Category Archives: Music Industry Analysis

ANALYSIS: How we fucked up the music industry, and what other companies are learning from us (hint: not enough)

I started my career in music back when music videos still cost a million dollars.

If I was born 10 years earlier, I’d be a multi millionaire by now. I wouldn’t have had to work nearly as hard. Money was flowing all over the place and the party was never going to end.

Today, the music video budget for a super star artist is maybe $75,000, give or take. It is less than 10% of what it was a decade ago. Money just isn’t easy to come by.

I’m not complaining. Our industry used to attract a lot of people drawn in by the lure of easy money. Some may refer to these people as “douchebags,” but I digress. The people working in music today are passionate about their jobs. And they make ridiculously less money.

That’s why it is hard to read an article like this one.

Does anyone pay attention to what we just went through? I had lunch with a big time movie producer the other day. They’ve worked on huge $100million+ films, and they were lamenting that the average budget for a mid-sized film has dropped from $60 million to $30 million. One of the biggest reasons? When they make their budgets, they’ve reduced their estimate on DVD sales all the way down to zero.

Another good idea from film masterminds (or… an industry metaphor?)

I’m no expert in the film or TV industry. Heck, I’m hardly an expert on the music industry. But I do know that a bomb of a film still made its money back, by selling the rights to cable, selling it on DVD, licensing it around the world, etc. This happens in music, too. Maybe an album tanks, but if the song is used in a TV commercial or whatever, the label gets paid, as does the artist. For major labels, there is actually a LOT of money in this, with entire divisions dedicated to music placement. The point is, your income has to exceed your expenditures, and we sort of fucked that up. “We” as in the industry, but as consumers too. There is a great article about that right here.

It is not news to anyone that as an industry, we were slow to react. Here is an example. The ‘old’ music model was that you would have an artist record an album, press it to CD, package and shrink wrap it, ship it to a store, then have the employees unpack it and put it on a shelf. As a label you would pay maybe an 18% distribution fee for all that to happen. There are whole companies built around this model. It was a huge business! And a lot of work.

OK, now Apple comes along and builds their digital store. As a label, you type in your meta data and click some buttons. Apple charges 30% for this service.

iTunes is the biggest distributor now. They sell more music than WalMart or Target or Best Buy. And their marketshare is growing. More or less, the music industry conceded a third of their revenue to Apple.

Well, fuck us. It was our own damn fault. There are no shocking revelations in this article or anything like that. Anyone even on the periphery of music knows we spent all our resources fighting Napster and P2P while Apple came in and built their digital store. What I’m curious about is: who is going to do for film what iTunes did for music?

There is one potential game changer for us. The reason pop music gets pushed so hard is because that is how our business model is structured. Follow the money: pop music succeeds because right now, that is what brings in the revenue. 70% of sales often occur in the first week of release. Everything is front loaded. Our model rewards pushing something as hard as possible for a short while and then abondoning it, moving on to the next flavor of the week. That last 30% takes a lot of work! Every once in a while something sticks, and everyone cheers, but that is rare. At least one big label I know of doesn’t even have an “artist development” department any more.

These five defined my childhood.

So what happens when streaming services become more popular? Those pay based on consumption. Let’s say you pay Spotify $10 a month, and you listen to Spice Girls’ “Wannabe” over and over again. It’s the only song you listen to. Well, Spotify or whoever takes their cut off the top and pays the rest out to the Spice Girls’ label. If you listen to “Wannabe” and Ke$ha, they split your money. They pay out based on what users are listening to. The thinking then becomes: OK, do we want a big pop song that everyone will listen to like crazy over the summer, or do we want an OK Computer, an album that over 30 years is going to pay over and over and over?

Would love to hear your thoughts. Leave a comment below or send me an email.

UPDATE: TechDirt has a great analysis up with a similar viewpoint that is worth reading. Anyone in the film industry who can shed some light on this for us?

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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.