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Release day economics (uniformmotion.tumblr.com)
218 points by tbassetto on Sept 1, 2011 | hide | past | web | favorite | 74 comments

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?

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.

I was having this exact conversation the other day with a friend. The similarities between the two are striking. I've been working on a blog post about how my entrepreneurial idol is not Steve Jobs or Zuckerberg, but Anthony Keidis. If you've read his bio, Scar Tissue, you'll know this guy has had more ups & downs and "pivots" than most people could stomach.

Definitely agree - it seems like the music business in the early days (Elvis / Sun Studios) where lots of smaller players are trying for the big hit and the market is still fairly fragmented.

Also, the success ratio sounds similar to the early days of the music business - a lot of people plugging away, only a few will make it.

It'll be interesting to see how it turns out!

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.

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.

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.)

A few months ago we launched a service called http://Songtrust.com, we are helping bring music publishing to songwriters of all levels. Our aim is to be as songwriter friendly as possible, we only charge a subscription and we do not take any % of royalties. We also let our songwriters opt out of the 'deal' with us at any time. That way if a traditional publisher comes knocking with a big advance check(which often is just a really bad bank loan at usurious rates - another one of the reasons publishing gets such a bad rap) or if a publisher with Sync expertise in your genre offers to better exploit (which is the technical term) your music. We also offer sync opportunities through a partnership with dms.fm on a non-exclusive basis (meaning our customers can go shop their syncs other places)

We help songwriters get affiliated with a PRO(like ASCAP, BMI, and SESAC), register all their songs and help them collect their royalties just like any other publisher. We also register their songs with The Harry Fox Agency(HFA) which will be collecting mechanicals from record sales and also from Youtube and Spotify. All of this you could do yourself but it's a huge pain in the neck involving a lot of paperwork and a ton of time. We like to think of it like having a professional do your taxes for you.

Soon we will be coming out with a product aimed at Bands instead of individual songwriters, which we hope will be a huge hit for the giant group of indie bands who will never get a publishing deal but will be owed publishing monies.We were spun out of a traditional publishing company called Downtown Music Publishing, we are well funded, have paying customers, and since this is HN I can’t help but plug that we are hiring folks who want to come help change get songwriters paid: (http://blog.songtrust.com/jobs/front-end-developer-ux-design...)

All of this is true.

However, the implication that an outsider might draw from your comment is that, say, the band that wrote the original post might hope to make those kinds of royalties since they (presumably?) wrote the melody and lyrics to the original song.

If they sign to a major label and have a hit that continues to rake in those royalties, that is wonderful. If one of their songs is used in a big Hollywood film, and for covers, etc, great.

But that's a lot of ifs. Even non musicians know the truth now, they've all read "Courtney Love Does the Math" on Salon.

The reality of most musicians, even those signed to major labels, is far from a rosy economic picture. It seems to me that to imply otherwise is disingenuous.

Didn't mean for that last part to sound like an attack, it's just that reading your (very well written) comment does not solve the problem of the musicians who wrote the original post.

I didn't mean to paint a rosy economic picture. Sorry if it came out like that.

I just thought people should know the difference between a songwriting royalty and a recording royalty, and what that means for songwriters and recording artists. I also want people to have an idea of exactly how big of a cut publishing companies and record labels take.

Labels are starting to collect money outside of record sales. It's becoming much more common for artists to be signed to "360-degree deals", which is what the record companies came up with when album sales started to drop off. They take a cut of everything the artist does - merch, shows, etc.

Keep in mind they also finance the tour, publicity, radio tours, promo, websites, fan clubs, etc.

A lot of artists that don't need all-rights deals can afford to run all that themselves and so they sign 270 or 180 deals, a la White Stripes, Metallica, etc.

Outside of recorded music, most of the other revenue streams are 50/50 splits and non-recoupable.

Don't know why this was down voted, but anyhow.

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.

It's a fantastic time to be an entrepreneurial, forward-thinking, business-oriented musician.

