ANALYSIS: An insight into the revenue model of artists

I fielded some really interesting questions over at Reddit (this thread if you missed it). Thanks to everyone who came by to add to the discussion.

While I’ve tried to keep this blog mostly anecdotes about my career (and its intersection with my personal life), I wanted to touch on a common misconception that kept coming up again and again from fans and aspiring artists.

That is, your favorite band is (likely) not very rich.

My first shows were all at clubs, probably 300 to 500 capacities. You get 300 kids in a mosh pit for an hour and the room is alive. Sweat pools along the ceiling and drips down on everyone below. The band on stage are gods among men. Off stage, they must live like the immortals they are, in a big house with a home theater and a bowling alley.

Well let me break down the math. It used to be that when a band played a show, the club had to make back their expenses and then they split the profit with the band. As more clubs opened and things got competitive, promoters used to promise that they would get a certain number of kids through the door, and “guarantee” them a certain fee. That really spiraled out of control and all these bands and agents and managers told promoters to promise them a guarantee based on a sold out show. That sent a lot of clubs out of business, but for argument’s sake, let’s say a sold out club show will make the headlining band roughly $1,500. The opening acts will likely get paid between $500 and $50.

Great! $1,500 a night for two months is a lot of money! Well, that’s not taking into account any expenses. Assuming everyone is in a van instead of a bus, there’s gas, which is maybe $200 a day. One hotel room to cram everyone inside at $75. A small two person crew runs maybe $150 total if they’re working for real cheap. Insurance. Gear purchases. Van purchases (one broken transmission will likely eat the profit from an entire tour). Even without paying a manager or agent, profit margins are slim. And most overlook the biggest cost of being on the road – days off, which burn through the same amount of expenses per day but with zero income coming in.

The real profit for a band at that stage comes from merchandise sales. If you want to support your favorite band, go buy a shirt. On a good night, let’s say a band averages a net profit of $1,000.

Over 45 shows, that’s $45,000! A ton of money. Let’s say the agent and manager get paid. Now, in 360 record deals, the label gets paid. So say that $45k becomes $30k. Split among five band members, that’s $6,000 each. You do three headline tours a year and that’s under $20k per person. When they open for another artist they may make much less than that. For reference, the poverty level of the United States in 2009 was any amount under $11,000. I would guess that once all expenses are paid, most club level bands fall roughly into this range.

A street busker – still making more money than you.

The decent show money comes from playing theaters and above (capacities of about 2,000). The majority of artists never reach this level. In 2010, about 100,000 albums were released by artists. Just 1% of those sold more than 10,000 copies. Think about your favorite indie band, and how likely they are to be in the top 1% of ALL music released in the United States. If they sold a couple thousand copies of their album throughout the country, they likely aren’t playing to a thousand people in each city.

Artists signed to a record label should not expect to make album royalties. Sales are so low and expenses so high that an artist should hope their label invests as much as they can in marketing because either way they’re probably not receiving a check.

So where can artists make money? It depends on the type of artist. I generally separate bands into two camps – those who primarily reach their audience through mass media, and those who reach them through touring. A very successful artist will harness both. If you’re Arcade Fire and you write all your own songs and play huge festivals, you make a lot to go and perform for thousands of people. But if you’re a more traditional major label artist, a large chunk of money will come from TV/movie placements and radio airplay (assuming you also write your own songs).

TV/movie/radio generally pays the writers of the songs, not the performers (although the labels also get paid for movie placements which could theoretically trickle back into royalties on the very small chance the artist recoups). A movie placement could be worth $25,000 to $50,000. A big song at radio generates hundreds of thousands of dollars. A HUGE radio hit can generate over a million dollars worldwide from what are essentially royalties paid by radio stations to play that song.

So, say you’re a major label and you make all your new artists sign 360 deals, which is customary these days. You look at where the money comes in. Rock/alternative radio plays old favorites like Foo Fighters and Red Hot Chili Peppers.

Alice in Chains – still getting more radio airplay than you.

They’re not really playing any new artists so why target those bands? Which leads to most major labels laying off their rock staff and focusing almost entirely on top 40 bands that are going to generate a lot of revenue from mass media.

The upside to all this is that music consumption is higher than ever. People love music and they always will. The situation pushes artists to constantly look for new ways to generate revenue, which makes them very progressive and early adopters of new technology. Lots of bands push the envelope and find new ways to generate revenue that didn’t exist before. That’s what will separate the career artists from the increasingly common one-album wonders.

The men and women you see on stage are trying to make a decent buck just like everyone else. If you’re a fan, show them a little respect. If you’re an aspiring musician, don’t overlook the most crucial part of the music business – you should love what you do. At the end of the day, being an artist means making art, and should be something you’re proud of.

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2 responses to “ANALYSIS: An insight into the revenue model of artists

  1. Pingback: Guest post: Jaddan Comerford, Australian « KMGMT

  2. Pingback: Guest post: Jaddan Comerford, Australian « KMGMT

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