The recent spat between Taylor Swift and Spotify had musicians debating about the changing landscape of how musicians make their bucks. Some are for paid online streaming services like Spotify, while others are on the Swifties bandwagon, who are of the opinion that they are being shortchanged.
In fact, Swift is not the first one who showed blatant dislike for Spotify. Thom Yorke from Radiohead also pulled some of his solo work from the service earlier this year and said that the streaming service hardly pays new artists.
Before the Internet, it was pretty straightforward how a musician earned their profits. They record a song, release it, and people just start buying the cassette, and later the CD of their single or the album.
However, today, the World Wide Web has made it amazingly easy to download pirated music, hence, music streaming services like Spotify exists — to try to make it affordable and easy for listeners to listen to their favourite songs — legally.
So, how do musicians today make money?
One of the biggest revenue sources for an artiste is from playing live shows. A ticket to Ed Sheeran’s concert in Kuala Lumpur cost about RM298. For a crowd of 10,000 fans, the event would have made close to RM300,000 on tickets alone. Usually a tour involves live shows in a few locations and countries. A single tour can rake in millions for an A-list artiste.
Pop-country princess, Swift, grossed a record-breaking US$150 million for her most recent Red tour, with an estimated US$30 million going to her. Previously, her Fearless tour and the Speak Now world tour made US$63 million and US$123 million, respectively.
In 2012, Madonna’s MDNA tour grossed US$305 million over 88 shows, Lady Gaga grossed US$227 million on her Monster Ball tour and most recently Beyonce’s Mrs. Carter Tour grossed US$229 million over 132 shows from 2013-14.
Publishing and licensing
With fierce competition today, and also the declining physical sales in music, musicians are finding it increasingly hard to make a decent living, especially for those who are new in the industry.
Publishing rights becomes an attractive means of income to make up for the loss in sales. To simplify the matter, musicians earn money through royalties. Royalties are the payments that you receive in exchange for letting people use your intellectual property, in this instance, songs.
According to an article published on Rolling Stone, if a song gets streamed 60 times, the songwriter receives 9.1 cents in US dollar in mechanical royalty payments. And the performing artist gets 38 cents (or splits that money, half and half, with a record label, as per contract).
If the writer is also the performer, like Swift, she will be entitled for performance royalties whenever a song of hers is played on television or the radio, the rate of which varies depending on whether it’s terrestrial radio, satellite radio, or internet radio. For example, if her song is being performed by someone else on a show like The Voice, she would get paid for that. Additionally, she receives a licensing fee and royalties on occasions when a song of hers is used in a film or advertisement.
Digital and physical record sales
For more than two decades, CD sales have been one of the most profitable channels for artistes and record labels. That is until Internet, MP3, piracy, Napster, iTunes, YouTube and Spotify stole the show in the last 10 years.
Up until October 2014, not one artiste has gone platinum in their album sale, making this a grim year for the music industry.
Josh Grier, a veteran music-business attorney in the US spoke to Rolling Stone and revealed the maths behind the scene. Physical retailers take about 30% of the suggested retail price, and the remaining 70% is split between the artiste and the record label.
For example, Datuk Siti Nurhaliza’s latest album, Fragmen, is sold on iTunes for US$5.99 (RM20.25). Apple takes 30% off every sale, and similarly the remaining 70% is divided between the Nurhaliza and her record label, Universal Music Group.
By international standards, artistes typically receive 12% to 20% of sales. The more popular the artiste is, the better her negotiating power will be. The exact ratio is as per the agreement between the musician and the label.
Let’s assume that due to Nurhaliza’s popularity, she would command the higher percentage of 20%. She would have made a mere RM2.83 per album download on iTunes, and RM5.20 per physical CD sold (price at RM36.90).
When Beyoncé launched her self-titled album on iTunes at US$15.99, Apple typically takes a 30% cut of sales, which would leave 70%, or a little over US$11 per album sold, for Beyoncé and her label. After the statutory 9.1 cents for publishing on each of the album’s 14 tracks, Beyonce may only be taking about US$2 of the remaining US$10 per unit.
In this age where everything can be pirated, from music to merchandise, more musicians are focusing on selling things that cannot be pirated – themselves. Artistes are engaging marketing companies and agents to hook them up with deals that match their personality.
When Cee Lo Green first started out as a solo artist, he was pretty low profile, until he engaged Primary Wave to cement his profile and book a bunch of deals that pay him millions.
Today, the industry has upped their game where traditional endorsement is considered a passé. Artistes today are more involved with the brands than merely showing up for a photoshoot. Last year, Beyonce and Swift both became “brand ambassadors” for Pepsi and Diet Coke, respectively.
Beyoncé walked away with a cool US$50 million for the deal, while the price tag on Swift’s deal is still unclear.
Other than getting a cut from the ticket sales during tour, artistes also make money from the merchandise they sell at the venue.
Especially for singers and acts that appeal to the younger audience, merchandise can really make a killing. From keychains to sweatshirts, Swift-branded merchandise is a thriving business. Billboard estimates she sells US$17 of merchandise per ticket at her shows, helping bring in an additional eight figures per year.
A touring band like Bon Jovi has been reportedly making an estimated US$2 million per year in online merchandise.
Music streaming services
The dark horse of the music industry and the much controversial debate is on music streaming services. There are two school of thoughts on this — one group thinks that as long as fans get to listen to their music, which will inadvertently drive up ticket sales for their tour, is sufficient. Another school of thought led by Swift feels that they are not being paid farely by these services and it is actually hurting their physical album sales.
Sheeran’s latest album, X, has so far generated more than 433 million streams on Spotify, while his previous album + has notched up more than 435 million.
That translates to a total payout of more than US$6.2 million to his label and publisher from those two albums alone, although how much of that Sheeran earns will depend on his contract terms and songwriting credits.
Because Spotify also offers free accounts based on advertising revenue, its formula for royalty payment is more complicated than a simple pay per stream method. Rights holders generally make between US$0.006 and US$.0084 per stream. Rates at other streaming services like Rdio and Beats Music are comparable.
Last year, Swift only made US$500,000 for domestic streams on Spotify last year, said her label boss, Scott Borchetta. However, Spotify CEO Daniel Ek said that Swift was projected to earn US$6 million a year if she did not pull out her songs from the service.
Conversations about musicians’ income almost never distinguish between “gross” income and “net” income. Nobody really knows what goes on behind the stage — What bills are the musicians really footing, and how much of it is the responsibility of their labels? What about bands? Are the splits equal, or do the frontman gets a higher percentage?
Every artiste has different agreement with their label, agent and other parties involved. Before piracy and the Internet, musicians may be selling more CDs and albums. Today they are selling more digital downloads and singles.
The loss in physical album sales is inevitable. Instead of holding on to the previous way of business, artistes should move on and innovate their ways of replacement their income.
Perhaps, musicians should not just look at streaming services as a source of revenue but a channel to market themselves. The more people listen to them online, the higher the chances of them buying tickets to the live shows, buying merchandise and also vote for them for awards. What better way to promote yourself and get paid at the same time?
In the words of Dave Grohl from Foo Fighters, who will be playing two nights at Wembley next summer, “I want people to hear our music, I don’t care if you pay US$1 or f**king US$20 for it, just listen to the f**ing song. But I can understand how other people would object to that.”