Part 3 of our mythbusting series | December 13, 2012

Assumption 3. “In a post-Napster world, musicians don’t make any money selling music”

Our mythbusting series continues with an examination of data surrounding the assumption that “musicians don’t make any money selling music.”

Like the prior assumption related to income from live performance, there’s certainly a grain of truth to this. Revenue streams associated with sound recordings – perhaps more than any other – have undergone serious changes in the past 10 to 15 years. The existing music marketplace was fundamentally disrupted by peer-to-peer filesharing, which simultaneously led to a decline in brick and mortar stores, and the development of legitimate services like iTunes, Amazon, Rhapsody and Spotify. The past 10 years also saw the rapid growth of a new revenue stream for sound recordings – the digital performance royalties that are generated when sound recordings are streamed on any webcast station like Pandora or played by a digital service like Sirius XM.

So, the marketplace for selling sound recordings has changed, but is it true that musicians don’t make any money selling music? Our qualitative and quantitative data suggests:

For many musicians, the income derived from sound recordings is a small part of their overall revenue pie, and it’s decreasing. The sources of income from sound recordings are shifting. Technology has had a significant impact – both good and bad – on the sound recording landscape.

Beyond the dollar value of this revenue stream, we need to recognize that sound recordings are valuable for other reasons, serving as an artifact of creativity that can but be used to leverage other income sources, from live performance money, to merchandise, radio airplay, and synchs. Even if their dollar value is shifting, sound recordings will remain an important part of the ecosystem for years to come.

This post focuses on the revenue generated from the sale or license of a master sound recording – the recording that is captured in the studio, then released in any format, whether vinyl, cassette, CD or as a digital file. We are not going to cover the money that’s generated by the composition (the song that’s record) when it’s licensed for reproduction. We have data about these composition-related revenue streams, but we will talk about them in future reports.

Let’s look at some data.

Survey data about income from sound recordings

Early in the Money from Music survey, we asked musicians to estimate what percentage of their income was derived from sound recordings. For this top-level number, we asked them to lump together different sources: physical sales, digital sales, music sales at shows, payments from interactive services, digital performance royalties, and master use licenses for synchs or ringtones.

For the 5,371 respondents, the aggregated percent of income derived from sound recordings in the past 12 months was 6%.

This is the same as the aggregated percent income from compositions, which was also 6%.

While the pie chart above shows that the aggregated average of income derived from sound recordings for 5,371 respondents was 6%, the range of income derived from sound recordings ran from 0% of income to 100% of income, as indicated below.

Two-thirds – or 66% – of survey respondents reported that 0% of their income was derived from sound recordings in the past 12 months, and another 22% said it was less than 10% of their income. So, for 88% of our survey respondents, income from sound recordings accounted for 0% to 10% of their music-related income in the past 12 months.

The chart above should not be interpreted as a wholesale collapse in sound recording income. First, remember that the survey population includes a diverse range of musicians, some of whom may not be participating directly in the sound recording marketplace – composers, session players, salaried players, teachers. For some survey respondents answering this question, the 0% is simply indicative of career structures that don’t involve making money directly from the sale or license of sound recordings (though they may be making money on sound recordings in other ways: mechanicals, AFM Special Payments, etc.).

Second, this survey is a snapshot; it’s capturing data about musicians’ income streams in a particular twelve month period. The fact that they didn’t make any money on sound recording in the past 12 months may be an indication of the cyclical nature of sound recording income, which tends to ebb and flow with release schedules and royalty payments. Needless to say, we need to look deeper into this data to better understand what it says.

Income from sound recordings by role and genre

We are also able to examine this top level data through certain filters. When we look at the income from sound recording by role, shown below, we see that survey respondents who said they were recording artists (11%) and/or composers (10%) made a higher percentage of their income from sound recordings than musicians in other roles. (Note that survey respondents could check off multiple roles). This makes sense; respondents who identify as recording artists are getting more recording income than those who do not consider themselves recording artists.

We also see that those whose primary genre was rock (14%) or hip hop (12%) derived a greater percentage of their income from sound recordings in the past 12 months.

The genre data above appropriately reflects larger market conditions; the more commercial genres of rock and urban derive more money from sound recordings than the genres that are more focused on performance, such as jazz and classical.