But that is a fairly small subset of people with the talent set necessary to stand out musically.

The security of the previous set-up is gone but the opportunities are endless.

Does this sound familiar yet?

A generation ago many of the people reading this would be lifers for HP, IBM...now look what you're doing instead?

OK, so you're lifers for Google and Facebook.

You get the point, though.

Don't forget the cost of making music is much less than 10 years ago. Virtual samplers, synths, mixers, etc. This means far more people making music.

>>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.

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.

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.

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.

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! :)

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.

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!)

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

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.

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.

That is per person, of course. Multiply by Spotify's million subscribers and you get $10bn of music. Not too shabby.

That math is very inaccurate. Most of their users don't pay, and none of them listens to every track once.

Fair enough, I've bought albums several times (vinyl to cassette to CD to MP3). Don't think I've ever bought an album on the same format twice unless it was by accident. But haven't we all had it with those format switch games? I bought some MP3s, I don't expect ever to buy them again.

BTW, most of those 15M tracks are deep in the long tail of obscurity that would never see the light of day without an all you can eat subscription model.

I have re-bought CDs I lost, or albums that got scratched that I loved, or given my copy to people who I wanted to become fans, and then re-bought my own copy.

As for those buried tracks, keep in mind that it's unlikely that Spotify will cut anybody a check for $0.029, or even 10 times that amount. So unless those albums get listened to a lot, they're not any better off in Spotify.

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?

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.

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.

...and us not-so-great bloggers? like non-hit bands?

They make very little money.

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.

Most bands/artists work 40 hour weeks at real jobs. There are very few independent artists that do well enough to play music full time. If you can, it means you're touring constantly.

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.

How else would artists get paid?

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.

the same way most founders of new companies get paid. Dayjobs.

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


"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.

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.

> 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.

I am actually trying to find it but there is a country in Africa that is having a worldwide day where all radio stations are encouraged not to play music, and to instead play talk radio and other educational broadcasting about the importance of copyright protections and the need to support the arts, specifically music. They believe by taking music away for a day and educating people about the impact their consumer choices are having on the artist community, they can start to create significant public awareness about this issue. I think it's a great idea.

Imagine Pandora's site down for a day: "Take this moment of silence to think about how important music is to you." That seems like a win for Pandora anyway, since they have a net loss of about $20,000 a day right now thanks to overpriced royalties.

I think one of the issues is not that file sharing has reduced the general perceived value of music to 0 and the best you can sell people now is convenience and ease of use which is what people are really paying for on things like Spotify rather than the music itself.

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

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.

They do indeed: http://www.bloomberg.com/news/2011-07-14/spotify-wins-over-m...

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

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.

Looks like I'm ditching Spotify at the end of this month

If you're in the US, Rhapsody pay artists better rates.

An interesting graph illustrating how much an artist has to sell through various platforms (CD, spotify, itunes etc.): http://www.informationisbeautiful.net/2010/how-much-do-music...

Isn't this the same thing as the Microsoft issue, where they were getting paid for every PC shipped, whether or not it had Windows on it? MS got in trouble with the monopoly police for that...

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.

So.... Columbia House?

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?

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.

"..., 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?

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.

I imagine it's because there is a non-zero cost to hosting music, even if that music is never played by anyone. It also discourages people from spamming the store with junk.

you pay them zero, but from the point of view of TuneCore it costs money to store and deliver your content, account to you, run a website, etc.

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

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

Very sad, but true : http://www.informationisbeautiful.net/2010/how-much-do-music...

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.

For the price of one iTunes album purchase you'll save 'em the trouble of persuading enough people to listen to their tracks 200 times.

The author paid too much to press those CDs.

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.

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.

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.

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.

> 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.

Don't forget the costs associated with creating an album. The studio time required to record the album s cheaper than it used to be, but still substantial. Some of them may have needed new instruments etc. The costs are higher than missed opportunity. They would have needed real cash in the bank to get started.

.0045 E => 6.4 cents


Erp, uh yeah. .64 cents not 6.4 cents.

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