Show Me the Money - Who Earns What in the Music Industry?
Recap of the presentation by Marcell Nimfuehr, CMO at Lisk, at the Sound of Web3 Event, April 2023 at the Lisk Center Berlin
Marcell took the stage after the sensuous music video by Sera Kalo. He opened with the confession: “I love music, but have never been able to wrap my hands around an instrument”. We think his contribution as a thinker is no less meaningful than that of a musician.
His 10-minute presentation was packed with valuable insights about the money flow in the music industry. In the end, the audience was left with a selection of surprising facts and much food for thought.
The big picture - how much is the music industry worth?
It’s no secret that there’s a lot of money buzzing around in the music industry. In 2001, it reached a peak of over $20bn. Almost all of it came from physical sales, in other words, CDs, and vinyl records. Remember those? Black, flat 7-inch disks you put on a spinning plate and place a needle over them to read the music? Never mind. Digital CDs were a lot more convenient before music moved online.
When streaming services entered the scene, the landscape mutated. Revenue from physical sales dramatically declined, and steaming now dominates the music market. In 2022, total earnings in the music industry surpassed the global revenue at its highest point in 2001.
“Wonderful,” you might think, “...best time to be a musician!” But things aren’t always as they seem and seldom better. In his research, Marcell couldn’t find a lot of musicians who would confirm this assessment. Many claimed to earn less than they did 20 years ago. And he spoke to quite a few, including beyond-25-year-olds.
Drilling down - where does the money go?
Half of the over $25bn generated yearly in the music industry goes to streaming sites like Spotify and Apple Music. Physical sales make up about 20% - likely generated by the boomers’ desire to keep their CD shelves filled. The rest is split between advertising, performance rights, and other areas.
Without question, streaming is the big thing. When we look at the distribution among the various platforms, there’s no surprise either. Out of the total amount generated by streaming, Spotify gets the largest chunk: 31% - almost a third.
Next in line, however rather far behind, is Apple Music with 15%, closely followed by Amazon Music and Tencent, both with 13%. The remaining 28% go to various other sites that are rather unknown. Marcell suspects these to be a better choice for creators. They have a smaller reach but may turn out to be more profitable for musicians who want to enter the scene. It’s worth checking out.
Honing in on Spotify - what does it take to make money with streaming?
The next phase was to look into what’s happening on Spotify. Here, Marcell found some rather astonishing numbers.
Spotify pays a musician 3/10th of a cent per stream - that’s $0.003. In other words, to make one cent, you need a track to be streamed three times. That doesn’t sound too difficult. Or does it? When we escalate the calculations, the assessment changes.
An artist needs to generate 10 million streams a year to earn a minimum wage in most European countries. Per day, that’s over 27,000 streams. If these numbers are still hard to grasp, let’s see what musicians realistically reach.
Only 20% of all the artists streaming on Spotify have 50 or more listeners per month. 50 fans must listen to your songs over 800,000 times a month. Each listener would have to stream one of our tracks 16,000 times a month, in other words, at least 500 times a day. How feasible is that? We let you be the judge of that. And remember, that’s only for those with 50 listeners a month, but 80% of creators on Spotify have less.
Another curious fact: 90% of all streams are generated by 57,000 musicians on the site. The remaining 10% of streams are generated by 11,143,000 musicians. Let that sink in for a second. Or, better yet, let’s rephrase: there are 11.2Mil musicians on Spotify. 99.5% create a mere 10% of all streams generated on Spotify, and only 0.5% of musicians produce 90% of the total streams.
You’re beginning to see the business part on Spotify isn’t that easy.
A closer look at distribution - what do platforms pay and to whom?
To answer this, Marcell investigated numbers from Apple Music. It turns out the streaming provider gives 48% of the revenue to themselves. That’s definitely a good deal for Apple - especially considering Apple doesn’t create the music. They also don’t produce it or own it. All the streaming platform does is, deliver music. They connect music makers with music consumers, that’s all.
You can compare this service to platforms like Uber and Airbnb. Uber doesn’t own taxis, the company merely provides a platform that connects drivers with passengers. Airbnb doesn’t own flats, it simply connects lodgings with lodgers. The average cut these companies take is 13-15%. So, yes, the streaming site’s 48% is a sizeable chunk!
