Master Recordings - Where is the Money - Part IIIJan 02, 2021
Who owns the master?
The master recording is owned by the Artist if they are independent. If they are signed to a label, the label would be the owner of the master recording. Traditional labels produce music, distribute music, market and promote that music, book shows and sell merchandise attached to the Artists name. The label also prepares legal agreements and is responsible to account and issue royalty statements to the artists detailing all the monies that have been earned for each record.
Independent artists can act as their own label however it can benefit the artists when the label uses their expertise to develop their artistry and brand value. It takes time, money and resources to market and promote an artist. There is a symbiotic relationship between the label and artist. Artists are able to successfully fulfill their dreams, whereas record labels invest and can potentially profit from the artist. You can do it independently but you cannot do it alone. If you are approached by a label make sure you do your homework. Research if the label is right for you, as you would not get married after the first date. Learn more: Is this recording deal right for you
Record labels want a partner as they rely on signing talent to the label to grow and make money. Labels win when the artist’s wins and recording agreements are what allow an artist and a label to work together. Artists sign a legal contract with deal terms they agree to which allows the label to navigate and grow the artists career.
Traditional labels will invest in building an artist brand and release music based on the term commitment in the recording agreement. Labels can also approach this by supporting a specific release(s) and sign the artist to a licensing deal. The label in turn then collects the revenue generated by the music such as their distributor and Soundexchange.
In a traditional arrangement income flows from a variety of sources such as record streams, sales, social media monetization, publishing, sync, licensing, touring and merchandise. The label will recoup their investment first, which may include any advances, recording costs, touring and promotion and other fees. After the expenses are deducted the artist receives the percentage that was legally agreed upon in the contract. The label is responsible for issuing royalty statements and payments, usually done 2x a year, detailing all the monies that have been earned for each record.
Note: Labels make an investment in time, resources, and money and take big risks as music is subjective.
Signing a Recording Agreement:
For the investment, labels want an exclusive commitment from the artist for their talent for a designated amount of time. The “term” or “release commitment” outlined in the agreement refers to how long your songs will be owned by the label to ensure exclusive rights and the ability to get return on their investment.
If you receive an advance when you sign the agreement, the label will be entitled to recoup their investment prior to you being able to collect your royalties. This includes all monies the label spends in your artistry (i.e., Advances, music production, marketing and promotion).
The percentage rate settled upon in the agreement which can range from 12% to 65%. These determinations are based on a number of factors some of which are your success and the also the labels expertise.
Commercially released music – where does the money come from?
Sales & Streaming
Once your music is commercially released artists and labels have the ability to earn income thru sales and streaming royalties. How it works; record labels give their music to the distributor who delivers to stores (digital and retail). The distributor keeps a small portion of the income earned from sales and streaming and passes down the proceeds to the label who also keeps a small portion, then the monies are passed down to the artist, in the form of “royalties” after the label “recoups” their investment.
Streaming platforms such as Spotify, Apple Music, Tidal and You tube in 2020 pay registered artists and record labels for their music streams:
$0.019 per stream. Tidal - 1,000,000 streams will be equivalent to approx $19,000.00
$0.01284 per stream. Apple Music - 1,000,000 streams will be equivalent to approx $12,840.00
$0.00676 per stream. Deezer - 1,000,000 streams will be equivalent to approx. $6,760.00
$0.0064 per stream. Spotify - 1,000,000 streams will be equivalent to approx $6,400.00
$0.00437 per stream. Amazon - 1,000,000 streams will be equivalent to approx. $4,370.00
$0.00402 per stream. Pandora - 1,000,000 streams will be equivalent to approx. $4,020.00
YouTube has multiple forms of payout for streaming. Soundcharts states:
"YouTube is a multi-sided platform in terms of payout. There are at least three separate payouts under the brands’ umbrella: per YouTube Red/YouTube Music stream ($0.008), per video-stream on the official artist’s channels ($0.00164) and videos monetized through Content ID ($0.00087)." https://soundcharts.com/blog/music-streaming-rates-payouts.
Also, when it comes to music videos on YouTube, payment is split among 3 payees (owner of the video, owner of the SR and owner of the composition).
Streaming is not the only source of income so where else can revenue be found?
Neighboring rights are similar to performance rights however royalties generated from neighboring rights go to the owner of the master recording and the performing artists. Royalties are collected whenever your song is performed or played on the radio, streaming services, new media, TV, in a public place such as a club or restaurant or background music.