Perceived changes in income from sound recordings

We also asked survey respondents if their income from sound recordings – the combined bucket of physical retail sales, digital sales, sales at shows, on-demand streaming and digital performance royalties – has changed over the past five years. The chart below shows these perceived changes:

Of 4,447 respondents, 16% said their income from sound recordings had increased, 18% said it had stayed the same, and 22% reported that it had decreased over the past five years, which is 6% more than those respondents who said it had increased. This suggests that, in aggregate, survey respondents’ income from sound recordings has been declining, but not by much. Remember that this bucket includes new sources of income like digital sales and digital performance royalties, which may be offsetting perceived changes in traditional sales.

But this chart also indicates that, for 41% of survey respondents, the question about trends in sound recordings income was not applicable. This is an important reminder that the US music population is large, diverse and specialized, and that the survey respondents include many musicians for whom sound recordings sales are simply not part of their financial picture.

Perceived changes in income from sound recordings by genre

Let’s look at the same revenue trend data by genre. The top bar on the chart below shows perceived changes in revenue for all respondents, with additional bars for the five most common primary genres.

Rock and hip hop musicians – the genres most likely to be engaging in the commercial marketplace – report similar amounts of participation with lower numbers of “not applicables”, but 5% more rock musicians are reporting a decrease in income from sound recordings, while 8% more hip hop artists report an increase (note that the sample size of hip hop artists is small). Country shows an even split in all categories. The genre with the greatest number reporting a decrease is jazz. Meanwhile, 61% of classical musicians said this question was “not applicable”, but for those who are selling sound recordings, 10% more are reporting a decrease.

Though differences exist by role or genre, the survey data generally suggests that, for many musicians, the income derived from sound recordings is a small part of their overall revenue pie, and that it is decreasing over time.

Interviewees’ thoughts on sound recording income

The survey is just one of three ways we collected data. We also conducted over 80 interviews with musicians, composers and managers. For those who participated in the sales of sound recordings, the answer we heard most frequently from interviewees was they were seeing a drop in this income stream.

A manager of an established classical quartet with dozens of sound recordings in its catalog told us that all the sound recording-related income had decreased:

“The thing that’s decreased—this won’t surprise you—is the income from recording. By that I mean the royalties, the advances, all of the income streams that go along with the recordings. It’s all decreased significantly over the last 10 years.”

– Contemporary Chamber Ensemble

A country music manager talked about how unauthorized filesharing has impacted legitimate sales:

“I think peer-to-peer has been very destructive and, at the very least, it is obviously clear that it breaks copyright laws and I think it has had a dramatic impact on the amount of record sales that an artist is able to achieve.”

– Country Music Manager

A Nashville songwriter told us about the drop in mechanical royalties. Now, technically, this is about composition money, but he’s talking about the drop in sales that has led to the decline in mechanicals:

“Mechanical royalties have just been decimated; the statement that was 20 pages long and involved six figures has turned into this statement that’s 100 pages long and doesn’t even make five figures. It’s probably, I’d say, at least a 75% decline in mechanical royalties…”

– Nashville Songwriter

And a rock guitarist also recognized the drop in sales, but was moving on:

“[…] it definitely seems that people in general are bummed that record sales are so shitty and while I would love to get paid more for records I, long ago, gave up chasing that particular ghost and have looked for money elsewhere.”

Sound recording income by category

– rock band guitarist and singer

To this point, the data has lumped together all the possible sources for income from sound recordings – physical sales, digital sales, digital performance royalties, and so on – into one bucket.

For those survey respondents who took either the medium or long path through the survey, we asked additional, detailed questions about each of the sound recording revenue possibilities included in that bucket. About 1,000 survey respondents answered the deeper questions regarding:*

Physical retail sales (brick and mortar, Amazon, mailorder) Digital sales (iTunes, Amazon MP3, Bandcamp) Sales of recorded music at shows/merch table Interactive streaming services (Spotify, Rhapsody, Slacker) Digital performance royalties (Pandora, Sirius XM, via SoundExchange) Master use license for synchs, ringtones, etc.

* We also asked about record label advances, AARC royalties and a variety of AFM and AFTRA fund payments based on the sales or performances of sound recordings, but this data is not included in this report. You can learn about all the revenue streams we were examining here.

