Models of Making Money by Making Music

Songwriters and performers dream of writing a hit song that will be heard by millions and make them rich enough to quit their day jobs.  As a life-long music lover I want my song making heroes to make as much money as possible, so it disturbs me when I read stories like “Get Ready for the Streaming-Music Die Off” that report artists are making so little from my favorite method of buying music that it might die off.  I’m upset that the artists aren’t getting paid properly, and I’m upset that I’m losing my favorite all-time method of buying music.

Music is very important to me, it’s brought my life much joy, solace, inspiration, happiness, stimulation, and pleasure.  It’s well worth the money I pay for it, and it’s angers me that so many people don’t.  Anyone who doesn’t pay for their music has no respect for music, or its creators.  Nor do they have any respect for capitalism and our economic well being.  With the music business we want to do two things:  reward the creators of music, and reward the business of promoting, publishing and distributing of music.  Sadly, it appears that the publishers of music have always been greedy and routinely ripped off their artists.  With the new digital technologies of music distributions it appears artists are getting an even shorter end of the stick than ever before.

Most people think little about music, and even less about how it’s bought and sold.  But if you love music, and you know who you are, it’s very important to know how your favorite artists are paid – their songs are the soundtrack of your life.  But we want more than that.  We want to promote economic strength in our country, and we want a vital music industry.  Americans are making less and less to sell to the world, so unless you want everyone working at a fast food counter, it’s important to promote industry too.

What Business Models Benefit the Artists?

There are two basic ways to sell music:

  • Artists sell digital and physical records directly to their fans
  • Artists sign with a publisher that sell their work in a variety of ways

In a perfect world fans and artists would cut out the middle man, but there’s a problem.  Getting a million people to listen to your song is hard.  Getting ten million people to hear it is far more than ten times harder.  If you want to get rich selling music you have to work with a publisher, and that involves working with loads of other people that take a cut out of the preverbal pie.

Every Tuesday new albums come out.  On Rdio I page through so many I can’t count them.  There are millions of would-be recording stars out there, all wanting millions of other people to listen and buy their music.  Most, if not practically all of them, will never make any money, not the kind of money that would let them live off their creative efforts.  In all the articles I read about the artists complaining of unfair treatment by the music publishers, I don’t see any figures on how many fans does an artist have to find to make a living.  That would be very interesting to know.  If a song writer wants to make a million dollars on his song, how many people have to buy the song directly, or listen on the radio, or hear it from one of the ever growing ways of hearing new tunes.

We know if an artist sells a song on their web site for a $1, it will take 1 million fans buying the song.  But how many would it take if the song was sold on iTunes or Amazon?  How many plays would it take to make a million dollars from fans listening on Spotify or Rdio?  Or Pandora or iTunes Radio?  Or just a plain old radio?  Each method of distribution has it’s costs, and investors that want their share of the action.

Artists are complaining bitterly about streaming music services not paying enough, but as the article linked above shows, it’s the music publishers who make the deals with the streaming services, and it might not be the streaming services to blame for low royalties.

I now get my music almost exclusively through Rdio, which I play $9.99 a month.  I’m contributing $120 a year to the music industry and their artists.  It troubles me when I hear that artists get little from this business model.  Would I benefit artists and the industry more by buying $120 worth of CDs?  Or $120 worth of MP3s from Amazon or iTunes?

To complicate the mathematical understanding of this problem, many of the songs I play on Rdio are ones I already own on CD.  I use Rdio as a convenience.  My favorite playlist is just over 200 songs.  I play it 90% of the time, and listen to new albums 10% of the time to find new songs to add to my playlists.  Probably 100 of those 200 songs I own already, so for about $120 I could buy the others, and go the MP3 buying model of business.  If I did that, I’d probably spend about $50 a year on new songs.

It’s doubtful I’d ever go back to buying physical CDs.  That means paying $120 a year to Rdio puts me at my maximum spending, and the artists on my playlist are getting paid a tiny fraction of a cent every time I play one of their songs.  Thus the solution by my standards would be to pay the artists at a higher rate, and the publishers less.

What Business Models Benefit the Fans?

For most music fans, the casual back ground music listeners, radio, whether AM, FM or various internet service, getting music for free is all they want.  They pay for their music by listening to ads.

Let’s ignore the barbarians that steal music.

Next up are fans who love songs enough to buy them.  They might buy a handful of songs a year, just the ones that are catchy enough to keep.  They will spend a $1.29 here and there.  Over their lifetime they will collect and own a playlist of their favorites.

Then we have fans willing to buy whole albums from their favorite artists, either digital or physical.  They are willing to commit $10-15, or more.  These kinds of music lovers often buy one or more albums a month.  However, this model of business is disappearing.  Fewer and fewer fans collect albums.

For the hard core music fan that loves the widest variety of music, nothing beats streaming music at $10 a month.  (Or $5/month if you only listen from your computer.)

How to Grow the Industry?

