By Steven Pepin
3:30 PM EDT, July 18, 2012
We live in a tumultuous era for musicians, where Internet piracy has threatened the dominance of major labels, the days of the CD are in decline and no one is exactly sure of the next big format that music will take. That, however, hasn’t stopped a glut of new distributors vying for the most effective and profitable ways to sell music through the series of tubes.
Unfortunately, there have been large debates lately concerning the relationship between the artists who actually create the music and the content distributors who sell it. And while it is just for the distributors to receive a fair share of the profit for sharing an album with the world, no music fan worth their salt would actively wish for a musician to be deprived of financial gain for the art they put so much work into. So which service puts the most dollar bills in your favorite rock star’s pocket? Let us examine the most popular distribution methods in detail:
DIGITAL MEDIA STORE (ITUNES STORE)
THE SERVICE: Apple’s iTunes Store was arguably the first major player in digital music distribution. With the simple model of $0.99 per song and $9.99 for a full album, shopping on the service is both cheaper and more convenient than buying a CD, downloading the purchased songs straight to your iTunes library. Since 2010, it has been the world’s most popular music vendor, and in 2011 it hit a milestone of 16 billion songs sold. Clearly, they’re doing something right from a business standpoint, but how do they fare from the moral perspective of giving artists their due?
THE PAYMENT: Apple’s payment model was once a closely kept secret, but certain circumstances have brought those valuable figures into the public light from time to time. Most recently, rapper Eminem’s lawsuit against Apple and its settlement in 2010 revealed the exact numbers: for every song sold, labels make about 70% of the sale, while artists make about 12%. The latter amount, if you do the math, comes to about $0.084 for every song download, and $0.84 for a complete album.
There are exceptions, however; the independent music distribution company CDBaby promises to take only a 9% cut of the albums they upload to the iTunes Store, leaving artists with the comparatively heftier sum of $0.63 per song. Still, as general rule, it’s safe to say that Apple and the record companies are the ones making out like a bandit compared to the actual musicians in this case. Does that matter so much when the songs are being sold to the single largest consumer base of a music store in history? That is a debate that cannot be easily resolved.
| Online Music Services: By The Numbers|
Number of Tracks: 28 million
Royalty Rate: Average of $0.084 per $0.99 song
Number of Tracks: 800,000
Royalty Rate: $0.097 per song play
Number of Tracks: Unknown
Royalty Rate: $0.0005 per song play
Number of Tracks: 15 million
Royalty Rate: Estimated $0.00013-$0.002 per song play
Number of Tracks: 15 million
Royalty Rate: Unknown
Number of Tracks: 6.8 million
Royalty Rate: Unknown
Number of Tracks: 4.14 million
Royalty Rate: 85-90% of purchase price (artist’s choice)
ONLINE RADIO (PANODRA, LAST.FM)
THE SERVICE: The traditional radio format has also been eager to stay alive in the digital age, giving birth to the concept of online radio. Pandora Radio and Last.fm are probably the prime examples of this model, using an automated music recommendation system to generate playlists for listeners based on their preferences. These services are completely free (with the exception of an optional subscription fee for ad-removal), and the parent companies of each pay the musicians which receive playtime on a per-song basis. But are artists any more likely to make money on the radio than with sales?
THE PAYMENT: According to the most recent estimations made in 2010, Pandora pays royalties of about $0.097 cents any time a portion of their song is played on air, even if it’s the first few seconds of a track. Even if that total amount is shared between the artist and the label, the possibility of repeat listens can potentially grant an artist more profit in the long run than a one-time purchase from a digital store. Furthermore, it was stated at the time that the per user royalty rates will go up 10% per year for the next four years, which bodes well for the future of any artists that receive play through Pandora.
Unfortunately, that doesn’t bode too well for Pandora itself, or any online radio business for that matter. According to technology entrepreneur Michael Robertson, their business model is doomed to failure on the principle that the set per song payment is too high, at least when compared to the profit the stations generate. Meanwhile, from the listener’s perspective, online radios’ skip limits, lack of a repeat function, and other mechanical constraints serve to limit the freedoms of the user and, thus, who they are directing money to. Oh, and Last.fm pays even less at $0.0005 per play, with many other competing services following suit.
