By Jeff Price

Now that CD sales have gone the way of Zima, the entire old school industry sits and wrings it hands around how/if it will make money in the new digital industry.

In the meantime, with the removal of the old industry middlemen, the new industry—the artist as record label/songwriter/publisher and performer—is making more money now than at any point in history.

But is the more money being made enough to sustain the world of artists?

The truth is, the model is still being sorted out, but I remain optimistic.

Here’s one piece of evidence for discussion…

In a May 30th, 2012 press release issued by Cisco about how the Internet is going to be four times as large in four years, one little bullet point stood out to me (and thank you to Todd Beals for pointing it out).

It reads:

Globally, Online Music is expected to be the most highly penetrated residential Internet service ― in 2011 there were 1.1 billion users (63 percent of residential Internet users); in 2016 there are forecast to be 1.8 billion users (79 percent of residential Internet users).

I understand this to mean that in 2011, there were 1.1 billion people using music services via the Internet to listen to music at home.  (This number does NOT include those using peer-to-peer services: Cisco has a separate number for that.)

Let’s run a model based on these numbers and see what sort of revenue this could possibly generate:

1.8 billion residential users – let’s say each listens to an average of 10 songs a day.

That’s 18,000,000,000 (18 billion) song listens per day.

18,000,000,000 (18 billion) listens per DAY

x 365 days a year

= 6,570,000,000,000 (6.5 Trillion) listens per year

That’s a lot of listens – I suspect a lot more than there used to be but no one knows as we never tracked listens (beyond AM/FM radio) before.  With digital you can.

So who gets money from these listens?

If these listens happen via a non-interactive service (i.e. Pandora, FM radio simulcast, Sirius Satellite) there are two royalty payments owed:

1) Songwriters/publishers get paid from every stream for the right of Public Performance in the composition (the ©).

2) A separate payment is made to the master holders (the entity that controls the right to the recording) for the right to Public Performance in a sound recording(the (P). – see George Howard’s article “Taylor Swift’s Big Machine Gets Paid” for more info).

If the listens happen via an interactive service (i.e. Spotify, Rhapsody, Mog, MySpace Music) there are three royalty payments owed:

Songwriters/publishers get paid from every stream for:

1 A) The right of Public Performance

1 B) The right of Reproduction (aka Mechanical Royalties)

2) A separate payment is made to the master holders (the entity that controls the right to the recording)

If the listens happen via some other model (i.e. iTunes Match) there are three royalty payments owed:

Songwriters/publishers get paid from every access for:

1 A) The right of Public Performance

1 B) The right of Reproduction (aka Mechanical Royalties)

2) A separate payment is made to the master holders (the entity that controls the right to the recording)

If these listens happen via paid downloads, a one time payment is made (as opposed to the above models where the copyright holder gets paid each time a song is listened to).

In the US, there are two royalty payments owed for each download:

1) Songwriters/publishers get paid from every download for the right of Reproduction (aka Mechanical Royalties)

2) A separate payment is made to the master holders (the entity that controls the right to the recording)

On a download outside of the US, there are three royalty payments owed:

Songwriters/publishers get paid for every download for:

1 A) The right of Public Performance (aka Communication)

1 B) The right of Reproduction (aka Mechanical Royalties)

2) A separate payment is made to the master holders (the entity that controls the right to the recording)

So, copyright holders get paid from these Internet listens.  How much will be generated?

Many of these payments will be micro payments, three places to the right of the decimal point.

As an example, on interactive streams in the US, the total royalty all THREE (master, public performance and mechanical royalty) generate together is about $.008 for each stream.

Do the math assuming these are all interactive streams (which they currently are not):

6,570,000,000,000 (6.5 trillion listens)

x $.008 (eight tenths of one cent)

= $52,560,000,000 ($52.5 billion dollars)

As a perspective, the traditional CD music industry in its heyday (late 90’s) was about a $35,000,000,000 ($35 billion dollar) industry.

Now factor in that according to Cisco, these are just for “residential” listens.

Now add in listens from cars, smart phones, etc.

Now add in Business listens.

Now factor in if the rate goes up by 1/1000th of a penny (which it will at a minimum) or more.

Now remove the middlemen taking a percentage of the revenue when the music is listened to.

What excites me about this model/exercise is it’s being run at the infancy of this new industry.  Listens and the revenue from these listens are on the way up. In addition, less of the artists’ earnings are being taken by middlemen.

And the assumptions in here, although a bit stretched (i.e. all the streams are interactive) are based on some real numbers but also leave out other revenue from traditional income streams—master use/synch licensing, merch sales, gig income, sponsorships, ticket sales, etc.  Add those in as well.

Do I think the world will awash in rich artists?  Absolutely not. I think the same rules of the old will apply; just as there are only a handful of successful authors, poets and filmmakers at any given time, there will always only be a handful of successful musicians/songwriters at any given time.

But those that are successful will be financially well off. In addition, I truly believe there will be a wider range of artists that make some form of income of some significance.  It will no longer be a world with two classes of artists: artists either making nothing or millions.  There will be a full spectrum across the board with a few more at the top, a lot at the bottom and a new class in the middle.

And if these assumptions are correct, then the issue that we should be focusing on is the pipeline that assures that these artists have a simple and efficient way to get the money they earned; right now, aside from TuneCore’s distribution and Publishing Administration services, there is no other.

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