First, we asked them if they had ever received any income from these various revenue streams. Their answers:

About 74% said yes, at some point they had earned some money from physical retails sales, while 64% had earned some money from digital sales, and 79% reported receiving some money from sales of recorded music at shows. This suggests decent participation rates in the sound recording marketplace.

We asked separate questions about synch licensing fees (both the composition and the sound recording side). For the sound recording side, only 17% said they had ever received income from a synch.

The marketplace for synchs has certainly broadened, due in large part to the massive growth of visual content – cable TV shows, movies, films, ads, websites – that needs a musical soundtrack of some sort. But, it’s a marketplace that is largely controlled by music supervisors, publishers, record labels, and ad agencies, which might be one reason that so few survey respondents have seen income from this.

What about the new revenue streams for sound recordings? First, we asked survey respondents to report on whether they have ever received income from on-demand, interactive music subscription services like Rhapsody, or MOG, or Spotify. In each instance, the recording artist is paid a fraction of a penny for the stream.

We also asked the about income earned from digital performance royalties. These royalties are generated when sound recordings are played on a variety of non-interactive music services, such as Pandora (and all other webcast stations), Sirius XM, and Music Choice. These royalties are paid directly to the featured performer and to the sound recording copyright owner (usually a record label) via SoundExchange.

Not as many survey respondents have seen income from on-demand or non-interactive streaming than other sound recording categories, but there are a number of possible reasons. First, and most obviously, these are relatively new revenue streams, and musicians’ understanding of and participation in these types of services is still evolving. Second, musicians may not be aware of subtle differences amongst the various music services, or how the money generated from these platforms flows back to them. Third, for digital performance royalties, artists must register with SoundExchange to collect. Even though it’s free, musicians need to take the necessary steps to claim their money, which is different than other sound recording revenue streams. We wrote more about the factors at play here.

Trends in sound recording income by category

Survey takers who chose the medium or long path were also asked about trends in these specific sources of sound recording income over the past five years. The chart below summarizes the perceived changes in sound recording income by category. Note that survey respondents were simply asked if this income source was increasing, staying the same, or decreasing – NOT about the changes in the dollar value of these specific income categories.

The perceived trends are what you’d expect, given market conditions. More report a decrease in physical sales, while 41% more report an increase in digital sales over the past five years. For sales at shows, there seems to be an even split on the trend data. For synchs, a slightly greater percentage are seeing an increase rather than a decrease. Though fewer musicians reported seeing any income from on-demand streaming services or digital performance royalties, each of these has also seen an increase. (Caution: the increases in these two categories may be almost entirely attributable to instances where musicians were making $0 from these services five years ago, thus any income from them – even fractions of pennies – would be perceived as an increase.)

We also asked survey respondents who took the medium and long paths to give us the reasons why they think each of these revenue streams are changing. Below are two of these charts. The drop in physical sales income was attributed to:

All of these “reasons why” questions also gave respondents an opportunity to type in their own explanation. Of the 34 open ended answers to the decrease in physical sales question, a few mentioned the downturn in the economy, while other musicians said they had simply stopped making physical CDs. In other words, they had exited the marketplace in the past five years.

The increase in digital sales was attributed to:

One survey respondent made an interesting point in the open-ended box on this question:

“though the revenue has increased, it has not increased proportionately compared to the ‘traditional’ or, what used to be, ‘conventional’ outlets where product could be sold. So this is not an accurate reflection of the total of ‘real sales’, comparatively speaking.”

This comment underscores something important. As mentioned previously, the Money from Music survey was designed to measure musicians’ income streams in 2010-2011. These questions about changes in revenue streams are simply meant to measure the perceived direction of change, not the amplitude of change.

Survey takers who chose the short path did not see these detailed questions about income by category, but we did have two open ended questions where they could tell us about the trajectory of revenue streams in general. The most frequently used words referenced changes in freelancing opportunities and income from live performances, but there were also some references to sound recording-related money. One survey respondent said this, which encapsulates a lot:

Q 194: Are there any music-related income streams that have increased?