For all of their upsides, online radio stations may be in line for extinction, especially in the face of their new competition for free music streaming…
MUSIC STREAMING SERVICES (SPOTIFY)
THE SERVICE: “Music streaming services”, for the lack of a better name, are the relatively new kids on the block in regards to music distribution, combining the vast library of a digital media store with the free access of radio. Users can browse a large, digitally restricted library of songs and stream them from the service at their leisure, while the artists and labels get paid on a per-listen basis, similar to online radio.
While there are a number of services running this model, such as We7 and Deezer, Spotify is the one truly making waves in the industry. Founded in 2006 and swiftly spreading to countries outside its native Sweden in the subsequent years, Spotify currently boasts upwards of 10 million users. And while a $9.99-per-month subscription fee can be paid for better service (elimination of ads, mobile app access, etc.) listening to the songs themselves is free as air. Thus, in theory, listeners get music for free and artists still get paid. Everyone wins, right?
THE PAYMENT: If only it were so simple. Though Spotify has been playing its cards close to the chest when it comes to how much they end up paying artists, the common perception held by most media appears to be “not much”. That viewpoint has been jig-sawed together from a number of sources and claims, nearly all of them speculative; one claim dating back to November of 2009, for instance, states that the pop-star Lady Gaga received a meager $167 from Spotify after nearly one million plays of her song “Poker Face”. All-in-all, however, general estimates for Spotify royalty rates have tended to reside between $0.00013 and $0.002 per song. No matter which way you slice it, the royalty amount per-song amounts to fractions of fractions of a penny.
However, as some observers have been quick to point out, Spotify’s incremental, pay-per-listen model means that more money is changing hands than that paltry individual amount might make it seem. Remember, artists might be getting a larger cut out of an iTunes purchase, but such a transaction is a “one-time-only” deal: a consumer buys the song once, and that’s it. By comparison, Spotify listeners can continuously generate profit for an artist they enjoy by listening to their songs frequently. Free users of the service are slightly more limited in this regard, however; after changes invoked in early 2011, a 10-hour cap per month has been enforced, and listeners are only able to listen to an individual track up to five times per month.
THE SERVICE: Bandcamp.com could perhaps be viewed as the crossroads between the ways of the old and the ways of the new: a service which takes a pay cut from artists. Any artist can join the site (for free, no less), at which point they are granted their own customizable microsite for promoting any albums they upload. Listeners can then access all of the uploaded tracks for free, download any tracks that have been set as free by the band, or purchase the albums or merchandise directly.
Though the service started up in 2008, it didn’t truly gain steam until 2010, when many previously established artists such as Amanda Palmer and Behead dropped their existing record label contracts in favor of Bandcamp. Since then, the site has attracted an innumerable horde of independent artists, with one artist in particular managing to climb onto the Billboard 200 solely on the strength of her Bandcamp sales.
THE PAYMENT: Unlike the majority of distributors discussed here, Bandcamp tells it straight: they take a 15% cut of all sales from an artist, which drops to 10% after that particular artist has sold more than $5,000 worth of music and/or merchandise. The remaining 85% or 90% is pure profit for the artist. Prices of the albums are determined by the artists themselves, with many adopting a “pay-what-you-want” model. And it is worth mentioning twice that joining the site is completely free.
So is Bandcamp virtually a straight upgrade to the prehistoric ways of record labels? Not quite. Though the profits are sweeter for the artist, actually getting people to your page is the tricky part. Without a record label doing the heavy lifting for you in the marketing department, artists using Bandcamp have to rely heavily on methods of self-promotion (such as clever use of Twitter and other forms of social media) in order to get their name out there. There’s also the issue of the service having begun to charge artists for free downloads, which hardly sits well with the artists using Bandcamp for promotional purposes over profit.
PHYSICAL MEDIA (CD)
THE SERVICE: Lest we forget: yes, people still sell physical copies of albums. Today, a CD will typically cost you about $15.99, a price that absolutely dwarfs those of its digital compatriots. That would explain why physical album sales have been more than cut in half over the course of the last decade. Major labels, however, continue to insist that the current price of CDs is deemed necessary, thanks to roster cuts and layoffs. That said, one must ask: does a higher price point mean more money for the artist?
