– a Six Part Series 

by Jeff Price

Part I: Music Purchases and Net Revenue For Artists Are Up, Gross Revenue for Labels is Down

Upcoming chapters:
Part II: The Impact of DMCA Streams and why they should be considered
Part III: How a skewed perspective delegitimizes artists
Part IV: The Growth Phase is Over? Improved Label Margins.
Part V: When Good Laws Turn Bad
Part VI: The Hills are alive…..

Did you hear? The success artists are having doesn't count. The music industry is over. Fewer albums are selling; revenue is down; the music being released is “crap”; everyone just steals music; the subscription services didn't take off; the RIAA is suing music fans; there are huge layoffs at the major labels; artists sell no music and make no money….it's a broken record.

The problem is, most of this is simply not true. Even worse, this perspective delegitimizes and hurts artists and the music industry. There is a lot “right” going on.

Based on what we have been hearing, most have no idea that music purchases are up over 50% from 2006 to 2009.

Take a look at the Nielsen numbers below:

(For brevity sake I will just provide their own headline and a few bullet points with a link back to the actual Nielsen reports for more details.)

Nielsen Music 2006 Year-End Music Industry Report
2006 U.S. Music Purchases Exceed 1 Billion Sales

  • Growth In Overall Music Sales Exceeds 19% over 2005
  • Digital Track Sales Increase 65% from 2005

The full 2006 report can be found here

Nielsen Music 2007 Year-End Music Industry Report
2007 U.S. Music Purchases Exceed 1.4 Billion

  • Growth In Overall Music Purchases Exceeds 14% over 2006
  • Digital Music Accounts for 23% of Music Purchases

Full 2007 report can be found here

The Nielsen Company 2008 Year-End Music Industry Report
2008 U.S. Music Purchases Exceed 1.5 Billion

  • Growth in Overall Music Purchases Exceeds 10% over 2007
  • Overall Music Sales, Digital Track Sales, Vinyl LP Sales, Set New Sales Plateaus in 2008
  • Digital Music Accounts for 32% of Music Purchases

Full 2008 report can be found here

The Nielsen Company 2009 Year-End Music Industry Report
2009 U.S. Music Purchases up 2.1% over 2008

  • 2009 Overall Music Sales, Digital Track Sales, Vinyl LP Sales, Set New Plateaus
  • 2009 Digital Music Accounts for 40% of Total U.S. Music Purchases
  • More than 10 Billion Music Purchases in the U.S. for the Decade

The full 2009 report can be found here

To summarize: In the four years of 2006 to 2009, music purchases increased from a record starting point of 1 billion purchases to the new record point of 1.5 billion music purchases. These specific figures do not include the sales and other income streams Nielsen does not track or disregards.

Specifically, any “purchases” generated via subscription based streaming services like Rhapsody and Mog are not included. Neither is revenue generated from Digital Millennium Copyright Act compliant streams (non-terrestrial based plays via satellite radio, Pandora, LastFM, Jango, 8Tracks, Slacker etc.). Nor do they include most band selling direct-to-fan sales, bundling of music with merchandise (i.e buy the t-shirt, get a free album, buy Guitar Hero and get the Soundgarden album), on-line drop card redemption, sales of tracks for game play in Rock Band, ad revenue generated via YouTube and other streaming video sites, traditional public performance royalties, gig income, “pay what you want” donations to the band for music, stem sales, synchronization licenses, ringtone sales (these are listed separately by Nielsen), publishing royalties, fan club subscriptions and a lot more.

All of these uses, plays, licenses and purchases generate revenue, just like a paid download. When you include these additional uses/purchases, the numbers go off the chart.

The reality is:

  • More musicians are making money off their music now then at any point in history.
  • The cost of buying music has gotten lower but the amount of money going into the artist's pocket has increased.
  • There are more people listening, sharing, buying, monetizing, stealing and engaging with music than at any other point in history.
  • There are more ways for an artist to get heard, become famous and make a living off their music now than at any point in the history of this planet.
  • Technology has made it possible for any artist to get distribution, to get discovered, to pursue his/her dreams with no company or person out there making the editorial decision that they are not allowed “in”.
  • The majority of music now being created and distributed is happening outside of the “traditional” system.

And to reiterate, sales are up…

Seeing that the Nielsen stats are readily accessible and accepted as legitimate, why then are we left with the impression that music sales and revenue are down? The simple answer is album sales and overall gross revenue from music sales (CD and downloads) are down. The increase in music purchases comes from the people buying individual songs. The decrease in revenue comes from a $0.99 song costing less than a $16.98 physical album as well as fewer purchases of physical CDs.

The impact of this is fascinating.

  • First, music fans are buying more music from a wider spectrum of artists.
  • Second, despite the cost going down to purchase music, the net revenue for a self-distributing artist is up as compared to what an artist traditionally earned via a label.
  • Third, the entire financial model of the labels (well, at least post 1960) was built around selling a full-length physical album. Due to this, it is the record label (and those artists signed to them) that net less money off the sale of the music.

Let me provide context. The financial food chain of the music industry used to be as follows. A distributor sells a CD to a retail store for a wholesale price (let's say $10). The retail store marks the CD up to $16.98 and make $6.98. The distributor takes a “distribution fee” of 20% of the wholesale price (in this case $2) and passes the remaining $8 back to the label.

A band signed to a major label could expect to earn a band royalty rate of $1.40 – $1.70 per full length CD sold. This band royalty was paid through to the artist if they had “recouped” the band royalty fronted to them by the label (i.e. an “advance”) – most do not recoup.

Compare this to self-distribution to iTunes though TuneCore: an artist makes $7 for each album sold at $9.99 and $0.70 for each song sold at $0.99. By selling just two songs on iTunes for $1.98, the artist makes the same amount of money as if a $16.98 full length CD was bought. An artist sells one digital album for $9.99 and makes 500% more than a signed band. The price may have dropped for the music consumer but with self-distribution the artist makes more money.


Part II of this series will discuss "The Impact of DMCA Streams and why they should be considered."


For a video response from Jeff to the questions below, click here

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