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PLEASE DON’T STOP THE MUSIC
How musicians are getting paid in the pandemic
Physical album sales are just 3% of their peak in the year 2000, music streaming services pay peanuts, and the pandemic halted touring. But artists are embracing new ways of making money.
By Gil Kaufman
28 June 2021
The global pandemic all but erased lucrative touring options in 2020, and it’s not clear when, or if, they will fully return. Physical album sales have shrunk by 97% since their peak at the turn of the millennium. And digital music plays on streaming services such as Spotify are expanding at a breakneck pace, but they send just fractions of pennies into artists’ bank accounts.
The good news is that as the old methods of reaching the top become less dependable, musicians are making money on everything from exclusive merch drops and virtual fan hubs to children’s books, podcasts, movie deals, back catalog sales and NFTs (more on those later). Despite every blow the music industry has taken in the past two decades, dollar signs are still popping for artists willing to branch out.
For much of the past century, recorded music made its way to your ears through the tightly controlled conduit of major record labels. The big six labels that existed until 1999 shrunk down to three: Sony BMG, Universal Music Group and Warner Music Group. They and their subsidiaries control more than 70% of the global music market.
Historically, record labels have also tightly controlled how much, and when, their acts get paid through an opaque system of accounting that combines record sales — via a royalty rate per unit — and radio play.
When the first major labels were founded in the early half of the 20th century, their aim was to “find art and culture in an attempt to license and pre-sell” those recordings to stores, according to Word Collections CEO Jeff Price. The former president of SpinART Records focuses on helping independent musicians manage their publishing rights, and he says those old royalty systems were essentially estimates. The artist was paid an often-generous advance by a label to cover their recording and promotional costs, which they had to repay before they could begin earning money on sales. Only the label had access to the final sales figures.
“The problem was nobody knew what they actually sold, because everything in the physical world was based on consignments. So how could they know what was shipped out, but not sold?” Price says. “For 50 years, nobody knew whose money was coming in, so they just created a big pile and divided it up based on market share.”
Musical recordings generate four main types of royalties: public performance, mechanical, print music and synchronization. The mechanical royalty is the payment the songwriter receives for the physical or digital distribution or reproduction of their copyrighted works. Public performance royalties create income for copyrighted works when they are played, recorded, streamed or performed in public. The least common, the print royalty, is paid for copyrighted music transcribed as sheet music. And synchronization refers to commercial licensing; I’ll get into syncs deeper in a moment.
Aside from royalties, musicians made the bulk of their income from touring, which is why they almost always hit the road after releasing an album. Until the advent of so-called “360 deals” in the early 2000s — in which labels began offering contracts to artists that included cuts of concert ticket and merchandise sales — the income generated from touring and T-shirts was a reliable, often healthy, revenue stream for many acts.
Billboard editor-at-large Steve Knopper says that when digital downloads and streaming transformed the business at the turn of the millennium, the three buckets from which the record industry usually paid artists — touring, sales and publishing — were all upturned. On download and streaming services, artists were racking up what Knopper dubs “micropennies.”Around this time, more bands were realizing they could break free from labels and control their own sales and distribution; the digital economy was refreshingly transparent for artists.
“Jam bands like Umphrey’s McGee could sell downloads of concerts they just performed,” says Knopper. “Or if someone plays your song at a wedding and does a funny dance and it gets 2 billion views, you can agree for that video to continue being on YouTube and get all that royalty money from what YouTube pays.” Musicians could opt for a copyright takedown of unauthorized use of their music, or they could take control of the estimated $1-per-1,500 streams that YouTube videos generate for creators.
“The technology allowed more artists to make money in a way they never did before,” Price says of the streaming economy. This allowed ever more artists to enter the ecosystem, as the pool of money to be made shrank, now averaging about $1 per 200 streams on most digital services. “The digital services are very accurate,” he says. “They just don’t pay a lot.”
The crypto remix
When Covid-19 shut down the whole world in 2020, artists were scrambling for new ways to make money outside of touring, often still the most lucrative outlet for musicians.
“You can’t be 95% reliant on touring,” says Joel Mark, an executive artist manager at YMU Group. “So when the record business hit a low [in 2020] and it was clear that zero percent of income would be coming from shows, we had to think of other ways to connect with an audience.”
YMU’s roster includes rock and pop acts Blink-182, Morrissey and Rancid, as well as electronic dance music artists 3LAU and Steve Aoki, all of whom have diversified their revenue streams in their own ways. Aoki and Blink-182 drummer Travis Barker have secured film deals with Netflix and Amazon, respectively. More and more of Mark’s clients are diving into the world of non-fungible tokens — NFTs.
NFTs are the current digital rage, in which one-of-a-kind digital pieces of art, video or music are bought and sold on the blockchain. NFTs broke into the public consciousness in February 2021, when 3LAU (born Justin David Blau) raked in a record-setting $11.7 million in a three-day sale of 33 digital album NFTs. One song alone, “Ultraviolet,” sold for more than $3.6 million.
Electronic musician RAC (born André Allen Anjo) was an early adopter who sold his 2017 album “EGO” exclusively on the Ethereum blockchain, before NFTs were a thing.
“We did a deal with an indie label where you could buy a copy of ‘EGO’ for one Ether coin, and we treated it like a merch sale,” Mark says. The result was a win for the Grammy-winner, who took home $7 of each $10 album sale, and it was proof that selling music via the blockchain could work.