“Digital sales from streams / legal settlements / digital rights (SoundEx) – We couldn’t sell singles easily before 2005 – now we sell many singles… but the volume of sales of recorded music is far lower than pre-Internet.”

Q 195: Are there any music-related income streams that have decreased?

“All physical sales have dropped off a cliff. Synch licensing is much more competitive and lower fees. The “profit” from making music has dropped to a dangerous level – artists cannot “make a record” and expect that alone will earn them money -“

Interviewees’ thoughts on sound recording income sources

Many interviewees told us that this transformation to a digital sales landscape has drastically shifted the source of income earned from sound recordings.

Digital sales

A surprising number of them – from all sorts of genres – mentioned the iTunes Music Store as a game changer. A jazz manager said it’s been a driver for revenue:

“iTunes is a specific technological development that’s been helpful to revenue…”

– Jazz Manager

A Nashville songwriter said the same thing, noting it made music purchasing easy and fun:

“There’s no doubt that iTunes – by making the purchase of music easy and convenient and actually fun – has done more for the recorded side than anything…”

– Nashville Songwriter

The guitarist in a platinum selling rock band told us that digital sales were a significant source of income for them:

“Digital sales have boosted and that’s one thing instance where we’ve been lucky. Whoever those people are who buy iTunes singles seem to like us. So we have that going for us in that we sell a shit ton of those.”

– Platinum Rock Band Guitarist

Clearly, iTunes isn’t the only digital store out there, but it is the biggest player in the marketplace, and the store most recognized by both musicians and music purchasers.

Sales at shows

Another thing that interviewees said, especially those working in classical, jazz and indie rock, was that sales at shows were important.

This was especially clear with the classical folks, for which there is an incredibly small market for t-shirts and other ancillary products. Many of them told us that they see the most money from physical sales not from Amazon or retailers, but from their own merchandise table after the show.

A chamber music player not only told us that they were their own biggest vendor of CD sales:

“What puts the money in our pockets from record sales is concerts.”

– Contemporary Chamber Music Player

A classical music manager expressed something similar:

“But as far as CDs go, I think that most artists are finding that they sell more records at their individual concerts than are sold any other way. At least in the classical music world.”

– Classical Music Manager

We can also look at income from sound recordings in the financial case studies. Here’s the income from an indie rock composer/performer, who sells CDs and vinyl on tour. Over the past five years, CD sales on the road has accounted for 12% of his income, and royalties from record sales another 3.5%.

Technology’s impact on sound recordings

Even as our interviewees talked about the value of iTunes, just as many talked about the negative consequences of technology. While most of the attention has been on the negative impact of peer-to-peer filesharing on sound recording sales – a sentiment that was expressed by a number of interviewees – technology has affected sound recordings in other ways.

Price

It’s had an effect on price. One interviewee talked about how piracy has put downward pressure on how much they can charge:

“Well, records not selling as much is no secret and I don’t need to say why, but it is a reality. There’s a couple of frustrating things about it. In addition to illegal downloading, which I feel like has sort of plateaued and is going to start coming down again, there’s a downward pressure on how much you can charge for an album.”

– Indie Rock Composer/Performer

But we also talked to some musicians and composers who were using technology to make money off recorded music in new ways. Technology makes it possible for musicians to do variable pricing, or bundle download sales with vinyl sales, stuff that was really difficult for individuals to do in the past. For instance:

Bundling

One fellow we interviewed had built his own download card system for his indie label artists, so that each person who bought a t-shirt at show got a copy of the album from their site:

“We have our own download card system in place. I, for one, definitely use that when I’m playing out, particularly with the vinyl. There’s a download card taped to the back of each record, and I try to do the same with t-shirts as well.”

– Tom, indie label owner and performer

Windowing

Technology also makes it possible for musicians to stagger the availability of their releases on various platforms, commonly referred to as windowing. The quote is too long to post, but another musician we talked to was directing fans to a Bandcamp-powered page to purchase a recent release because they had set up very specific bundled packages and variable pricing on the release. After about six months they also made it available on iTunes, but Bandcamp was the primary destination at first because that’s where they stood to make the most money, and deliver the best variety of products to the project’s fan base – it was where she could control the packaging and price points. By using Bandcamp in this ways she was, in essence, re-establishing exclusivity in a market that is all about ubiquity.

