One of the many things that the digital revolution has done to the music industry is to create and accentuate a number of imbalances. Imbalances that will either change, become the foundations of the next era of the music business, or both. In fact there are three key areas where, coincidentally, the lesser party is 6 times smaller than the other:
- Digital music revenue share: A common refrain from songwriters and the bodies that represent them (music publishers, collection societies etc.) is that everything starts with the song. And of course it does. However it is the recorded version of the song that most people interact with most of the time, whether that be on the radio, on a CD, a download, a stream or a music video. This has helped ensure that record labels – usually the owners of the recorded work – hold the whip hand in licensing negotiations with digital music services. Labels have consequently ended up with an average of 68% of total on-demand streaming revenue and publishers / collection societies just 12%. The labels’ share is 6 times bigger. Publishers are now actively trying to rebalance the equation, often referred to as ‘seeking out a fair share’. For semi-interactive radio services like Pandora the ratio is roughly 10:1.
- Artist income: While music sales declined over the last 10 yeas, live boomed. And although there are signs the live boom may be slowing, a successful artist can now typically expect to earn as little as 9% of their total income from recorded music, compared to 57% from live. Again, a factor of 6:1. There are many complexities to the revenue split, such as the respective deals an artist is on, fixed costs etc. but these splits tend to recur. Ironically just as everything starts with the song for digital music, everything starts with the recorded work (and the song) for the live artist. The majority of an artist’s fan base will spend most of their time interacting with the recorded work of the artist rather than live. The recorded work has become the advert for live. In fact the average concert ticket of a successful frontline artist costs on average 8 times more than buying their entire back catalogue. Thus for fans the ratio is even more pronounced at 8:1.
- Free music users: The freemium wars are dominating the contemporary music industry debate. Spotify and other services that have on demand free tiers are under intense scrutiny over how these tiers may be cannibalising music sales. However YouTube’s regular free music user base is about 350 million compared to approximately 60 million free freemium service users across all freemium services. Again a ratio of 6:1. Whatever the impact freemium users may be having, it is 6 times less than YouTube.
The music industry has never been a meritocracy nor will it ever be one. So it would be fatuous to suggest equality is suddenly going to break out. However there will be something of a righting process in some areas, especially in the digital music revenue share equation. Most significantly though, these ratios are becoming the foundational dynamics of the new music industry. These are the reference points that artists, rights holders, and all other music industry stakeholders need in order to understand what their future will look like and how they can help shape it.
NOTE: This post was updated to reflect that the songwriter ratio is actually 10:1 for semi-interactive radio. The 2:1 ratio applies to label revenue versus collection society revenue, which includes revenue for performers who are often but not always also the songwriter.
How do these ratios compare to the ratios of the old pre-digital music business? That info would help to give people some perspective on how things have changed and what it means.
kingsinger – take a look at this report for how the value of the live market versus sales has evolved
Also we have a report on changes in artist income in our midiaresearch.com subscription service
Really interesting post, even if the maths don’t add up. Beauty of rounding. Does still show the power that the labels have though.
How much of the chunk does the artist receive?
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The YouTube user-base vs. freemium stats was the most interesting
Re: artists’ earnings, being as streaming has made it impossible for us to earn anything from the sales of our recorded music, it’s hardly a surprise that the ratio is so skewed to live!
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Mark. What do you mean by successful artists? Theatre? Stadiums? You can’t be talking about the club world. Or are you comparing Gross (live) revenues to Net (recorded) music revenues? Are you including publishing? Personally more than 1/3 of my revenue comes from publishing and that is expense free. It dwarfs my live music net. Also with camper van beethoven nearly 1/4 of our total sales were CDs sold at shows. Is that live or recorded music revenue.
Finally I have no idea where you get the 2:1 ratio for non-interactive streaming. Dude it’s more like 12 or 14 to 1. Sound recording to song. How on earth do you get 2:1? Are you counting Sirius?
Hi David – the ratios are averaged out. Based on a lot of primary research from small, big, medium and super star artists. However the live ratio is, as the text states, for ‘successful’ artists, so yes those at the top of the pile. Though incidentally, with the top 1% of all artists earning 77% of all income, their revenue skews the average too: http://musically.com/2014/03/04/how-digital-music-services-may-be-fuelling-a-superstar-artist-economy/
For smaller artists, of course live is less and often a loss leader in the earlier stages of an artist’s career. But get successful, that ratio will increase and sales will decrease right?
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