

Release day economics - tbassetto
http://uniformmotion.tumblr.com/post/9659997039/release-day-economics

======
gravitronic
I always like music industry posts showing up on HN as it's my view that the
startup industry is in some ways like the music industry of years past.

Competition is fierce. Most start out working on their (startup or music)
product part-time until the product becomes popular enough that it is a "hit".
At that point the entrepreneur may be lucky to end up funded ("signed") which
will help their ability to pursue their product full time and spend the
marketing dollars to reach a larger audience.

Thankfully it's unlikely the VC/entrepreneur relationship will become as
twisted and exploitative as the major music industry's relationship with
artists as being funded does not suddenly unlock access to an entire set of
verticals inaccessible to unsigned artists. Or does it?

~~~
rasmusrygaard
I think the main difference between the two is that entrepreneurs have a
viable alternative in working for an established company (if we can forget
about the lack of jobs for a minute). Yes, musicians can work day jobs too,
but there are hardly as many openings for professional musicians as there are
for professional programmers. The startup analogy is valid, but for recording
artists, taking the leap is often in direct conflict with whatever pays the
bills.

------
alex1
I didn't see any mention of songwriting royalties, which can be very
significant if they also write their own music.

The songwriter/composer of a song (not a recording of a song, but the actual
melody, lyrics) gets a performance royalty each time a song is played in
"public" (internet and broadcast radio, in the elevator, at a bar, etc). This
is the royalty BMI, ASCAP, and SESAC collect. If the song is recorded and sold
by someone, the songwriter gets mechanical royalties for each unit sold. If
memory serves me correctly, the compulsory rate right now is 8 cents per unit
sold. If the song in any form (recorded, sung by a drunk dude, etc) is used in
something like a movie or a TV show, the songwriter gets a synchronization
royalty. I've seen sync royalties range from $5,000 to $250,000. Songwriters
are usually signed to publishing companies. Publishing companies are mostly
owned by record labels themselves (or their parent companies). Publishing
companies take a cut of the songwriters' royalties, but not as big as the cut
record labels take from recording artists. I've seen rates ranging from 10% to
30%.

On the other hand, the recording artist gets pretty much whatever the record
label decides to give them as described in the recording contract. The label
will own the song recordings, not the artist. Recording artists (and record
labels) do _not_ get any royalties for public performance. Yes, when a song is
played on FM radio, the record label doesn't get a penny. The _only_ exception
to this is when the song is played on "interactive" services on the Internet.
This is the royalty Sound Exchange collects. In those cases, both the
songwriter and whoever owns the copyright to the sound recording (the record
label) get royalties. The main sources of revenue for the label are from these
royalties, and from selling the sound recording in stores and online. They
take a large chunk (60-70%) of this and distribute the rest to the song's
recording artist, producer, etc.

~~~
burrokeet
the compulsory rate in the US right now is 9.1 cents for songs up to 5 minutes
in length, and 24 cents for ringtones.

syncs right now go from free to maybe 50k, unless it is a massive song (thing
the Beatles) in a massive campaign or feature. the average network tv sync
right now is prob around 5 grand all-in, meaning 2.5k goes to the owner of the
sound recording copyright (the label or artist) and 2.5k goes to the owner of
the composition (the songwriter(s) or publisher(s)).

Music publishers can take anywhere from 10% (for an admin deal) to 50% (for a
co-publishing deal). Bigger percentages involve advances (recoupable payments
against future royalties), but also much longer terms (5-10+ years).

Songwriters don't get publishing deals unless their songs are being performed
or sold, and there are lots and lots of indie publishers out there, along with
the majors as you mention.