Digital performance royalties

Technology has also led to the development of an entire new revenue stream for performers and sound recording copyright owners, and that’s digital performance royalties. A number of musicians talked about not only the promotional power of services like Sirius XM and Pandora, but also verified that it has become a legitimate source of income for them. A jazz publisher noted its ascendance:

“The Digital Millennium Copyright Act and the royalties that are collected for featured artists for digital broadcast by SoundExchange has become a real source of income…”

– Jazz Publisher

…as did a hard rock band guitarist, whose music is played frequently on specific satellite radio channels, and who was receiving money from SoundExchange because of it.

“Yeah, we do really well with college radio, but the increase the money I’ve really seen is from satellite radio.”

– Hard Rock Band Guitarist

The growth of income from the digital performance of sound recordings should continue to increase as the marketplace matures.

Investment

Finally, a business manager with urban and hip hop clients talked about the ripple effect that decreased sound recording sales have had on the entire music ecosystem:

“Do I feel that record sales are down because people can download music for free? No question. Do I think that we have artists who make less money because their record sales are down? Yes. When the artist makes less money then I think everybody does: the songwriter does, the producer does, the engineer does, everybody does.”

– Urban and Hip Hop Business Manager

~~

So, are musicians making no money from selling music? Clearly, the answer varies a lot based on role, genre, career profile, and other criteria, but the qualitative and quantitative data collected suggests:

For many musicians, the income derived from sound recordings is a small part of their overall revenue pie, and it’s decreasing. In aggregate, 88% of survey respondents derived between 0% and 10% of their music-related income from sound recordings in the past 12 months. Respondents who identified themselves as composers and/or recording artists were making a bit more, as were rock and hip hop musicians, but even when examined through various lenses like role or genre, income from sound recordings hovered under 15% of music-related income. Though differences exist by role and/or genre, the survey data suggests that income from sound recordings is a modest slice of most musicians’ income pies – a sentiment also expressed by a number of interviewees. The sources of income from sound recordings are shifting. In the Artist Revenue Streams project, we asked specific questions about a number of sound recording-related income streams. The data suggests that income from physical retail sales has been shifting down and that sales at shows holding steady, while income from digital sales, on-demand streaming, synchs and digital performance royalties have been shifting up. But it’s important to note that the survey data can only indicate the direction of change, not the dollar value of change. As one survey respondent so aptly noted, the fact that his income from digital sales was moving in a positive direction does not mean that the income derived from digital sales was greater than that previously earned from physical sales. Technology has had a significant impact – both good and bad – on the sound recording landscape. Clearly, the traditional mechanisms for selling sound recordings have been severely impacted by unauthorized filesharing. Piracy has not only cut deeply into the retail sales marketplace, it has also impacted the value of music, and the prices that musicians can charge for recordings. But, technology has also led to growth in licensed digital platforms, and given individual musicians the ability to experiment with bundling options and variable pricing in ways that would have been nearly impossible 15 years ago. And, emerging technologies have led to the development of new revenue streams – digital performance royalties, in particular – which is steadily becoming a noticeable source of income for an increasing number of recording artists.

The data suggests sound recording revenue streams are of varying relevance, depending on a number of factors. For some musicians, income from sound recordings is not applicable, because it’s simply not part of their career composition. For others, it is one revenue stream of many. And for others still, income from sound recordings is a shifting puzzle. Faced with the challenges of near ubiquity of recorded music (with almost all of it available for free on the internet), they are using any means possible – technological and otherwise – to extract value from their work. Some musicians have become the largest vendor of their own music, selling CDs off the merch table after performances. Others are pressing limited edition vinyl, or bundling digital sales with t-shirt purchases, or trying variable pricing to super-serve their fan base.

As is the case with many parts of this digital transition, musicians’ experiences are unique, and there is no one-size-fits-all solution. Sound recordings are valuable for many musicians, serving as an artifact of creativity that can not only earn money, but be used to leverage other income sources, from live performance money, to merchandise, radio airplay, and synchs. Sound recordings will remain an important part of the ecosystem for years to come; what will likely change is the delivery mechanisms, the licensing structures, and the pricing.

This post is largely based on our May 2012 report, Income from Sound Recordings.