Streaming music is based on the idea that fans will pay a monthly fee to hear whatever they want whenever they want.  $10 a month gets convenience.  This is the model I prefer.  I was hoping this model would be the one to succeed.  I show off Rdio every chance I get, but I have convinced damn few people to buy it.  The streaming music model is like owning a giant record store for $10 a month.  It’s an unbelievable deal, but it’s not popular.  Spotify is hoping to get 40 million subscribers, but only has six million now.  It would take a 100  million subscribers to make subscription music a 12 billion dollar a year industry, and that’s not likely, but it would make music into a cable TV like industry.

If digital music had never existed, and the only way to own music was via physical media, the music industry would be huge, but I doubt we’ll return to that business model.

Let me tell you a story.  My friend Leigh Ann brought over a stack of old LPs she had.  She thinks she got them from an estate sale.  They were old Broadway show soundtracks from the 1950s and 1960s.  They looked rare, valuable and in good condition.  Most of them were on Rdio.  My $10 a month gets me whole areas of music I’ve never even tried.  Mostly I use my $10 a month service to play the same 200 songs over and over again.  I haven’t even begun to explore 1/10th of 1/10th of the music on Rdio.  $10 a month for unlimited streaming music is the best money I’ve spent in my life.

Leigh Ann and I started playing her albums but it became obvious that it was much easier just to call them up on Rdio.  I could buy her albums, but the artists that created them wouldn’t get paid.  Someone, probably not the original artists, do get paid, even if it’s a tiny amount, if I play them on Rdio.

Artists should get better rates from subscription music, but subscription music should be the model to market music.  It has one fair concept – artists are paid every time a song is played.  That’s better than what they get from stolen MP3s or people buying used LPs and CDs.  And streaming music keeps millions of albums in print that would be forgotten.

JWH – 12/6/13

3 thoughts on “Models of Making Money by Making Music”

  1. I think being a “rock-star” was a temporary thing, a fluke due to the limited technology of the time. Much like how ancient hunter-gatherers had it easy when just by wandering around they were able to find enough game, nuts, fruits and veggies to survive. But eventually the number of people got higher than the carrying capacity of the land for that level of technology. We invented shepherding and then farming to stave off mass starvation. Once upon a time rock-stars roamed the land finding money, drugs and poon in abundant quantities, you just had to gather them up.

    In music it is the technology itself that drives the change not a basic human need for it. If we’d die without music we could still survive with the older technology. Spotify, rdio, etc do not need to exist. But as you say they are convenient and cheap. Pirates get it even cheaper and as you say there is the added problem of downward mobility (another problem that doesn’t drive itself. There is no reason products can’t be made in the US, but is merely the result of how the rich and their corporations can bribe the government for whatever special treatment they want. Above all they want cheap wages to put higher profits in their pockets. Even if it impoverishes our country. If we had a less corrupt government and a more active citizenry the de-industrialization of America would not have happened).

    Musicians will have to return to something more similar to their historical roots, the traveling bard or patronage. Or maybe just treat their music as a sideline, an enjoyable hobby. Maybe there will be fewer of them of renown in any one area, but instead of just hearing the semi-local yokles as they wandered by. We will get the best music an entire world will produce (actually more likely what the majority of idiots in the world think is the coolest — don’t get me started on the evils of corporate promotion and suppression of musical talent) Perhaps explaining why the death of one of the actors in Fast and Furious gets about the same attention in the media as the death of Nelson Mandela).

    1. I still think the idea of subscription music can be good for music creators. They just need to be paid more per stream than they are being paid now. That method is a fair system in that everyone pays for what they hear. And songs that get heard more are paid more. The trouble with the current payment system is artists are getting paid a tiny fraction of a penny each time a song is played. What if it was a penny?

      I wonder about many of the artists that are complaining about streaming payments. Sure they are low, but how often are their songs played? For streaming to work, the streaming services need to pay more per stream, more people need to subscribe to the services, and the artists need to promote the playing of their music through streaming services.

    2. “Or maybe just treat their music as a sideline, an enjoyable hobby.”

      Frankly, I like that idea, Greg. Even more, I like people making music themselves, rather than listening to professionals. It’s like sports. People should be playing sports more than watching them. Why should a sports figure be a celebrity? It’s really pretty stupid, isn’t it?

      OK, not everyone is musical. And there’s certainly nothing wrong with listening to music. But why should rock stars even exist? Why should vocalists be celebrities? And why should musicians necessarily make a living from their talent?

      If they can do so, fine. More power to them. But if they can’t, why would that be a problem? If they love music, let them make music. If they love performing, let them perform. But so what, if few can make a living from it?

      I’m not at all musical, and I rarely listen to music. So, admittedly, this doesn’t affect me much. But why does music need to be a business first? Music will never die, even if some people can’t become rock stars – or even make a living from it.

      Don’t get me wrong. I certainly understand why people who love making music would prefer to do it professionally. I understand why they’d want to make money from it – and a lot of money, preferably. But why is that a problem for anyone else, even for music-lovers? Most people don’t make any money from the things they love to do.

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