That inspired RAC to release his 2020 album “BOY” on cassettes only available via the purchase of a $TAPE cryptocurrency token. The token could be redeemed for one of the 100 limited-edition tapes or traded to other collectors. From a starting price of $28, the price of a single $TAPE token surged to nearly $13,000 at one point and is now sitting at $3,388. The best part for the artist, according to Mark, is that RAC makes a percentage of the re-sale of his NFTs every single time they are resold. Forever.
“That’s a game-changer,” Mark says of the potential ability of his clients to benefit from the lucrative resale market. “When we’re able to start selling concert tickets on blockchain, artists will get a higher percentage of sales and it will be a real re-ordering of things.”
There’s no guarantee that the NFT bubble will last, but its effects on the environment are likely to. The Verge reports that blockchain systems, which requires networks of computers doing advanced cryptography to verify every transaction, consume great amounts of power. The amount of energy used by the Ethereum blockchain is comparable to that of the entire country of Peru.
Off the blockchain, Mark also encouraged clients to embrace targeted merchandise drops. Pre-sales eliminate the waste of printing hundreds, or thousands, of shirts and hats for a tour, and then getting stuck with them if they don’t sell before the dates end. “This is so much more efficient, because people can make the decision of whether or not they want something. If they really love the band, they know they can buy the shirt now, or in a week it will be gone,” Mark says.
During the pandemic, musicians embraced a swath of newer online services in the hope of ringing up fast, easy money. That included Patreon, where fans can sign up for paid monthly subscriptions that unlock exclusive content; Cameo, where fans can hire a celebrity to record a custom video message; Stage-It, where artists can perform full-production concerts for pay; and Twitch, the streaming platform popular with gamers, where rapper Travis Scott raked in a reported $500,000 performance fee for a virtual show.
A number of artists on Brilliant Corners manager Jordan Kurland’s roster — including popular indie acts Death Cab for Cutie and Best Coast — did livestream shows during the pandemic. But as he and fellow manager Michael McDonald of Mick Management say, those were typically to raise money for their crews or for organizations in need rather than for profit. McDonald also saw a notable uptick in corporate Zoom performances for other clients on his roster. Virtual gigs and performances paid his artists anywhere from $20,000 to $150,000.
During the pandemic, legacy artists including Bob Dylan, Neil Young and Stevie Nicks made headlines by selling the rights to their back catalogs for hundreds of millions of dollars. With sales of recording rights in a boom cycle for the past five years, CPA Tony Peyrot of business management and tax advisory firm Dunn Pariser Peyrot, says it might be a good time for artists in the twilight of their careers to cash out.
“If, like [Dylan, Young and Nicks], you have written most of your songs yourself, what the purchaser is buying is that income stream for the rest of time via streaming, physical sales, downloads, syncs and other usages,” he says.
While the catalog rush is a “speculative boom” for now, Knopper says the artists cashing in have many popular songs. The back catalogs could earn their new owners millions over the years through sync deals and other prominent placements.
Peyrot says free or charity live streams are fine during a shutdown, but are not the way forward. “The appetite is not quite there yet,” he says. In the meantime, many of his clients are turning to one of the most lucrative income streams of the past decade: syncs. The word — short for music synchronization — refers to a license granted by the copyright holder to place music in commercials, advertisements, video games, TV shows or movies. Each episode of programs such as “The Masked Singer” require many music licenses, as do sporting events.
“People don’t look down on it as much as they did in the past, because it’s just part of getting the music out there,” says Peyrot of syncs, which some also used to call “selling out.” When the Rolling Stones offered tour sponsorship rights to fragrance house Jovan in 1981, purists considered it crass cashing out, but today this kind of deal is just smart business sense. Depending on the broadcast’s reach, the music might be provided for free in exchange for promotional consideration, or the artist might get paid from $500 for a small indie film to $1 million for a prominent placement if the iron is hot.
The “creators’ era”
While many people in the music business are focused on how to squeeze more micropennies from streaming services, Marc Geiger thinks we’re heading into a golden “creators’ era.” The Lollapalooza co-founder and former William Morris Endeavor global music head thinks artists are finally in the position to fully drive their careers, with infinitely more opportunities to make money in new, inventive ways.
“I’m calling it the era of Digital Artist Monetization,” he says, envisioning a post-“three bucket” revenue stream world where the creator has a direct line to their audience, eliminating the need for record label deals entirely. A lot of the infrastructure is already in place, with services such as BandCamp, where artists set their own album prices, and new avenues emerging, such as NFT sales and paid MasterClass lectures.
“We might go from someone releasing a big project to Target and Apple first, to opening their own store and delivering certain goods to [retailers], while saving all the good stuff for their own store,” he says. “It will change entirely how artists make money. It opens up a whole new toolkit, and there’s a lot inside that kit.”
The music industry is undergoing a radical shift from a top-down model to a bottom-up digital one. In this new world order, artists are controlling the intellectual property pipelines and making direct digital connections to their fans. And when those fans order on-demand merch, sign up for a subscription, or buy and sell tickets, it will put significantly more money into their favorite acts’ pockets, perhaps allowing hundreds, or even thousands, of mini-Beyoncés to bloom across the digital space.
Issue 2: Experimentation