain the line item breakdown you account for with CD distribution? The label typically makes much more than listed so I am curious to that part.

    Thank you.

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