In many territories outside of the US, artists and master recording copyright
owners do get paid for public performance - in the UK for example PPL is one
society that pays some of these rightsholders for public performance.

~~~
zcrar70
Just to add a little more detail:

> Music publishers can take anywhere from 10% (for an admin deal) to 50% (for
> a co-publishing deal). Bigger percentages involve advances (recoupable
> payments against future royalties), but also much longer terms (5-10+
> years).

Note this is for the publishing royalties only (not performance rights)

And on @alex1'- post:

> The label will own the song recordings, not the artist.

This would depend on the contract, though it's true that in most cases today
the label would own the recording.

In some cases the artists choose to sub-license the recording to the record
company, in which case he/she/they retain rights to the recording.

Finally, as is well known now artists often get an advance from the record
company on signing a contract. This advance however is deductible from any
earnings the artist would receive. Sometimes the advance is used to pay for
the recording or equipment or even to finance a tour (the tours are usually
not financed by the labels, aside from the 360 arrangements someone else
mentioned.)

No-one has mentioned the artist manager fees - I'm not sure of what the
figures for that are, but I think they range from 10% up to 50% (of the
advance) in some very rare cases.

In short, in most cases making a living as a musician/recording artist is hard
to impossible. Many semi-successful indie bands don't earn much more than a
minimum wage job, with perhaps similar long-term prospects. If you make it
big, you're rich but anything else is not a great existence. Oh, and the
record companies often struggle too (both majors and indie these days.)

------
burrokeet
If the band members are also the authors/composers of their recorded material,
they will receive slightly more than what is suggested here, since they will
also be due mechanical and/or performance royalties from various services.

That being said, it's the best/worst time to be a musical artist - you can
distribute yourself online (the biggest music marketplace) and receive a MUCH
larger chunk of the revenue than ever before. At the same time, you are only
going to sell 24 albums, because it takes a label or label-like organization
to sell records, and because of the former point, you are now participating in
a marketplace with a selection of products an order of magnitude greater than
a decade ago.

~~~
unohoo
>>it takes a label or label-like organization to sell records

with the new digital distribution methods and physical media almost on the
decline, record labels hardly 'sell records' any more. They just do a huge
marketing push for the artist.

If indie musicians can figure out a way to market themselves, they really
wouldnt need a record label.

~~~
burrokeet
sorry but i disagree - that huge marketing push is what sells the records -
that is what labels do, whether they are majors or one-person indie labels.

"marketing themselves" is a pipe dream that has only worked for a tiny
percentage of indie artists - a huge industry has built up around this effort,
and just like the major labels made lots of money off of their artists, this
industry is making lots of money off these indie artists, just exploiting
economies of scale of artists instead of consumers.

~~~
ivancdg
No question that this is true.

And there are a lot of people making a lot of money on selling 'self-marketing
opportunities' to independent musicians.

But to compare that industry ('huge'?), in terms of revenue, to what the
majors did in their hey-day is an exaggeration.

The model of selling services to indie musicians has not yet surpassed the
model of selling music to customers.

But perhaps that's where we're headed? That's a depressing thought.

------
ivancdg
Spotify is such a rip-off for musicians; I love the way these guys highlighted
that in a light-hearted way. But the economics of the alternatives are not
going to make anyone rich, either.

For future reference: if you sign-up via CDBaby, there is a one-time fee of
$35 (or $55 if they create your bar-code) and you are set-up with iTunes,
Amazon, etc, without a yearly fee. Even though Derek's gone it's still a good
deal.

Also, you should seriously consider contacting Magnatune. If they like your
music you can be on all of those platforms for free. And John Buckman is a
very nice guy. Et en plus il parle le français comme toi et moi.

~~~
iand
Even though they look like ripoffs with their tiny payments Spotify and other
subscription models have a few advantages for the artist over download models.
For a start the artist gets paid even if the listener is just trying the
track, hates it and never listens again.

The main advantage though is the open ended payment model. The OP should
compare the 20 year revenue for each track. I listen to some tracks from 1996
every week and spent the period 1996-2001 listening to them multiple times a
day. I'm not unusual (just getting old! :)

~~~
earbitscom
There are definitely albums I have listened to so many times that the
streaming payments would outperform the purchases, but I've also bought some
albums more than once, too!

