Everything You Need to Know About Band Management Part 4: Revenue
The Road to Revenue
To recap our progress so far, understanding the music business is pretty much the only way to ensure you play lots of music for lots of people for lots of your life. If you aspire to be a starving artist or a lottery winner, you’re probably cheating the world out of the best music you have to offer.
Treating your music like a business can actually improve your music. Musicians don’t make music to make money, we make money to make music. All that matters to us is that we can wake up tomorrow and make more music. In the real world, that takes money. But forget the money — thinking about your craft and your audience in business terms will actually hone your creative senses, and be far more productive than waiting around for inspiration or opportunity to strike randomly. You don’t have to become a businessperson to think and act like an entrepreneur. You’ll just be a business-savvy musician, which is exactly what it takes to sustain a career.
Two business models dominate the music industry: exploitation and patronage. Patronage is the age-old practice of fans directly supporting musicians, whether financially or by other means. Patronage encompasses live performance and commissioned music, but also includes modern-day methods like crowdfunding, digital tipping, and even selling T-shirts. Patronage is about the value of the fan, and was the main business model of music for thousands of years.
In contrast, exploitation became the dominant model only after the phonograph record gained popularity at the start of the 20th century.
Exploitation builds value around copyright. The primary way to exploit one’s copyright has been to relinquish copyright to a record label and publishing company in exchange for financing, marketing support, legal support, studio, booking, management, and other music business functions and connections. We call it “exploitation” because musicians sign contracts when the value of their copyright is low, and give up a high percentage of value in exchange for the rare prospect (not promise) of rapid growth.
This road is not required. Some musicians certainly make a point of retaining their copyright and manage to build value while retaining total control over their own careers. But it still takes a talented business team working for a percentage of your revenue to make it happen at any scale above poverty level.
It’s our view that while exploitation will continue to be a viable method of supporting certain kinds of music careers, there are also certain problems.
The system of exploitation is unethical. The music business built around it has been plagued with corruption since its inception. Music-related corporations have stolen far more from artists than so-called “music pirates”, and in any case, “unauthorized” song sharing is as old as sheet music and benefits most artists by exposing listeners to their music virally.
Furthermore, the music market is dominated by three major labels that own the majority of music copyrights. Through massive lobbying and litigation efforts, these corporations have directly and indirectly dictated the terms of how all musicians get paid. This marginalizes the idea of musician as small business, forcing many musicians into exploitative contracts that dead-end when their music fails to become an overnight success. This is not to say signing with a label is always a losing proposition, but the odds are long. Most people will tell you anecdotally that 9 out of 10 bands never see any profit from a label deal.
Exploitation relies on copyright, which is a legal right granted to anyone who writes down or records a song. Exploitation’s value relies on controlling access to music. Increasingly, access to music is free or nearly so. “Piracy” is really just another word for sharing songs — something fans have done for tens of thousands of years, even before recordings. Back then, fans would have to perform a song themselves if they wanted to hear it, but this is how music spread, shared from one person to the next. When sheet music was invented, this process of sharing became even easier, until copyright began protecting sheet music from being copied legally. Since then, we have put ever greater legal restrictions on the use of creative works in the interest of building the value of exploitation, primarily for large corporations and not necessarily in the interest of the artist.
We’re thrilled that after 100 years of exploitation, patronage is making a major comeback in the music business. Our interconnected, peer-to-peer world of web technology offers exciting new ways for fans to directly support artists. It’s this same technology that makes access to music free or nearly so (which devalues exploitation to the chagrin of the labels). Technology also democratized the music business by giving artists access to recording studios, marketing and financing platforms, distribution, music video production… all on their laptops and mobile devices. In short, web technology is the best thing to happen to music and musicians in the history of music. It’s bringing back patronage to wash away the ethical failures and scalability issues of the system of copyright exploitation is just icing on the cake.
We are moving from valuing music as a product toward valuing music as a service. Another way to put it: The music business is not about moving units anymore, it’s about monetizing the fan/musician relationship.