The next big chunk, 26%, goes to rights owners, which are recording companies for most professional musicians, and only a measly quarter to the artists.
But wait, the musician’s portion still gets split between the various contributors and performers. For the sake of simplicity, we divided the category between so-called named band members and non-band members. The first group comprises the artists in the front, the ones whose names get published. It can be a singer or an entire band. Non-band members are the background singers and players who aren’t officially part of the group. They get 2.5% of the pie, and then there’s 1.5% attributed to ‘others’. This confirms that in life, as in music, it doesn't pay to play the second fiddle.
Deep dive into money-making - how much do artists earn?
We’ve seen how hard it is to earn money on Spotify - or any other streaming platform. Unless you’re on the popularity scale of Taylor Swift or Ed Shiran, you better look for additional sources of income. The two are among the top 5 most-streamed artists on Spotify.
Most artists earned less than $1,000 in their lifetime. When we say most, we mean 11mil out of 11.2 mil - nearly everybody on Spotify. They make up the basis for this elusive income pyramid.
The next higher level in the pyramid includes 230,000 creators who earned up to $50,000 but not less than $1,000. You think 50,000 doesn’t sound so bad? Don’t forget, we’re measuring lifetime. When you divide that by, let’s say, five years, the best earning musicians in this category made $10,000 a year. This money might cover the rent of a cheap flat in a cheap neighborhood in a mid-size town in Eastern Europe.
If you paid attention to the math, you realized that we’ve already surpassed 11.2 Mil users we claimed Spotify has. That’s because the number is rounded down slightly for the sake of understandable statistics. So, only a fraction of those in the surplus digits we rounded down can actually earn a living on Spotify.
There are 20,000 users that earned more than $50,000 in their lifetime - a sum worth talking about. Except if you're a band, then you need to split it with your mates and are back at square one.
40 users earned more than $10 million. We won’t even try to put that into a percentage. The number of artists who crown the pyramid and get rich vanishes among the millions that go hungry.
This pyramid structure is quite normal for such platforms. The usage is skewed towards a lot of people who get little out of it, while very few make a huge profit.
Comparing the platforms - Which sites pay better than others?
By now, the picture is clear; you understand the business concept of streaming sites and the flimsy chances to earn a living there. But if you are a musician, you can’t ignore them either.
Music streaming platforms are like social media: if you’re not there, you almost don’t exist. It turns out that Apple Music is actually the best-paying platform among the big ones. You need to generate 100 streams to earn $1. On Spotify, 312 streams pay you a dollar, on YouTube you need 518 streams, and on the Chinese provider Tencent, you need to produce - hold on tight - 2.500 streams to get one dollar.
If you were hoping to learn something from Marcell Nimfuer’s lecture, here’s the lesson and some advice: Being a musician is really bad. Tell your children not to go into the music business until a good blockchain solution comes into town.
Spotify’s earnings - why aren’t streaming sites more profitable?
There’s one last thing that we need to look at to understand what’s really happening. The numbers lead to the conclusion that streaming sites suck the lifeblood out of musicians. And they must be getting baffling rich doing so.
Well, this is where the jaws drop. Spotify, isn’t making any money.
In the period from 2013 to 2022, there’s been only one year in which Spotify made a profit. Nine out of ten years, the provider operated at a loss. Look at the illustration below. You see the break-even line was passed only once in 2021. And even worse, the trend indicates that the more Spotify grows, the higher the losses.
What’s the reason they’re not making money? Naturally, there are several reasons. To understand the bigger picture, Marcell drew our attention back to the music market as a whole. There are already many actors who each swallow a portion of the money cake. Streaming sites have not replaced or made anyone obsolete. Instead, they function as an additional intermediary.
It’s nice to see the music industry grow, but now there’s really just another hungry mouth to be fed. Unless music consumers will pay significantly more, streaming will remain a poor deal.
This brings us back to blockchain and blockchain-based music streaming apps. Blockchain, as a technology, reduces the power of an intermediary. Instead of going in between the musician and their fans, they actually bring them closer together and remove many intermediaries.