Most people, and most albums, though, are not going to outperform those
economics. Simply put, $5-10 a month for access to 15M tracks is a joke and a
big loss for the industry. I look forward to the labels realizing it and
walking away.

~~~
danielsoneg
Yeah, but nobody listens to 15M tracks. They listen to a small subset of those
tracks, and that subset differs from person to person.

Heck, for fun, let's say you were to listen to music 8 hours a day every day
for a month (~30 days) -

    
    
      8hrs * 30 days = 240hrs
      (240hrs * 60min/hr) / 3min/song = 4800 songs.
    

Basically, you're paying $5-10 for a maximum of 4800 songs - or, between $.001
and $.002 per track, if you listen constantly.

Or, from the other side: Spotify's premium is $10/mo, which comes with no ads.
They pay $.003 out to each band - let's just pretend they follow Amazon's
'agency' policy of a 70/30 split, so Spotify's making roughly $.001 on each
song, and it's costing them $.004 total for that song (hypothetical - just
stick with me). If we assume they're not losing money, then an average $10/mo
user must listen to at most 2500 songs per month, and if Spotify's costs are
higher than $.001 per track, the number goes down.

Point is, the industry's providing _ACCESS_ to 15M tracks, but they're only
having to deliver ~2500/mo - but that's a different bundle of 2500 songs for
each user. It MAY make sense from their end just to call it 'unlimited' and
rely on the fact that the user can't consume music fast enough to really upset
the economics for them.

(Incidentally, if you were to decide to listen to each of those 15M songs
once, you'd wind up paying:

    
    
      15,000,000 Songs * 3min/song = 45,000,000 min
      45,000,000 min = 750000 hrs = 31250 days ~= 1027 months
      1027 months * 10/mo = $10,270
    

The record labels, then, value their entire collection of music at $10,270 -
if you only listen once!)

~~~
earbitscom
I think the _access_ to 15M tracks for free, $5, or $10, makes them seem
pretty worthless. That's my issue.

~~~
iand
So having access to 5 billion web pages for a few dollars a month makes them
seem equally worthless?

Not sure this is any different to being able to listen to any radio station in
the country for free. I don't think that devalues music.

~~~
earbitscom
I am not sure how I feel about the first. On the second, it's very different.
You don't get to pick what you want to hear, when you want to hear it. So, you
discover something new on the radio, if you want it, you go buy it. You don't
just sit and wait for it to come on again. With Spotify, you hear something
you like, you have no reason at all to support the artist with a purchase, and
you'd have to listen a ton of times for them to make any money.

------
physcab
Consider for a moment this alternate viewpoint. What if submitting a song to
<insert music distribution service> was kinda like submitting a blog to
<insert blog service>. You don't get paid for blogging, but if you produce
enough good content, you can create an audience and then sell them other
things later on. Smart bloggers give out their content for free, then charge
for premium services and products like consulting, books, podcasts,
screencasts, merch, etc. Seems like the same model could be applied to
independent artists as well. Then the questions become, which platform can you
use to stay connected with your fans? Which platform will allow you to upsell
other services for which you can make real money on? Which platform allows you
to publish your content effortlessly to a potentially limitless audience?

~~~
earbitscom
Plenty of artists do that, but some prefer to keep their content behind a pay
wall, to use the same analogy. Both are viable models and should be respected.

~~~
zcrar70
I'm not sure how much giving content away for free is a viable model. It
depends on the meaning of viable; it isn't viable financially, but it can be a
worthwhile sacrifice if you think that more people reading your content is
going to mean more people are going to pay for it. More often than not, that's
not the case though; a lot of the content we access is free, and the author
won't get remunerated for it.

This is great for consumers, but it makes it a lot less interesting for
producers. I'm not sure yet what the impact of that is going to be, but I
suspect that it could mean a decrease in the quality of content overall, which
would be detrimental to everyone.

------
ChuckMcM
I like these posts as well, as its a window on the economics of their
information content (in this case music).

They didn't mention how long it took them to come with this album, but since
the web site says they added a drummer at the end of 2010 and this album was
done in April of '11 we will call it 4 months work of three gentlemen best
case, and if they really only finished it here at the end of August it would
be 9 months. If we use the outside estimate of 9 months, and these guys had
'regular' jobs, lets say they would have earned $60K/year each with benefits,
so call it $67.5K/year each for 9 months at an annualized pay of $90K. Note
the numbers here are just guesses, I know they are in Europe and may have
access to other healthcare options.

So had they worked at this mythical job they would have earned $67.5K * 3 or
$203K. They opted instead to spend that time making an album so now, 9 months
later instead of $203K in value they have this album with 9 songs on which
they own the copyright for the next 75 years. Its an interesting exercise to
compare that 'foregone' revenue for the possible future value of the album.

