My Culminating project from MTSU

by Mike Tierney
















Music, Money and Power

How Musicians Can Circumvent the Music Industry


Mike Tierney








A Problem     

In the world of music, a major factor since the turn of the 20th century has been the business of selling recordings. Instruments, styles, formats, publishing, and the business itself have changed over the years, but one thing has usually been true. The record industry makes a lot of money and artists usually do not. Even today, a vast majority of musicians are lower middle class with an average income of $34,455 among ~2,800 survey respondents (Thomson, 2012). In the last decade and a half, the switch to digital technology has opened up the floodgates for independent artists, which is a double edged sword. On one hand, an artist can independently make and sell their own recordings and cut the label system out entirely, but this availability of access for any artist created what some call “a sea of noise” which makes it harder for an artist to get noticed and break through to a higher audience level. Another side effect of this digital switch is declining record sales with internet piracy largely blamed for the downturn, subtracting artist income while increasing noise. The industry has not entirely collapsed as many predicted, instead they are attempting to adapt and catch up to technology by shifting their business model into the digital world. Critics often point out that artists now have little incentive to sign to a major label, suggesting they can make it on their own through social media, streaming, and ad syncs rather than choose a label deal that takes their copyrights and royalties away and gives them fractions of it back. A few artists have been successful in shunning the labels entirely, and have blazed a new path for profitability in unsure times. First, I will show how mistreated an artist can be by the industry, then I will survey the new technologies that promise to help artists make it on their own without a label deal, then I will look at the artist experiments that have been successful to determine a theoretical “Best” solution for today’s independent artist.


Artist Abuse Then and Now

The history of the record industry is a strange one. A constant thread in this industry is the unfair accounting practices used by the record industry to pocket most of the profits off the creative output of the artist. Of course, it is a necessary evil, or else “musician” could not be called a career choice. Among several horror stories, this one stands out: Lyle Lovett claimed to have sold 4.5 million records and has, in his own words, “never made a dime” (Reuters/Billboard, 2008). The problem in these accounting techniques is the way the record industry recoups its expenses, from packaging breakages (even on digital tracks) to advances, cross-collateralization, and several other sneaky ways. Entertainment lawyer Martin Frascogna summed up these fine print fees and percentages in an online video that explains the math behind a solo artist selling 1 million copies of a record on a typical record contract and still being in the red by $508,000 even with conservative estimates of fees for production and touring (Masnick, 2011). The Root did the math on the whole band situation including management and lawyers’  fees and found that even after a musician gets to the point they are making royalties back, they still only make $23 off every $1000 of music sold (Jefferson, 2010). Making things even bleaker, The Root’s article also cited Nielsen research that found only 2% of records released sell more than 2,000 copies. The odds seem stacked against the artist at every turn even though the whole industry is based around their creative works.

