BusinessEnglishEntertainment

How musicians really make their money

...and it has nothing to do with how many times people listen to their songs

  • The majority of an artist’s revenue comes from touring, selling merchandise, licensing their music for things like television, movies, or video games, and partnerships or side businesses.
  • Streaming is often thought of as the future of music and can provide artists with a nice source of income. But it isn’t nearly as lucrative for artists as other revenue streams.
  • The future of the industry is unclear, but analysts are optimistic about the ability of artists to thrive in the emerging landscape.

There’s a common misconception about how major musicians earn their money: In short, it’s all about having a hit song that breaks the top 40 music chart.

In reality, it’s more complicated than that, and an artist’s financial success often comes from revenue streams outside of streaming or downloads.

“Where number of listens comes in handy is in the algorithms and in social proof,” Zach Bellas, a professional musician and founder of SMB records, told Business Insider.

“If an artist’s song gets some attention in its beginning, the algorithms will suggest it to others, and as the view and play counts rise, it will gain more authority and social proof in people’s minds, creating a cycle that pushes the song further into the top searches and suggested tracks.”

But, as Bellas noted, “artists have always made the bulk of their money from live performances and touring.” And for big names in the industry, the numbers back this assertion up.

Consider, for example, U2, which made $54.4 million and was the highest-paid musical act of the year in 2017, according to Billboard‘s annual Money Makers report.

Of their total earnings, about 95%, or $52 million, came from touring, while less than 4% came from streaming and album sales.

Garth Brooks (who came in second on the list), owed about 89% of his earnings to touring, while Metallica (ranked third) raked in 71% of their earnings in the same way.

“In the last several years, streaming revenue has increased, but it is still not enough on its own to financially support a career with longevity,” said Erin M. Jacobson, a music-industry lawyer based in Beverly Hills, whose work involves negotiating record contracts on behalf of artists ranging from up-and-coming artists to Grammy-winning musicians.

Other common sources of revenue, according to Bellas, include sync licensing (for example, when an artist sells the right to play their song on a T.V. show, or in a movie or video game), and side-businesses, like fashion lines, as well as partnerships with brands. Think, for example, of Rihanna’s makeup and lingerie lines, or the soundtrack to your favorite movie, or any ad campaign starring your favorite famous musician.

According to a recent Citigroup report, the music industry generated a record $43 billion in 2017, but recording artists saw just 12% of that revenue, or $5.1 billion, and the “bulk” of their revenues came from touring.

Music businesses, including labels and publishers, took home almost $10 million, according to the report, which showed that artists are still grabbing a meager percentage of the increasing revenues in streaming, where music labels and streaming services act as intermediaries.

Artists also have to deal with the issue of copyright, where revenues for their music are further split among publishing companies, music labels, and songwriters.

So, despite common belief, getting signed to a label isn’t necessarily more lucrative for artists nowadays.

“Many artists think that they will make more money when signed to a label, and I have to educate them that this is not necessarily the case and explain to them that they have to pay back all the costs the label expends on their behalf,” says lawyer Jacobson.

“Artists still think fame and fortune is easy to come by, and that they will get high advances, which most companies are not giving now.”

With the constant changes in the ways people listen to music, the future of the industry, and what artists stand to gain, is unclear.

Yet, a recent surge in music revenue paints an optimistic picture of where the industry is headed. According to the RIAA, music industry revenue has increased for two consecutive years. That’s the first time it’s happened since 1999.

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