They can make as many copies of this album as they want and sell it for what
ever they can get. Now they state that Spotify pays them .003 euros/play,
Deezer .006 euros/play. Lets say it averages out to .0045 e/play. To keep
everything in dollars, 1 euro => 1.43$ according to google, so .0045 E => 6.4
cents.

The question one can ask is this "Would they have been better off working for
9 months? Or making this album?" We can assume that as soon as they release
the album they gave up music forever and went back to a 9-5 job at $60K/yr.
(or not but that would be one way to look at it). In financial terms, when
does this album they created give them 203K $ of value back?

A 6.4 cents/play That is 3.2M plays. Over the life of the Copyright of 75
years, that is 42K plays per year on average or 115 plays per day. So if they
had 115 Spotify/Deezer fans who played one of those nine songs every day, they
would earn back exactly as much money as they had 'not made' by not working
9-5. Conversely they would have to sell 29,000 albums on Amazon or 22,500
albums on iTunes to earn back the same amount of money they would have made.

So a couple of things that are also important. First, they don't have to do
anything to manufacture copies of the album. And secondly, their time is
available to add another album to this 'stream'. (if the financial analysis of
making the this one pans out).

What this illustrates is that music is about the long tail, not the up front.
If you make back all your investment in making an album in the first year,
then your 10 year rate of return will be better than any other investment you
could possibly make. What is more you can keep feeding albums into the system
at what is your marginal cost of living (eating, thinking, composing,
recording). This multiplies your revenue stream going forward.

The record companies used to play an interesting game with musicians, it
worked like this:

Give us the 75 year rights to this music and we'll pay you a big chunk of
change right now.

Now the criminality was that the record companies created accounting systems
which obfuscated additional revenue to the point of not paying the artist
anything. However in this world its quite different. If these guys turn into a
'huge success' and sell a million copies of their album on Amazon their are
going to make nearly $5M on a $270K investment. In the past they might get
$50K in 'upfront royalties' and then never see any of that $5M.

One thing they might do is sell the 'rights' to this album for $203,000. They
are revenue neutral at that point and if the album does poorly they are
protected from 'losing' money but if it does well they don't stand to gain
from that. Risk arbitrage, its what VCs do, it is what music companies do, its
what you and I do when we fill up our gas tank at half full rather than wait
until the car is empty.

Being a musician is hard work. And early on when you are finding your voice
and your fans, its not very profitable (in fact if you don't love doing it you
shouldn't because if you die early all you will have to show for it will be
memories of creating that music.) However on the flip side, down the road, it
can be hugely profitable with _little if any additional investment_. You
develop a following and your numbers get better, no need to go out can cut
down additional vinyl trees :-) or schedule another "pressing" of your album.

It is this sea change that musicians need to understand, if you don't 'sign'
with a label you are keeping control of your profits and managing the risk
yourself. If you do sign with a label you can probably get more money up front
but you don't benefit from the upside. Distributors make money on leveraging
things like PR where it costs the same to promote 5 different albums at radio
stations as it does to promote one. They work to amp the distribution so that
they make more money. As a musician/owner you can do that but its not as
efficient. The better news for musician is that the long tail money ends up in
their pockets if they keep the rights, people underestimate that but it can
get to be serious cash.

It will be interesting to follow these guys as they develop to see how it
works out.

~~~
alex_c
I don't have any numbers, but I strongly suspect music sales tend to drop off
pretty quickly: a big splash (if you're lucky) that will quickly slow down to
a trickle. So IF you make back all your investment in the first year
(obviously not guaranteed), the rest may still be fairly small. If you don't
make it back in the first year, you might never make it back.

~~~
ethank
Average drop off is around 60% week over week. This did not used to be the
case however. Your window for selling is about 3 weeks right now unless you
miraculously have a "deep" record with a lot of singles.