Not to worry though, technology had been working on an answer. The shift from analog to digital started with CDs, but the internet unleashed a series of amazing new developments in short time. This really came to a head in 1999 when a young man named Shawn Fanning took what was happening with MP3 compression and peer-to-peer file sharing technology and brought Napster to the Internet. Napster was sued almost immediately (despite the fact they did not host any files and only facilitated the transactions) yet remained in business for two years during the legal battle and shut down in early 2001. This led many music seekers to the numerous other file sharing sites and programs, some of which promised anonymity and/or a centralized system that could not be taken down (Menta, 1999). The record industry took the strategy of trying to sue down each site (while the new sites multiplied like rabbits) and neglected their attempts to get into the digital market had been extremely slow and limited by file usage issues. Some outside websites were managing to barely stay afloat until 2003 and the introduction of the iTunes Store. Paired with the iPod player, Steve Jobs had created something that the labels and users could somewhat agree on. Unfortunately, this meant for the labels that a new distributor had entered the arena, and now the label only gets 70% percent of what iTunes charges which is almost always 99 cents a song or $9.99 per album (with some variation) which is lower than the usual retail cost of a CD at $16. iTunes would not become the leader in retail music sales until 2008, but the legal availability of content combined with the frivolous lawsuits from the RIAA on file sharing sites and individual users started to result in a shift of listeners to legal downloading through iTunes and later Amazon and others. Of course, this shift to digital is a double edged sword. It  has allowed greater access for many fringe/non-mainstream artists who could now bypass the record industry-controlled physical distribution network, but the industry’s mindset remains in domination all distribution systems to make the high profits to which they are accustomed. An IFPI (International Federation of the Phonographic Industry, which is the European branch of the Recording Industry Association of America) report released in early 2013 shows that the industry feels proud of sustaining themselves through the piracy storm. The chief executive Frances Moore said “These are hard-won successes for an industry that has innovated, battled and transformed itself over a decade” (IFPI, 2013). Not only that, but the so-called “barriers of growth” (basically illegal downloading) need to be addressed by pressuring advertisers to not buy space on pirate sites, getting search engines to cooperate in filtering links to illegal downloads out of search results, and getting internet providers to cooperate in banning illegal sites, all of which is against the notion of net neutrality. Not only do the labels still think the same but their view shifted toward single sales in the digital arena and consolidated their interests in the physical CD world. As record stores closed down throughout the 2000’s, big box retailers like Wal-Mart and Best Buy became concentrated places for CD sales, as in theory they would stay in business from other sales regardless of the physical CD markets. Wal-Mart alone now accounts for 20% of all CD sales in the US (Hracs, 2012). This results in concentration of efforts for labels to release hits that make money, and only hits. (Side note: This parallels the movie industry’s reaction to piracy, hence their reliance on trilogies, sequels, remakes, and blockbusters like superhero/comic movies.) The iTunes Store’s ability to easily and cheaply sell single tracks unintentionally shifted sales back to  singles rather than full albums, which narrows the range of hit songs to only those with the most marketing (hence the 2% success rate earlier). This marketing is mostly only achievable through the help of the labels, who normally pay for the video and get the song on radio (Hracs, 2012). Another, lesser known side effect of the switch to digital in the recording studio that many artists are unaware of is increasing use of compression techniques. To make a song “stand out” on the radio, producers have turned to heavy compression which first limits to even out the sound, then amplifies to maximum potential. In the process, most of the definition and dynamics of a song is clipped off the waveform and everything is made to sound very flat but loud. Hence it has been dubbed “The Loudness War” (Siegel, 2009). So there is a secret element to the mastering process that is also against an independent musician.

The industry had reacted poorly to the shift to digital, but now post-iTunes, the labels are adjusting their strategies. One of these strategies has been the so-called 360 deal. Essentially, this means that the record label “invests in an artist’s career” and then splits profit on all of an artist’s revenue streams, including those that were in the past untouched by them, like live concerts and merchandising. Thus, the label becomes more of an artist management group rather than a simple recorder and distributor. The labels try to justify getting their fingers into all the pies by insisting either that they are responsible by way of recordings and marketing for all other sales an artist makes and should be entitled to a cut, or that labels will do for artists much more in an “active partnership” and they will be more invested in the artist’s future because they now have interest in more aspects of their career (Marshall, 2013). Another facet of the 360 deal is synchronization revenue, which comes from licensing songs to advertisements (the labels purport to help artists get these deals). As Bethany Klein observed, new artists get paid very little for ads compared with big names, and they often get no credit on the ad itself. Crafty viewers have to look the song up on their own to find the artist, which has led to a series of message boards for this very purpose as well as a phone app called Shazam (which will be covered in the next section). This sync deal sounds agreeable to the cash strapped artist early in their career, but this scenario introduces another level of corporate involvement in the activities of artists, this time from non-music companies who manipulate the original meaning of the song to fit the theme of the ad through editing and image accompaniment. For some music styles, cooperating with large corporations is seen as career suicide, and accordingly, some artists refuse all ad sync deals, but for many newer artists who need money to maintain touring, ad syncs are seen as a necessity. Some have found ways to increase their exposure from the ads by having the band name displayed on screen or appearing in the ads themselves in a sort of co-branding, but for those artists worried about their integrity that still want to pocket the corporate money offered, sneakier ways have been devised. In one example, the band Yo La Tengo accepted a deal from Starbucks to use their music, but instead of using music from their existing catalog, they submitted new original music for the ads and refused all credit for the music contribution on the ad campaign’s website, thus keeping the money and also hiding their cooperation with the coffee chain  (Klein, 2009). Most advertising companies are separate from major labels, so their music selection tends to be more wide ranging which is good for the new “buzz” artists on the radar, but the labels claim to have clout in shopping these songs to the ad houses to secure this revenue for the 360 deal signer. The industry appears to be stretching itself thin attempting to cover all these revenue streams for the artists, but while most see the industry as an old dinosaur (most notably Thom Yorke of Radiohead), it is capable of acquiring existing companies that specialize in new streams of income or getting new personnel that specialize in new areas relatively easily (Marshall, 2013). So the complete death of the industry probably isn’t coming. In the meantime, artists are capable of carving out their own paths to revenue and some have been quite successful.

