The Artists, the Fans, and Where all the Money is Actually Going

From an outside perspective, one would believe that the entertainment industry is packed with nothing but money. After all, who doesn’t listen to music or watch films? From buying CDs, streaming on Spotify, listening to the radio, or even pirating music, we often fill our days with the hard work of the artists we love to hear. These artists work hard to create their music, yet in the traditional CD sales structure they often make as little as 3% of total sales, about $0.50 on a $16 CD sale (which is then split between the band members!)

With the changing of the times, the way we purchase and listen to music, as well as the way we watch films, has changed with it. Most of us probably haven’t bought a CD or DVD in many years. I wish we could tell you that the outlook was brighter in the modern streaming and microtransaction world, but unless these industries drastically change course and lean towards a more decentralized structure, the artists will continue to get the short end of the stick.

We would like to thank the team at Zimrii for their contributions to the design and implementation of the research and to the analysis of the result.

Then and Now

In the past, artists were typically restricted to the physical sale of their music through albums, concerts, and additional revenue from radio/commercial play. Modern artists seem to benefit from the plethora of ways they can spread their music, from streaming services to music videos, selling individual songs through platforms like iTunes and Google Music, and more. It is far easier to promote concert dates and venue details with social media, but it is also just as easy for people to find footage of the concert online instead of actually attending the event.

spotify profits

However, the amount of money that artists make has not increased in parallel with the increase in ways for them to reach their fans. This means that although artists are reaching more fans than ever before, they are not seeing the money their music is earning. Aside from direct music sales, such as CDs, artists make money in a variety of ways.

How Artists make Money through Music

From small artists who just got their first gig at a local bar to huge venue headliners, money is a necessity in order to keep the music flowing. Below are some of the most common ways that musicians make their money in the current industry.

artists sales

Physical Purchases – Bands sell CDs, albums, merchandise, and more. However, most of these sales (unless they are cutting the CDs themselves and printing their own t-shirts) are heavily taxed by their manager and record label. In some cases, for every $1,000 in albums sold the average musician only makes about $23.

Digital purchases – When an album is purchased through a digital medium such as iTunes, the artist usually makes around 10% of that sale. The artist is responsible for paying their manager, lawyer, and crew from that sale which is about $.09 per song purchase. This means a band with four members in it would need to sell over 50,000 songs a month on iTunes for each of them to be earning minimum wage, at best. The top selling iTunes song at the moment, Childish Gambino’s “This is America” pulled in around 34,000 sales worldwide in one day, but the 100th most popular song only pulled in around 1,000 sales that same day.

Concert Tickets and Touring – Being one of the primary ways that artists make money, whether they are the intermediary act or the headliner, concert performers on the national level typically pull in anywhere from 20-40% in gross sales. However, opening acts often get paid a flat fee, which at least covers their travel and other costs.

Streaming – Popular streaming services, such as Spotify, seem like a dream for any artist that is trying to make it in the musical world. The ability to reach a global fan base, to be discovered, and to have their music available to everyone all the time has its costs, however, it isn’t nearly as lucrative as it may seem at first. Typically, Spotify pays out between $0.006 and $0.0084 per stream to the rights holder, meaning that if the artist has signed the rights away to a label they won’t be seeing a penny of that money. Even artists that still receive a cut from the label only receive $0.001128 per stream on average, and only about 1.7% of artists on Spotify make minimum wage through their monthly earnings.

Other – There are a variety of other ways that artists can earn money on their music, but they are typically so infrequent that it is hardly worth mentioning. Having their music featured in television commercials, movies, and videos games is one way, and growing their career to such a state that they are booked for consistent shows in Las Vegas or somewhere similar is another. But no matter how artists get paid, there always seems to be paperwork to sort out and contracts to navigate…

We’ve created an infographic to better explain this idea to you:

decentralized music

The Nit and Grit of Paperwork

The traditional path for musicians is to “be discovered” and then sign on to a major record label, but as many successful musicians warn, this isn’t necessarily the best path to take. Labels bring with them a lot of clout to those that they represent by helping spread their music, secure spots on tours, and pull strings to help advance the artists’ careers; but is it worth the nearly 75% cut when it comes to streaming services?

There are alternatives to signing on with a record label, and although they may not always gross as much in total sales, they will often net much more. Crowdfunding albums through Kickstarter, using decentralized platforms like Zimrii, or gathering fans through YouTube are all completely viable options. These methods require more work since you don’t have the promotion of a large label to easily secure radio and television gigs, but they also make sure that you retain creative licenses over your work. It is too easy to sign a deal that is not in the artist’s favor, and one could even sign a deal that is a complete scam designed to steal the musicians hard-earned money.

artists payout

When it comes to royalty payments, collaboration payments, and figuring out who gets paid how much and when, the numbers become intentionally convoluted.