But that is expensive to market.

~~~
zcrar70
> But that is expensive to market.

Exactly - the estimate above just counts the time to make the album towards
the cost, but there are many additional costs to add to that: from a financial
perspective, the cost of pressing CDs, making sleeves, any marketing costs
(making posters, paying for designers, buying ad space, perhaps hiring a
marketing person), hiring a plugger (someone who plugs your record to radio
stations, magazines, etc. for plays or reviews). For someone self-releasing,
the time to do all that themselves (plus some minimal fixed costs, e.g.
printing, pressing CDs for sales at gigs, etc.) would need to be accounted
for.

Finally, there would still need to be some minimal admin around the publishing
to make sure the author rights are protected. I'm not sure there's a DIY route
for this other than setting up your own publishing company and getting someone
to administer it (but there may be.) This would also take time and/or reduce
earnings.

------
pherk
Seems like a very tough business to be in. Guess, how do upcoming bands manage
to make it through given that most people on the band are pretty much
committed to it full time.

~~~
njharman
I would not consider this a business. In fact, the drive to monetize art is at
the root of many problems with copyright expansion, culture privatization, and
art quality.

~~~
gankit
How else would artists get paid?

~~~
shabble
The usual argument is either through patronage/sponsorship by some entity with
the money to spare that enjoys their art, or by working in another field and
making their art essentially as a hobby.

Whether that is a good thing or not is a much more complicated question, and I
suspect we'd have a lot less technically skilled artworks if there was no way
for an artist to develop those skills in their primary profession.

Sponsorship and patronage may be the way to go, but that risks the possibility
of discouraging artists from producing any works that may offend their
sponsor. The similarity to academia with grant funding and tenured
professorship is quite clear.

What is probably a novel approach is essentially the pay-whatever-you-like, or
"distributed patronage" movements that have been occurring more and more
recently. The problem then is shifted to gaining popularity/mind-share
sufficient to fund the artist.

------
ivancdg
The Earbits guys (frighteningly prolific bloggers) wrote about Spotify
recently:

[http://blog.earbits.com/online_radio/spotify-replaces-
piracy...](http://blog.earbits.com/online_radio/spotify-replaces-piracy-and-
purchases/)

"The service may do a good job fighting illegal file sharing but it also does
a great job of eliminating any motivation to buy an album that you can listen
to through the service."

In Europe Spotify's been available for a while. I was in on the beta when
their catalog was a lot more restricted, and it was already impressive. With
the majors on board, it's hard to see the freight train stopping.

How can one reconcile how wonderful it is for consumers with the payment
statements that make us musicians cringe? I think of it as all-you-can-eat
iTunes for very little per month; the recent competitors/alternatives pale in
comparison.

They deserve a lot of credit for building a workable model that makes iTunes
look like a rip off (I hate that software).

But they further dilute the value of recorded music, which is a huge paradigm
change for the music industry that will ruin the viability of many musicians.

Perhaps we can re-educate the public to value music again by taking a pledge
to pay for it, à la pg-patents? Something tells me this new, 'recorded music ~
free' paradigm is here to stay.

~~~
gergles
To anyone who had a computer in the past 5 years, recorded music is not worth
anything. Sorry, but that's just the way it is.

If you want to make a pledge to keep paying for buggy whips, go right ahead.
I'm sure there are people who would argue that buggy whips have intrinsic
value -- but the market for a buggy whip right now is basically nil.

Same thing with recorded music. If you want to make money as a musician, you
don't make it through recordings, you make it through extortionate "public
performance" licenses, by doing concerts (and selling $30 t-shirts), or by
offering experiences that people can't get elsewhere (pay $50 a year and get
access to my website where I post about my tour and post unreleased samples
and occasionally mail you a trinket, or whatever.)

I also don't understand the undertone of righteous indignation at Spotify's
existence. I can listen to the radio, where songs are played gratis. I can
record those songs (legally!) for my own personal use as much as I want. The
only difference with Spotify is that I don't physically push "record", and
that's the kind of semantic difference only a lawyer would love.

~~~
zcrar70
> To anyone who had a computer in the past 5 years, recorded music is not
> worth anything. Sorry, but that's just the way it is.

It wasn't always that way, and it doesn't need stay that way either. If no-one
values the music, then maybe it will; if people do value music, then maybe it
won't.

> I also don't understand the undertone of righteous indignation at Spotify's
> existence. I can listen to the radio, where songs are played gratis

The difference is that radio play was used to promote albums, which people
then bought. Recording a song on the radio came with many disadvantages: DJ
interruptions, missing the start/end of the song, lower sound quality, no
album art etc.

