How Are Musicians Paid?

Back when I was in high school dreaming of becoming a professional musician, I had one big question: how do musicians make money? Everyone knows that playing music is fun, but many people worry about how they will make money doing it... I know I did.

The most common ways musicians make money are, being paid to perform, making money off of streams / album sales and advertising deals.

The most talked-about term in the music scene this year happens to be one that was once considered dreadfully mundane.

Copyright, the ownership of songs and albums as artistic works, is a complex web of regulations and procedures within the music industry, involving a multitude of players far more intricate than the average fan might realize. Against the backdrop of Congress deliberating on the eagerly awaited Music Modernization Act, high-profile disputes over plagiarism among major songwriters, and Wall Street scrutinizing Spotify's profitability as a publicly traded company, gaining a basic understanding of the U.S. financial system in music is essential for contemplating its future.

Firstly, "Royalties" refer to payments made to rights-holders when their creations are sold, distributed, incorporated into other media, or monetized in any manner. This guide by Rolling Stone aims to shed light on how musicians, songwriters, and producers in the digital era actually access these funds.

Performing Music Live

Live events are becoming the most lucrative avenue for musicians in the digital music era. As album sales decline and streaming pays fractions of a cent, live shows, including tours and festivals, command some of the highest ticket prices ever.

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Recording and Writing Music

For music enthusiasts, a song may just be a song, but in the music business, each song is divided into two distinct copyrights: composition (lyrics, melody) and sound recording (the audio recording of the song).

Starting with sound recording, copyrights are owned by recording artists and their record labels. There are various types of sound recording licenses, such as performance rights and reproduction rights, generating royalties for activities like streaming, radio play, and sales of physical or digital files. The composition copyright, on the other hand, belongs to the individuals who write the lyrics and melody. In cases where they are separate entities, the sound recording copyright is shared between artists and record labels, while the composition copyright is divided among songwriters and publishers. The classic example is Counting Crows' "Big Yellow Taxi," where the band receives sound recording royalties, while Joni Mitchell, the song's original writer, gets composition royalties.

Most times when a song is listened to, both types of copyright come into play, generating two sets of royalties for the respective parties involved.

Getting Your Music Played

Breaking down the ways listeners contribute financially to music creators, when a song is purchased from digital stores like iTunes or Google Play, creators receive money through both composition and sound recording copyrights. Rates depend on factors like label size, distributor size, and negotiations among involved parties. On-demand streaming and playing songs in various locations also follow a similar dual-copyright payout system, with specific percentage payouts based on the type of service and negotiating power.

The process differs for radio services, where terrestrial radio (AM/FM) doesn't pay sound recording copyright owners, unlike Internet radio. This distinction is considered by the music industry as an unfair loophole, meaning that when a song is broadcast over the airwaves, only the writers, not the artists, receive payment.

The Advertising Deal

In the past, musicians were hesitant to associate with corporate brands, but with the rise of rap as the most popular genre, brand partnerships offer additional revenue streams. YouTube monetization is another way artists earn money from their content, with payouts as high as $3 per 1000 streams in the U.S.

So Where is All The Money?

Despite the numerous revenue streams available to modern artists, recent research suggests that U.S. musicians only take home one-tenth of national industry revenues. Streaming services, while revitalizing the industry, are not lucrative for all artists, creating a winner-takes-all scenario where big names earn millions, while smaller artists struggle to make a living. The presence of numerous intermediaries in the music industry and the challenge of tracking royalties in the streaming era further contribute to artists receiving a surprisingly low percentage of the revenue.

The music industry acknowledges streaming as its primary revenue source and is expected to undergo changes, including legal revisions, new royalty negotiations, and industry consolidations, to become more lucrative for musicians. However, the timeline for these changes remains uncertain.

What's Next

As the music industry continues to navigate the intricate landscape of copyrights and royalties, several emerging trends are reshaping the way artists earn their keep.

Non-fungible tokens (NFTs) have emerged as a novel avenue for musicians to monetize their work. NFTs represent ownership of digital assets and can include exclusive content, concert tickets, or virtual experiences. Musicians are capitalizing on the blockchain technology behind NFTs to create unique, limited-edition offerings for their fans. This not only provides artists with an additional revenue stream but also fosters a deeper connection between musicians and their audience.

The COVID-19 pandemic accelerated the adoption of virtual concerts and livestreaming, opening up new possibilities for artists to reach global audiences. Platforms like Twitch and YouTube Live enable musicians to perform live from the comfort of their homes, transcending geographical boundaries. Fans purchase virtual tickets or engage with donation mechanisms during livestreamed performances, offering artists immediate financial support. Even as live events return to normalcy, the virtual component is likely to remain a significant part of the music industry's revenue model.

Fan tokenization involves creating digital tokens that fans can purchase to gain special privileges, access exclusive content, or participate in fan-driven initiatives. This trend allows artists to directly engage with their fan base while providing enthusiasts with unique opportunities and experiences. It not only generates revenue but also strengthens the sense of community among fans.

In an era of digital connectivity, artists are exploring personalized experiences as a revenue-generating strategy. This includes offering personalized shoutouts, customized merchandise, and one-on-one virtual interactions with fans for a fee. By tailoring offerings to individual preferences, artists can create a more intimate connection with their audience and boost their income.

Musicians are increasingly collaborating with brands and influencers to expand their revenue streams. Brand partnerships and influencer marketing not only provide artists with additional sources of income but also expose them to broader audiences. This trend signifies a departure from the traditional reluctance of musicians to associate with corporate entities, as artists now see it as a mutually beneficial arrangement.

Thanks so much for reading my article. If you are still interested in pursuing music as a career you should check out our article on Is Music School Worth It? .

If you like this check out our article: Why Do Most Musicians Fail?