THE PAYMENT: The independent market research firm Almighty Institute of Music Retail managed to break down the allocation of funds from a typical $15.99 album sale, and the results are fairly depressing for the artist: only about $1.60 of the sale is designated as “artist royalties”. Meanwhile, labels acquire $7.01 per CD and retailers get $4.69, amounting to nearly 75% of the total sale.
Technically, even that small sliver of the money pie is a larger amount per album than the more modern substitutes discussed previously in this very article. But the collapsing sales of CDs would suggest that artists are making less and less money from physical album copies by the day.
THE SERVICE: If you’re still a stickler for physical media, but aren’t interested in giving the corporate label a 75% slice of the asking price, there is an alternative. Many bands, in fact, will take it upon themselves to sell albums at the shows and events they play at around the nation. Typically, these are cheaper than those sold at retail, usually for $10 to $12 a pop, but can be even less depending on the artist in question.
THE PAYMENT: In theory, this is nothing but pure, sweet profit for the artists. In practice, unfortunately, there are some mitigating factors. For instance, for bands that are signed to a label, some will actually make their artists buy their own music from the label at cost (as much as $4 or $5 per album) before it can be sold at shows. In addition, bands may be forced to share some of the profits with the management of larger venues, or even certain event promoters (such as Live Nation). All of this not only detracts from the band’s final profit, but also influences the price of the albums sold.
Of course, in order to sell albums on tour, a band has to actually…y’know, tour. That is obvious, of course, but the barrier for entry is higher than you might suspect; touring is hardly an inexpensive prospect. That means that a band with no label support or pre-existing financial backing isn’t going to be playing regular shows, making this a nearly non-existent option for newer, amateur artists.
THE SERVICE: The aforementioned online services may be the pioneers of the Wild West that is digital music distribution, but the truly beautiful thing about the Internet is its capacity for letting individuals take matters into their own hands. Several artists have experimented with how to sell music on their own terms through the Internet, the most famous of which have often ended up making headlines in the process. In 2007, for instance, Radiohead announced that they would be selling their latest album, In Rainbows, from their website for whatever price the consumer desired. An estimated 1.2 million copies were sold, but the band has remained quiet on just how much money was made in the process.
The next year, Nine Inch Nails attempted a similar experiment by releasing the first nine songs of their new album, Ghosts I-IV, for free online, along with a handful of digital extras. Three premium packages, however, were also offered with additional content for a price. The most expensive of these packages, a $300 deluxe edition signed by band leader Trent Reznor and limited to 2,500 copies, sold out after just a few days. Overall, the band managed to rake in $1.6 million from their little test.
THE PAYMENT: The brilliance in selling albums this way is that it circumvents the need for “royalties” entirely: practically every cent of every sale is funneled directly towards the artists themselves. The laissez-faire approach of “pay-what-you-want” might even accrue more sales than a set price would, coaxing people who might not have paid $9.99 for an album to shell out at least something for it.
So why isn’t this the premier method of selling music? Ironically, it may be because not every band can afford it. Radiohead and Nine Inch Nails could handle the risk of a solo venture because they are big-name stars with a great number of existing fans to their name; a newer band, by comparison, might need a label and an established distribution method in order to gain exposure first.
The bottom line is that no one really knows who effective these bizarre new methods are, with any sort of blanket financial data being extremely limited. Even if one of the many experiments executed by these bands strikes gold for certain, it could be a long time before it becomes anything close to an industry standard.
THE FINAL VERDICT: If there’s anything to take away from this examination, it’s that there is no single correct answer to combating falling music sales. Each new method of digital distribution has its pros and cons, and as a result we can only guess which one is the most beneficial for the artists.
If I were asked to pick a “winner” on the spot, however, I would lean towards Spotify and Bandcamp. Self-distribution can easily make bucket-loads of cash for their artists if it is successful; however, until such Radiohead-esque methods become viable for all artists, they cannot be counted on to sustain the entire music industry and its fanbase. Of the more concrete services, Spotify seems to have the most growth potential – with the possibility of making frequently played artists very wealthy if its user base continues to increase – while Bandcamp gives artists the most bang for their buck.
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