That brings us to the core question that concerns us in today’s post:
How do Musicians Make Money?
To most musicians, the system of patronage is easy enough to understand. Play shows, get fans, sell T-shirts, take a cut of the door, pay for gas, etcetera. It’s not hard to see where your revenue comes from when it’s coming directly from the fans or venues.
The system of exploitation is much more mysterious, and this is by design. There’s a reason why we have a dozen different “All You Need to Know About the Music Industry” books. There’s a reason lawyers are the most powerful figures in the music business. Copyright is a legal right, and for the last century, our music business was based on exploiting copyright.
Take the system of royalties for example. The vast majority of musicians cannot explain how song royalties work, even after watching videos and reading books about it. We don’t blame them… it’s really, really complex, especially now in the digital age.
How do musicians expect to get paid if they don’t know how musicians get paid? This is what we’re talking about when we say every musician, aspiring or professional, should understand how the music business works. Chief among that understanding should be knowing where your revenue streams come from.
Music coach Tommy Darker gave a great presentation at Midem this year about on thinking of your band like a startup. In it, he mentions the Business Model Canvas, a popular tool for tech entrepreneurs to help define their products/services and market. Essentially, it’s a business plan reduced to its essence on a single sheet of paper.
We encourage you to take the startup approach when determining which revenue streams you’re going to go after as a musician. Long story short, the startup mentality is (a) make a hypothesis about what you can do, at what cost, for which people, that generates what value and (b) test, analyze, make new hypothesis.
Take a close look at the Business Model Canvas and start asking yourself the questions it poses. Doing that simple task will give you an edge on 99% of musicians who are blind to the business side of the art/business divide.
Perhaps the most important box on the canvas is “Revenue Streams”. Songhack is all about connecting you with the “Key Partners” and “Key Resources” to help execute your “Key Activities” and produce your “Value Propositions”. We show you how to make “Customer Relationships” with “Customer Segments” through the “Channels” they want to be reached. But perhaps most importantly, we teach musicians about “Revenue Streams” and the “Cost Structure” involved in pursuing them. We do this because we believe the key to ending artist exploitation and career disappointment is in musicians understanding how the music business works. This starts with understanding the many revenue streams of the music business — because now more than ever, you will need multiple revenue streams to establish a sustainable career.
What Are Your Musician Revenue Streams?
Depending on whether you’re a composer, performer or recording artist — or all three, as career musicians increasingly are — only some of these revenue streams will apply to you. If you’re not on a label, you obviously aren’t getting label advances (#14), support (#15), or label settlements (#26). Cross of the list any streams that obviously don’t apply to you.
You should be left with one or two dozen options for revenue streams. The next step is to educate yourself on each revenue stream. Who or what generates the revenue? Who collects it? What percentage do they take? How do I collect the revenue from them? What grows that revenue stream? What shrinks that revenue stream? What are some real-world examples of success in that revenue stream from musicians like me? Where can I find resources to pursue these revenue streams as a self manager? (Songhack, wink wink.)
We’re not going to detail each and every revenue stream here — the FMC already does a good job of that on their site. Part of our mission is to provide you with “hacks” to get what you want, whether it’s something major like signing to a label or something simple yet mysterious like choosing between ASCAP and BMI.
Stay tuned for more tips, but for now, please allow us to briefly highlight a few of the FMC’s revenue streams that we feel are growing and deserving your special attention:
- Commissions (#3), Persona Licensing (#38), Product Endorsements (#39) & Sponsorship (#42) – Have you heard that Tegan and Sara wrote music specifically for Orea commercials? The stigma surrounding bands “selling out” to brands is disappearing fast. In the near future, more acts large and small will be commissioned by brands large and small to promote and market their wares.