Save Me, Technology!

Since the introduction of the new digital distribution systems, artists and labels alike have struggled with how to properly use them to get the audiences and the bands together. The good news is most artists’ revenue streams come from so many places, that without a 360 deal (or any label deal for that matter) most of an artists’ money is coming from other places. As a matter of fact, the Future of Music Coalition did a survey of 5,371 people who make a living from some aspect of the music industry, and of them only 6% of their averaged incomes came from record sales. Of course, some of these survey respondents were session players/composers/teachers who make no money from recordings, but also the 12 month period may be limiting for those who did not release a record in this time span. Out of the 59% of respondents that do make some of their money from recordings, only 6% more musicians reported declining income from recordings rather than those that reported an increase in a five year span, so while there is a slight decrease in recording income across the board, sales are mostly stable and do not make up much of a musicians’ revenue on average (Thomson, 2012). This is good news for the independent artist, as these streams of revenue can now be taken through other services without the need for a label (more on that later). First, let’s explore how experiments throughout the time of iTunes established the theories behind most of the new digital services that purport to help artists circumvent the labels.

Some older artists who are products of the past splendor of CD sales up to the booming 90’s have experimented with different distribution models with notable success, and newer artists have used the technologies to establish themselves, sign with or eschew the labels, or completely fund and manage their whole careers via social media. Again, the older bands with pre-established fan bases are the ones who could afford to experiment in the early stages of digital distribution, while the newer artists attempt to replicate their successes on a smaller scale. One of the most notable experiments was the aforementioned Radiohead, who in 2007 and after completion of their original 6-album record deal, announced 10 days ahead of time that they would self release their new album on their own website in what became known as the “pay-what-you-want” model. Basically, a fan would go to their website, name their own price (down to and including $0), and download the new material directly from the band. This experiment would make Radiohead an untold amount of money (they never released income stats from it) but more importantly would inspire other acts to experiment. A year later, Nine Inch Nails, also out of their original recording contract, would copy this model with a few improvements for a new release. These improvements were mainly to the website, but also included more bundled ways to purchase physical goods with the music. By sidestepping the labels, music here can be sold at a fraction of the price, and the artist will net the same total amount as they would have through a label on considerably more sales. Trent Reznor of Nine Inch Nails even said his experiment netted him 1.6 million dollars, which would have taken considerably more sales through a contract to receive (Benkler, 2011). Most of the statistics around these two experiments are based off of legal downloading vs. piracy due to lack of statistics about income. As for the Radiohead experiment, Page and Garland found that they had not done as well as Nine Inch Nails had done in the area of curbing piracy, mainly because the barrier to entry was too high on the Radiohead website. Reznor had succeeded primarily because he accepted donations while giving the music away for free, where as Radiohead required a credit card, and because NIN had higher file qualities that pirates normally expect (Page & Garland, 2008). Not to say either experiment was a failure. Radiohead’s record was physically released through distribution deals at the beginning of 2008 to strong sales, and a deluxe bundle that was available for preorder during the experiment sold very well to the band’s super fans as well. Reznor as previously stated, did well from donations on the initial site, and also built upon Radiohead’s deluxe bundle idea and took preorders for a deluxe version on a sliding scale, where higher prices could net a fan autographs or additional merchandise like shirts and vinyls (Benkler, 2011).

These experiments both set the stage for a handful of new online sites designed to let truly independent artists use a similar model for their own distribution. A spreadsheet put together by the Future of Music Coalition aims to list the new distribution models and how they differ from each other. They list the following: Digital Retail (ex. iTunes), Subscription (ex. Spotify), Artist-to-Fan (ex. Bandcamp), Advance Project Funding (ex. Kickstarter), Licensing (none of these are popular yet, but they exist to get ad sync deals for the unsigned artist), Online Video Performances (ex. YouTube, ad based revenue for plays), Radio/Webcasting (ex. Pandora), and a mixed category of non-monetary models comprised of Soundcloud (streaming services), Twitter (marketing tools), podcasting, and blogging (Future of Music Coalition, 2013). Each category comprises several competing services, so for the most part, I will only cover one service each from these categories.