With Spotify, there's no need to purchase the album, as there are no such
disadvantages, the whole album is usually online, and you can play songs
whenever you want to listen to them, not when the DJ feels like playing them.
This makes in less economically interesting to be an artist. The righteous
indignation against spotify is probably due to the fact that artists actually
make very little money out of their content, whereas the spotify owners are
probably going to make a lot of money out of the artists' content.

------
frewsxcv
If I listen to only non-RIAA signed bands on Spotify (which I do), how exactly
am I supporting major record labels?

~~~
2arrs2ells
The implication seems to be that the major labels get some fixed percentage of
Spotify's revenues. I have no idea if this is true or not.

~~~
a3camero
They do indeed: [http://www.bloomberg.com/news/2011-07-14/spotify-wins-
over-m...](http://www.bloomberg.com/news/2011-07-14/spotify-wins-over-music-
pirates-with-labels-approval-correct-.html)

In addition to the percentage cut, they're also shareholders.

~~~
ethank
Yes, the labels get minimums and breakage if they are not reached.

Besides, non-RIAA acts often use RIAA companies for catalog management,
publishing and/or distribution. Even Radiohead was distributed by Sony.

------
neeleshs
Zero knowledge about the music industry here, how about a subscription based
startup? I even have a name for it - asongamonth.com. Any signed up solo
artist/band promises at least a song per month and you as a listener pay half
a dollar or a dollar a month as subscription per solo artist/band. You can
chose to pay for only the bands you like, switch them whenever you want to.

~~~
ethank
So.... Columbia House?

------
spatten
I was hoping to see some numbers from emusic in there. I've been paying my
monthly subscription for years, and I've always been curious as to how the
payout split goes.

Does anyone have a link / source / info on this?

~~~
burrokeet
eMusic has a fairly low payout compared to other services offering DPDs
(digital phonographic downloads aka an mp3 file) - in the range of 10 to 30
cents a track depending on a number of circumstances. On the other hand, they
generally do good volume (often number 3 after iTunes and Amazon) and you can
look at not distributing on eMusic as an opportunity cost - i.e., persons have
paid already for a subscription on eMusic, so they are unlikely to take
additional money and buy your music elsewhere if it is not available on
eMusic.

eMusic's real fail is that there are one of the very few DSP (internet music
retailers) that only account quarterly... almost everyone else is monthly.

------
runn1ng
"..., it costs us 35 EUR/year to keep an album on iTunes, Spotify, and Amazon"

Why is that? How much do you have to pay Apple, Amazon or Spotify to sell/play
your music?

~~~
leviathant
Chances are they're using something like Tunecore where you sign up once, and
they redistribute to various music services. You still retain whatever rights
you have, but you collect your income from Tunecore after they aggregate it
from Apple, Amazon, Spotify, et al. IIRC, Tunecore does not take a percentage
of each sale, but has a yearly fee to keep your music listed using their
services.

------
Valien
Now listening to a new band in Spotify. Thanks. Hope the meager cents adds up
from hundreds or thousands of users.

~~~
DrCatbox
Don't worry, much more meager cents will add up in the recording labels
pockets, and Spotify, than this band!

~~~
antonp
Very sad, but true : [http://www.informationisbeautiful.net/2010/how-much-do-
music...](http://www.informationisbeautiful.net/2010/how-much-do-music-
artists-earn-online/)

Having played in a band myself I certainly do end up with a bitter-sweet
aftertaste when consuming music on Spotify. I've got a paid subscription and
I'm absolutely loving it!

It just doesn't make sense: music is such an integral part of our lives yet
the people who drive it end up being exploited in a blatant way.

"Don't hate the player. Hate the game." comes into mind when seeing the linked
infographic... I just hope to see the rules change in my lifetime.

------
stevewillows
The author paid too much to press those CDs.

~~~
ivancdg
He probably did it in France; it is much more expensive here to do stuff like
that than in, say, the UK or Germany.

They're way behind the US in terms of competitive pricing for factory-produced
goods.

I ordered promo CDs pressed in California in 2009.

They were pressed in Taiwan with Japanese machines.

I received them 6 days later in Mountain View...at half the price of France,
great quality. Incredible.

