Streaming is the future of music distribution – in 2015, global streaming music revenues grew 45% and now account for 43% of all digital music sales. It is important to understand two things right away and move on with life:
#2 is important and often overlooked. Whereas a song download cost the same ~$1 it does today when iTunes first came out years ago, the value of a stream in 10 years
will likely be much higher than a value of the stream today. Streaming compensates artists (and their investors) on a relative basis,
whereas downloads compensate on an absolute basis.
There’s no one fixed per-stream rate, despite numbers being thrown around. The amount of money that an artist receives from streams on e.g. Spotify depend on a) the total amount of money Spotify receives from consumers paying for its service or from advertisers multiplied by b) the relative contribution of an artist’s streams to total number of streams. There are some other nuances (i.e. special deals) but in simple terms that’s the math. Spotify charges $9.99 per month in the US and £10 in the UK and only keeps 30% of this income before paying out all other revenue to rights holders.
Everyone loves a rule of thumb so people frequently quote a $0.006-0.008 average rate per stream. In reality, probably very few artists receive that – remember, this is a dynamic output of many factors and not a set, pre-determined price.
Here’s a very helpful graphic from Spotify actually demonstrating what different types of albums have made over one month. Note this is from 2013 which means that as the service has grown, these figures would have as well:
Download sales are straightforward, albeit on the decline: download revenues were down 10% in 2015.
Artist puts a song on iTunes for $1 → a fan buys a song → Apple keeps $0.3 and artist keeps $0.7 (assuming artist is the full rightsholder).
Obviously more than 1 stream on Spotify.
Artists with fanatical fans are still able to sell downloads and stars with leverage are starting to frequently withhold their work from streaming services for a period of time to boost those high margin download sales. Adele sold 3.4 million albums just in the first week after her release (at $11 each = $26 million to her labels after Apple’s 30%. Not bad for one week at the office!) by not allowing distribution through streaming services.
But for artists that are still in their developmental phase, downloads are likely to be a nice cherry on top rather than the main meal. We frequently see artists who are very early on in their careers prevent the distribution of music on streaming services. While we understand the financial and emotional rationale, sadly we think this is counterproductive.
Artists make money from live performances in 2-3 primary ways:
Whenever you hear a song in a TV show, movie, commercial, web-series,
etc you are witnessing this revenue stream in action.
Getting a song picked up for a hit TV show can be extremely
lucrative and not at all as improbable as it seems.
As other production costs continue to escalate, music supervisors at studios and ad agencies increasingly look to emerging artists
for fresh sounds at relative ‘bargain’ prices, (relative to the Adele’s of the world). But for an indie artist, getting one
short 10 second placement of a song can often mean $5,000 – 20,000 in lump sum revenue. Much quicker than getting millions of streams on Spotify!
That upfront payment is known as a 'sync fee' or 'the front end'. The former title stems from the music having been synchronised to a picture, while the latter refers to the fact it is only one part of the fee available. The 'back-end' is a royalty paid in equal portions by e.g. a broadcaster to the artist and their publisher via a collection agency. While front end can seem more exciting to celebrate, back end royalties can also quickly mount up, particularly where the 'sync' is to television or film.
Of course, this revenue stream is somewhat unpredictable. Artists need to hustle to continuously get their music in front of agents, licensing companies and publishers. But with the right product, this hustle can pay big dividends!
Often tied to live concerts, merchandising can be an interesting source of revenue for artists who have built a strong brand.
We’ve seen huge artists with terrible branding sell millions of units, but also frequently see young bands with a knack for
design create momentum around their products.
There are plenty of services out there for on-demand manufacturing which makes merch generally a predictable investment for
those who have a devoted following.
Here’s what we look for in artists at an earlier stage in their development as tell-tale signs of great potential:
Case study: Undiscovered indie artist on Spotify
Perrin Lamb is an indie singer/songwriter in Nashville. By 2013, Perrin has had a good run of performing at local Nashville venues and self-releasing but was yet to build a significant social media following or break out on a national level. His song “Everyone’s Got Something” was on Spotify but has garnered limited traction on its own.
In early 2014, Spotify’s editorial team adds the song to a popular Spotify playlist that is presented to millions of users. By Oct 2015, the song accumulates 11 million streams, earning Perrin $56,000 on “Everyone’s Got Something” + $37,000 on his second most popular song by association.
Hypothetically applying the average terms of deals available on LIVAMP to this scenario would suggest a full return of invested capital + 40% profit in less than 2 years.
Case study: Unsigned band licenses song to a blockbuster movie
In 2014 a music supervisor for the big budget movie Extremely Loud and Incredibly Close shared a story of her team looking for a cheaper alternative to Coldplay to include in the trailer of the film. Long story short, a relatively unknown unsigned band fit the bill and got paid $80,000 for placement.
A good example of how just one deal can more than payback a minority investor’s principal.
Live and merchandise
Bands don’t need to sell out Madison Square Garden to make a living from touring. It’s quite common for indie bands playing ~200 seat clubs to make ~$1,500 per night. Play enough of those and bigger venues start welcoming artists with open arms.
A well-publicized case study floated around the web in 2014 describing Pomplamoose, a relatively successful but still independent band, and their 28-day tour that generated $136,000 in revenue between ticket sales, merchandising and sponsorship. There are certainly many expenses that go into putting on a tour, but not a bad start.