For digital retail, the facilitators are the storefronts, i.e. Amazon, iTunes, and Google Play Store; how an artist gets their music added to these sites is either through a label or through a service for independents, the two major ones being CD Baby and TuneCore. These services only have two major differences which I will sort out after I explain how they work. An artist uses these services to get their music uploaded to all the major libraries including the streaming services (Pandora, Spotify, etc.) and digital storefronts and keep 100% of the revenue generated (minus the 30% cut of the storefronts). Both CD Baby and TuneCore take percentages for services rendered in collecting mechanical royalties and performance royalties (these are handled through ASCAP, BMI, and SESAC which the services police), and both also offer  publishing wings. TuneCore’s offers 90% revenue to the artist, and a synchronization wing (for cutting deals with ad agencies) that offers 80% revenue for a minimal yearly fee (TuneCore, Inc., 2013).  TuneCore even now offers the opportunity for artists who do well in the digital realm to sign themselves to an arm of Universal Group for physical distribution and some of the services in the 360 deal, but for a flat rate, while still maintaining control and revenue. CD Baby is a little different. Where TuneCore charges an annual fee for each album uploaded, CD Baby charges a one-time fee for each upload, then takes a slightly higher percentage out of the royalties. In this choice, the artist is making a bet. If they can pass a certain number of sales (said to be either 1,000 or 2,500), then TuneCore is the best bet, but if the record will not be that popular, CD Baby is a cheaper way to keep the artist’s music hosted online.

After an artist signs up and gets their music hosted, the subscription services are part of where the revenue is generated for them (whether or not revenue is even generated is highly and publicly debated right now between several higher profile artists). They normally have an ad supported free version or a monthly paid ad free version with higher quality audio. Spotify from Sweden  is leading in this field, but several new services are in the works to challenge that throne. Deezer is a service coming over from France next year (Houghton, 2013), Beats Audio recently acquired the failing music service MOG and aims to build a service called Daisy (Houghton, Beats Music: Daisy Gets A Name, Hiring More Staff, 2013), and there are several others lurking in the background as well. An important distinction to make here is that Pandora is a different kind of streaming service in that it is not an “on-demand’ service. In other words, Pandora lets the user pick an artist they like, but does not let the user dictate which songs will play in what order. Therefore, Pandora is a webcaster, and pays lower royalties. However, the truth is, no one really knows how much these sites pay out for royalties. The deals between these sites and the main record companies and publishing companies are behind closed doors. The best estimates are made from artists’ uploaded paychecks, and the case of a cellist named Zoë Keating indicated the following: Spotify had .04 cents per play (after the 9% cut to CD Baby), 97% of her income came from actual sales on iTunes, Amazon and her own Bandcamp page, and most of the 3% was from SoundExchange (collects from the web broadcasting companies like Pandora and Sirius XM) at $1,617 and YouTube plays at $930. She decided not to stream her 2010 album, but she said “artists should view it as a discovery service rather than a stream of income” (Dredge, 2013).

For the artist-to-fan category, Bandcamp is looking like the winner. It competes with iTunes with its own interface for streaming, embedding on other web pages, and sales. It’s the more direct route to the experiments of Radiohead and NIN rather than where TuneCore seeks to replace the label. Bandcamp leans heavily on the community aspect, encouraging curation and fan exploration, and gives more control to the artist, including a sliding price scale from iTunes prices to “pay-what-you-want” or free. Bandcamp also offers multiple file qualities and download codes to bundle with merchandise among other perks (Bandcamp, Inc., 2013). Basically, TuneCore seeks to replace traditional distribution while Bandcamp wants to replace with a new system of distribution and act as a marketplace for the artists.  Both have some popular artists on roster.

The rest of the services exist to drive sales to the other platforms through a combination of self-plugging and publicity. Many artists maintain their own Twitter accounts and use them to communicate directly with fans as well as pass on information about touring or new releases (some are controlled by the artists’ representatives). Four of the five most followed Twitter accounts are musicians (Dredge, 2013), so that’s something not to be ignored. SoundCloud is a streaming service for artists to share anything from singles to B sides to unreleased tracks and DJ mixes for free and artists can choose to allow for downloading of the files. SoundCloud also lets artists link to their social media pages and sites where their music is available for sale, so driving a lot of plays may result in some new fans and sales through other venues. I mentioned Shazam’s app earlier; they exist to help new fans discover artists through ads or radio play when they immediately like something overheard in public or broadcasting. Shazam also links to an artists’ pages on iTunes (they also recently inked a deal to link with Rdio, a streaming service) and has been shown to drive a lot of responsive traffic and sales for musicians. Finally, the music blogs also exist for publicity for artists and drive a lot of traffic and sales, like Rolling Stone, Spin, Vibe, Pitchfork and others. Some of these blogs sponsor their own events and tours or sponsor stages at big festivals, as well as drive a whole lot of web traffic, so getting in on their good side could not hurt either.