- Streaming Mechanical Royalties (#5), Interactive Service Payments (#18), Digital Performance Royalties (#19) – Fans prefer “renting” music to “owning”, and streaming will become the dominant way everyone listens to music. As streaming services are bundled into cell phone bills, this trend will only accelerate. Musicians who benefitted during the exploitation era of the music business are freaking out about per-stream royalties in the thousandths of a cent, but for independent artists streaming is a playing-field-leveling boon. Passive income no longer comes in massive torrents, it comes in many little streams.
- Synch Licenses (#7) – “Synch” is a silly word for “licensing”, or authorizing the use of your song in a movie, TV show, video game, etcetera. Synch licenses are kind of the holy grail of musician revenue, often amounting to thousands of dollars. How much you make depends on many factors, not the least of which is the size of your audience, the size of the licensor, and the size of the audience viewing the synched track. There are many ways to pursue licensing (we have a whole section on it), but we’d emphasize two things. (1) There are a lot of pay-for-an-opportunity scam sites out there, but there are also some great opportunities for DIY musicians… be sure to check reviews of digital products & services online, and (2) You need a pro-quality recording to really be competitive here, but the good news is once you get your first licensing deal, the next one is that much easier to get.
- Music Teacher (#31) – Music education is often overlooked as a way for musicians to earn revenue, but this is less true as online platforms like CreativeLive, Google Helpouts, Udemy, Bandhappy and others make it easy for any musician to teach any other musician anywhere, anytime. Coaching is also becoming more popular with composers, performers and recording artists… we dedicate our last part in this series to it. Teaching others keeps musical creativity alive, and you’ll learn a thing or two in the process. Seriously consider it.
- Fan Club (#35) and Fan Funding (#41) – One of the next big trends in music is musician-branded fan subscription platforms. Artists like Deadmau5 and Rabbit Rabbit are pioneering a business model that combines the fan club and fan funding platform into a monthly subscription to exclusive and often interactive content. We see this as blowing up in 2014, and know a number of bands and companies getting very excited about this model.
Pick whichever bullet point appeals to you and go for it. Remember, these are not the only revenue streams, just the ones that we think represent the juiciest opportunities for composers, performers and recording artists. The FMC lists 42 of them and there are certainly more. Maybe your band will invent the next one.
The Road Ahead
We’re halfway through the series. By now you should have a decent understanding of the way the music business works. The next part is putting that understanding into action. In the final four parts of the series, we’ll give you specific, universal and practical steps you can start taking right now wherever you’re at with your music or your career. To some extent these are universal to all pursuits in business and in life.
In part 5, we look at Fans — specifically, how to grow your fan base by building off the fans you already have. Since fans represent the new standard of value in music, we’ll give you a strategy that will help you in all your attempts to monetize their relationship with your band and your music.
Part 6 is concerned with Goals & Deals. The key to achieving anything is setting a specific goal to achieve it. The key to making each achievement greater is in how you approach making deals with the people who you choose to do business with. If you improve your goal setting and dealmaking skills, you will have a distinct advantage at getting paid for your music, and making great music in general.
Networking is the topic of part 7, something you’ve no doubt heard about in countless “Everything You Need to Know” books and posts. The “it’s all about who you know” cliche is true, but you don’t have to become a smiley glad-hand to network. Quite oppositely, networking is about seeking out new friends and peers, new collaborators and creators… and yes, even new fans. It’s one of the most exciting parts about being a musician, and something every successful musician has in common: the ability to network with new people.
By part 8 you should have a good grasp of how musicians earn money — which is what it takes to be a successful manager. But we’ll not lose sight of the fact that the point is to make music by making money. You don’t want to become a manager, you want to manage your way to finding one. We recommend seeking out a music coach to act as a sort of surrogate business manager, mentor and consultant. Coaching is exploding in popularity in all pursuits for a good reason — it works. What you really want to find are mentors, and coaches are there to mentor. You probably had musical mentors growing up, whether they were famous artists or people you knew personally. This is just the business version of that.
Thanks for sticking around for this lengthly but important lesson, we’ll see you for some fun in part 5: Fans.