Sound Exchange is a non profit Collection Management Organization (CMO). It is the sole organization designated by the U.S. Congress to collect and distribute digital performance royalties for sound recordings. It pays featured and non-featured artists and master rights owners for the non-interactive use of sound recordings under the statutory licenses set forth under copyright law.
Collection management organizations outside the U.S. also collect neighboring rights royalties (Ex. PPL in the UK or SOCAN in Canada) and neighboring rights laws differ around the world.
Remember you must register with your collection society in the territories where the recording is being performed or broadcasted in public so you can get paid. However, Sound Exchange has 46 international agreements with CMO’s which covers approximately 80% of the world outside of the U.S. and has the ability to pass thru the royalties from these territories.
“Finally, the Modern Music Act under Title III, among other things, allows music producers, mixers, or sound engineers to receive royalties collected for uses of sound recordings under the section 114 statutory license by codifying a process wherein the designated collective (Sound Exchange) will distribute those royalties to such parties under a "letter of direction"” https://www.copyright.gov/music-modernization/amp/..
Remixes or Sampling
The master rights owner needs to be paid when any song takes a pre-existing work and uses material from the master to create a new composition.
Licensing refers to the use of your music for synchronization with TV shows, movies, advertising gaming and sampling. If the song is used commercially the owner of the master recording must be paid and this can be another revenue stream for labels and artists.
Micro-sync is similar to synchronization of music but in smaller “bulk” uses on social media. With the massive increase of music on social media, bulk licensing, provides an affordable and efficient way, for the owner of the “master” to be paid for use, on social media platforms such as TikTok, Facebook, IG and more.
Another revenue stream for labels and artists who have an engaged fan base is selling merchandise. Merchandise can be sold at live events and online. The key to selling merchandise is to generate a profit or ROI (return on investment). Think carefully about the type of merchandise you stock. Stocking and selling items that do not require sizing can maximize profit. Consider print on demand for items that require sizing. If you sell on-line you should accept credit cards to increase sales.
Touring and events
Whether you tour the world or play locally, live performances’ generate money for both the label and the artist. This is also good to grow a fan base. Labels and artists may also use a booking agent to secure shows that pay. Booking agents take approximately 20% of your performance fee as commission, but they will increase revenue with paid gigs.
Brand sponsorship and influencers:
Artists with a high social media following often stand a chance of being chosen as a brand ambassador. A brand sponsorship contract generates another stream of income while the company gains the eyes of a new market.
This can be a source of revenue for established artists. Upcoming artists may choose to ask an artist with a big following to do a feature on their song. If the label agrees they will negotiate for an advance and royalties.
Every career is unique, and different arrangements work for different artists. What is important is the impact the label can have on the artist’s career as a whole. Labels and artists have a hard time turning a profit based music streams or sales alone. Both the label and the artist need to generate other revenue streams to create value. Artists’ need some who can fill the venture capital role but labels can only back a limited number of artists/releases. Labels often sign artists with the one in ten formula in mind. Meaning one in ten succeeds. As the music business is expensive some labels resort to licensing deals, with artists. This allows them to expand their investment because they are not spending money on creating the product. However, this has not changed their success rate; as the music industry has exploded and 40,000 songs are being uploaded daily to Spotify.
Another fact to consider is that while streaming revenue has grown there are a limited number of streams spread amongst all the songs uploaded. Perhaps the answer is in branding the artist and monetizing elsewhere. We also see new companies emerging that invest in the music business in different ways. One example is the Unison fund. They finance albums, tours, music videos and other work by established artists. Investing in established acts is less risky and provides more likelihood of a return on investment.
Another emerging model outside of traditional labels is companies who offer integrated solutions for artists and indie labels. These companies provide management services, label services, and data analytics in addition to distribution to bridge the gap between the music business and technology. This allows indie labels and artists access to a greater level of service and technology not previously accessible. Some distributors are providing services such as radio promo in order to reach the global audience.
Another innovation is the sale of music royalties. Investors can buy music royalties to make passive income, and it offers some attractive traits, including consistent cash flow. There are several companies that have created platforms to buy and sell music royalties such as Royalty Exchange, Royalty Flow, SongVest, ANote Music, and more.
What is for sure is that record labels need to be innovative in order to turn a profit, deal with the evolving changes in the music business and position themselves for the future.
Please feel free to contact me with any questions at [email protected]. And, for those trying to navigate the tough Indie music business, please check out my book, For the Record book and course to get a deeper understanding of the music biz in order to SAVE TIME and MAKE MONEY. Thanks, Debbie