A combination of these paths was explored very successfully by the rapper known as Macklemore who had a number one record “independently” with the help of major labels, yet while retaining all his rights. According to an interview in Billboard, he worked his success up on social media and got to the point where majors were clamoring to sign him. Then they signed up with ADA, the Alternative Distribution Alliance, for a one record deal for his debut album. The ADA typically just handle distribution for independent labels like Domino, Sub Pop, and Rhymesayers, the latter two being the parties who got ADA’s attention on Macklemore. The song began to take off on YouTube and garner its own spontaneous play on independent radio from those who had seen the video. At this point Macklemore and ADA agreed to get the song out on radio (essentially payola, which only the majors can do) and physical copies in stores to meet demand, all leading to a No. 1 hit and loads of copies sold, “independently” (Horowitz, 2013). Dealing directly with ADA was a bit unusual, but hopefully they will be more receptive to these deals in the future.


“Baby, You’re the Best”

So which way is best for the new artist? It depends on needs. First and foremost, artists need to be realistic about their goals and their careers. Most new artists are now going to be their own booking agent, manager, merchandise supervisor, recording technician, and social media manager for the first stretch of their careers until they build up enough local presence or social media presence to get to a higher level of exposure. As mentioned earlier, only 2% of artists are going to make it past this stage. If an artist probably is not going to clear this hurdle, CD Baby is a cheaper way to go to keep your material out there, and will keep them covered on revenue in case of sudden internet fame. If an artist can clear the loosely based threshold of 1,000 digital sales a year (hopefully much more) then TuneCore is a great way to handle all licensing and physical distribution needs, especially if  professional management is in place and social media avenues are going full throttle. Bandcamp is great for really small time artists on either track who are looking to get their music out there and make a little donation money in the meantime while getting themselves built up. If an artist is like Macklemore and  does score internet success, partnership directly with a label on the artists’ terms is possible with enough leverage. After being realistic about the sales possibilities of their material, the best advice for artists is to choose wisely, as there are a plethora of options from labels (they still exist and offer the 360 deal) to any number of online marketplaces or streaming sites. To maintain leverage (Cook, 2012), artists should do as much as they can themselves, outsource when necessary, and definitely never sign over copyrights, ever. If an artist can make themselves out to be a big brand on their own (through blog buzz and Twitter, or YouTube fame), they can continue their momentum and sign deals only for distribution when necessary to reach a larger audience. In the meantime, TuneCore seems to be the best deal, assuming that the artist can manage and grow their social media accounts by themselves (and pass that magic 1,000-2,500 sales bar). Plus, they offer a really good deal on the publishing, which does account for an extra 9 cents per iTunes sale that really adds up for an artist. Another choice to be made is whether or not to go for ad sync deals, as they can be degrading to an artists’ brand in some circles, but can also garner a lot of attention (then Shazam comes in to generate a few sales and new fans). If an artist does decide to license to an ad, they should definitely consult a lawyer over the contract if they do not already have one on retainer, and I would recommend investigating what the ad will be like and the company it will be for, to make sure your personal beliefs do not conflict, or to prevent a negative media storm when something goes wrong. The lawyer could also help to get the band’s name into the ad spot music video style in the bottom corner, so fans can know immediately what the music is in the ad. Also, as long as the company and the artists’ views align, co-branding can occur, either through tour sponsorship or by appearance in the ad (this is how so many mega-stars make money outside of their record deals, and it goes further to clothing lines, shoes, headphones, etc).

With the right plan in place for growth, an independent artist can really make a go at it in this new media landscape. So many new technologies exist for an artist to get almost all the way to the top on their own. Creativity is necessary to escape the “sea of noise” and get some real exposure to lead to that 2% echelon where the money is. I implore the artist to keep their copyrights by any means necessary, because after the career, lights, and music are over, those will be the last things still generating income long after they live.



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