  1. When signing on with a label, often times all of the artists earnings will go towards “recoupment,” meaning that the artist must pay the label back for services rendered with the artist’s net earnings, not the gross earnings from their music. If you factor in advancements and other costs that the labels charge, artists can easily still owe money to the label even after they’ve sold tens of thousands of albums.
  2. Royalties from radio, television, and the likes often take months to process and pass through many hands and currencies, each step taking their own slice of the pie. Imagine that an American artist releases a CD that is sold worldwide, and a consumer in Croatia purchases it in their local store. This money must pass through that shop, paying local taxes, through the local government, distributor, regional agent, currency exchange, international agent, before eventually finding its way to the record label. The record label is then expected to pay the fair share to the artist, but with little to hold them accountable.
  3. When it comes to collaborative work, it can get tricky to discern who owns the original content, who owns the new content, and who should be in control of the earnings.

A lot of these problems are easy to tackle once you start to introduce a decentralized system into the equation, particularly if it is used to replace the traditional record label.

What’s the Alternative for Artists?

Signing onto a record label can often detach an artist from their fans who may feel that the artist is “going mainstream,” forcing the artist to balance the desire to reach more fans while keeping their current fans happy. The ability to know who their fanbase is can help the artist stay connected with the music instead of the profits, access data analytics on those fans, and even reward them for being loyal are all key to growing as an artist. This is, however, difficult to do with the current system.

Spotify offers little to no reward for playlist curators, and there is no productive way for musicians to interact with their fans directly. Tracking artists’ rights through the blockchain allows fans to pay the artist directly and create a blended environment that is part crowdfunding, part incentive-based. These are are all that that decentralization can bring to the industry.

Streaming music is gaining a lot of traction and has recently surpassed the 100 million mark for paid subscribers. Apple pulled in about $9.2 billion from iTunes and the App Store, but artists and creators are only seeing fractions of this money. Consumers are showing clear interest in this market, but they don’t currently have a way to directly support artists in a mainstream way.

streaming music

Aside from streaming music, piracy is another option that people often use, and it is costing the music industry around $12.5 billion annually. No one can say for certain, but perhaps if fans knew that more than a fraction of their money was going to the artist when they purchased an album or movie, they’d feel more inclined to spend instead of steal.

Major Players in the Emerging Decentralized Entertainment Industry

The entertainment industry is ripe for decentralization, and the more middlemen that can be cut out of the equation the more money the actual artists can earn from their hard work. Artists crave change and fair pay, and if we continue to expect artists to keep their music on Spotify for “the exposure” we may very well be killing the creative industry.

Zimrii is scheduled to launch in 2018 and aims to help artists receive more value from the music and films they create. Focusing on key areas where the current industry lacks, Zimrii will allow artists to use smart contracts to reward collaborators in real time while keeping a permanent record of the copyright holdings on the blockchain. It will be possible to sell music through the Zimrii platform, as well as instrument patterns and merchandise, with all proceeds of sales going directly to the artist. These sales will be easy to drive using the Zimrii dashboard of analytics, containing everything from fanbase data to downloads and weekly sales. Artists can even set up crowdfunding events to fund future projects while providing special rewards to their most loyal fans. Zimrii plans to expand into the film industry as well to assist filmmakers in making independent films, a trend that is certainly growing considering the Sundance Film Festival had nearly 14,000 film submissions in 2017.

Voise focuses entirely on music. It’s a purchasing system that ensures 100% of earnings go to the artist in the form of VOISE tokens, a token which can currently be traded on exchanges like Bit-Z, Cryptopia, and HitBTC. Voise also has a music recommendation feature that helps users find new music the might enjoy. It allows the artists to set their own prices for their music, and is based on a P2P system that ensures security.

OPUS, a completely decentralized music platform, focuses on organic music distribution through artist-fan interactions, playlist building, and it gives the artists as much revenue from their music as possible. Artists are able to give out affiliate links to fans, providing the opportunity for fans to earn Opus tokens when songs and albums are purchased through these links.

decentralized music projects

Where Will the Future Take Us?

When the music industry started seeing a steady decline in physical media purchases, streaming stepped in and helped boost up a slowly-dying industry. Now as streaming services, in conjunction with major music labels, continue to strangle artists out of profits, it should come as no surprise that the industry is ripe for change. Spotify will almost certainly stick around, but we may indeed see an increasing number of artists making their way to Zimrii and others as the general feeling towards blockchain technology continues to increase.

All materials on this site are for informational purposes only. None of the material should be interpreted as investment advice.

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