Music has been around for as long as people have been around. Trends in music and tastes change from generation to generation but the way the music industry works has remained, for the most part, the same. Recently, there has been a shift in the connection between the artists and the record labels with the advent of new technology. In this article I will be exploring the financial connection between artists and record labels.
If you have any questions or industry suggestions please email me firstname.lastname@example.org. These articles are not investment advice for that reason I will hardly mention company names at all.
The Record Label
In many cases artists sign with record labels to help grow their careers better than the artist can on their own. How a record deal works is an artist signs the rights of their music in exchange for royalty payments. The record label helps the artist by producing, distributing, and promoting their music.
Record labels make money when a song is streamed on a streaming service. This money is split between the distributors and the artist.
When another artist covers a song for profit the owner of the song is entitled to a percentage of the profits. A cover is when an artist performs another artist’s song.
If a movie or TV show wants to use a song that a record label owns the production studio needs to pay for the use.
When an artist does a concert or their song is.played on the radio the label gets a royalty for the performance. The label works with venues to setup performance or they work with radio stations to get songs on the radio.
When a label signs an artist they create merchandise for fans to buy and sell at performances, online, or at retailers. For that reason every time a piece of merchandise is sold the label gets a royalty.
In some countries small record labels get government grants. The grant money is used to give advances to artists.
While under contract with a record label an artist gets a royalty on everything the record label gets a royalty on, but it is smaller than the label’s royalty. The artist’s royalty is smaller because the costs of producing, distributing, and promoting the music are a loan from the label to the artist. In many cases an artist doesn’t see a dime until the label is fully paid back.
The artist usually signs the deal under an assumed name such as a band name. This gives the members the freedom to make money with their legal name.
Once the artist grows an audience through the record label they may start making paid appearances at events under their real name. The payments can range from $5,000 to $2,000,000 per appearance. If they were to perform at the event the label would get a royalty.
If the artists signs with a record under an assumed name the artist can make music under their legal name without having to pay the label a royalty.
When a label pays an artist for the actual music the payments are broken up into two payments, for writing and the creation of the song. For writing a song the writer gets 9.1 cents per sale made. For the creation the artist gets 3.3% per sale.
Currently, the range for payments per play is from $0.0038 cents to a high of $0.0273 cents. The streaming services make the record labels an unnecessary middleman. The services don’t care who gives them the music as long as the music keeps coming in and their customers like the music. An artist can work out a deal with the streaming companies themselves.
There is as growing trend of artists creating their own app and charging users monthly to listen to their music on the app. The challenges of this trend as an industry are getting users to pay monthly for different musicians/bands especially when streaming services have all the user’s options. It will be difficult for 20 different bands to get the same person to pay monthly to listen to music on their individual app. Another challenge is the development costs. A brand new artist may not have the money to pay the development costs to create an app.
Performances are where artists make most of their money. This is because fans are willing to spend more of their money on seeing a live performance. Artists can make anywhere from $100,000 to $1,000,000 per performance. The number depends on how popular they are as an artist. An artist keep 50% of the profits.
The Future of the Music Industry
The music industry will be less dependent on the record labels. Artists will be able to produce and distribute their music on a platform and fans will pay the artist directly. This platform should be one where the artists get charged a hosting fee every month but the artists sets the price for the fans. In that scenario, the artist chooses how much they are being paid. This gives artists more creative freedom.
The creative freedom will lead to the artists making more money because they will be paying less fees to make and distribute their music. This may lead to fans getting more for their money.
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