The music industry has always been a rather lucrative industry. Implying they exploit the general public would be an understatement. The music industry is notorious for their high revenues. In 2007 alone, the core copyright industries contributed $889.1 billion to the U.S. GDP, equal to approximately 6.4% of the U.S. economy.[1] But how exactly is this money generated? Does the majority of the revenue go towards the recording artist, the label itself or somewhere else all together?
To answer this question, one must start at the actual creation of a song. A song, in terms of copyrights, is broken into three parts: the lyrics, the actual musical accompaniment, and the actual recording of the song. The songwriter is created with the lyrics and actual musical accompaniment – as they created the song on their own and composed it to be played and recorded. The recording is attributed to the recording studio or the record label who commissioned the recording. With these entities in possession of the rights to the song (the copyright), they are the ones who will receive monetary compensation for the playing and distribution of the song.[2]
This monetary compensation, or the right to receive it, is referred to as a “royalty”. There are four kinds of royalties that one can own: “(1) royalties from ‘print rights’, (2) mechanical royalties from the recording of composed music on CDs and tape, (3) performance royalties from the performance of the compositions/songs on stage or television through artists and bands, and, (4) synch (for synchronization) royalties from using or adapting the musical score in the movies, television advertisements, etc. And with the advent of the internet, an additional set of royalties has come into play : the digital rights from simulcasting, webcasting, streaming, downloading, and online “on-demand service””. Basically, this translates into whenever their song is used to make money or in conjunction with an entertainment venue (live shows, radio, television, etc), they receive payment.[3]
This, however, means that if the performing artist did not write the song or the music themselves – then they do not receive any royalty payments. These artists are therefore referred to as “performing artists” – artists that perform other individual’s works as a professional career. These artists make the majority of their income from the contracts with their record labels (generally they receive a large monetary amount for signing themselves exclusively to the label) and from their live performances and tours. Artists aside, though, the actual record label makes the majority of the money generated from the music sales.
They generate profit through a number of different channels. The most obvious of these would be actual music sales. Compact discs, online mp3s, vinyls, etc. all generate profit for these major companies. However, among the many channels, cd sales are actually the least profitable. Most of the money made on these sales barely covers the cost of producing the CD and paying everyone who is involved. Similarly, CD sales don’t generate much profit unless they reach what is known as “platinum status”, the name given to albums that sell over 1,000,000 copies. Similarly to CD sales, sales on mp3s and ringtones generate little, if any, revenue.
The more profitable means of generating income through the music industry is through live performances, music licensing (allowing radio stations, television shows, etc. to use one’s music), and from music royalties. Record companies (known as record labels because albums have a label indicating which company produced it) take on a lion’s share of the work of the music industry. They sign, develop, record, promote, publicize and sell music. Of course, all those things happen before the album ever gets into the store. Record labels come in all sizes, from small independent labels run by one or two people to huge corporations made up of hundreds of people in dozens of departments. In fact, Billboard, the best known music industry publication, lists more than 2,000 record companies currently in operation. Music is big business. Successful records sell millions of copies and earn billions of dollars for the record companies.[4] Among the many record labels in America presently, four are considered the power-houses. These four record labels are: Universal Music Group, Sony Music Entertainment Inc., Warner Music Group Corp., and EMI Group PLC. They account for approximately 87.39% of the collective US music market (Universal 35.12%, Sony 22.79%, Warner 21.12%, and EMI 8.35%).[5]
These leading labels all own a number of much smaller labels, including what are referred to as “indie”, or independent, labels. In doing this, they can establish the smaller labels under them as particular genre labels. This means that the smaller label will focus on one type of artist, such as strictly rappers, or pop singers, etc. The parent label still holds all rights and control over the child label, but the child label is able to pay much more attention to the careers of every artist signed through them, as well as nurture the artist in that specific genre. Some indie labels, though, try to diversify the artists within their label to try to maximize the number of markets they are, such as having a rapper on their label, along with a heavy metal band and a pop singer.
It is through these labels that the artists get promoted and have their music nationally, and, for some, internationally, played – thus, thrusting them into the public spotlight. It is through these labels that artists receive a better shot at being accepted by the public. Music has always been popular with people of all ages, though only some artists ever seem to make a very successful name for themselves. The list of “one-hit wonders” is an inarguably longer list than those of long-lasting musicians. These long-lasting artists, however, are generally under the umbrella of a large label. Their talent were nurtured and grown within the label, and they become more than just an artist – they become a brand. This is only possible, though, with the help of the record label to which they are signed with. The larger the label, the (arguably) more potential they have to “make it big”.
There are, however, more parts of the music industry that do generate a large number of profit. Recording studios generate a lot of profit themselves – being hired for long periods of time, using a great deal of equipment and space. Along with the recording studios themselves, all operate with very expensive equipment that usually requires a number of pieces to record one part of a song. From special microphones, to instruments, computer software and programs, and even sound proofing a recording room – the cost of equipment becomes steep rather quickly.
For the average consumer, not a part of the recording process, there are a number of technologies needed to enjoy music. One cannot simply purchase a compact disc and being listening to it. To listen to a CD, one must have a CD player, as well as a pair of headphones. To listen to an MP3 file, one would have to have a computer with capable software. To listen to and purchase iTunes, one would need an Apple Mac computer. For portable MP3 playing, one would need to purchase an iPod (or another MP3 player), headphones, and the proper computer cables to connect the computer and player together to upload the music onto it. To play an iPod in one’s car, the proper equipment is also needed.
This is how music technology becomes profitable to a manufacturer. One piece of technology cannot simply work by itself. There are at least two or three parts needed for each to work properly. It is in this situation that the manufacturers trap the consumer. Constantly having to purchase new music and upgrade software quickly becomes expensive. If one feels the need to have the latest gadgets for music play, they must pay the price. Similarly, if one wants their technology to be more adaptable to other parts of their lives, there are instantly more goods to buy. Music technology also covers sound technologies. These technologies apply to everything from cellular phones to televisions to radio to computers. All these technologies incorporate sound into their uses, and thus create even more areas in which a manufacturer can generate profit.
These music (and sound) technologies have greatly revolutionized the economic structures of many countries. With new advances made yearly, new products are produced on a regular basis. This translates into plenty of manufacturing, packing and shipping jobs for individuals all over the world. In terms of the actual music and sound production, there are an infinite number of individuals working with any given artist at a time. HowStuffWorks.com explains that there are about nine different departments at any given record label: Artist & Repertoire, Art Department, Artist Development, Business Affairs, Label Liaison, Legal Department, Marketing Department, New Media, Promotion Department, Publicity, Sales. Each department employs a large number of employees to cover all the responsibilities needed to successfully advance an artist and their career.
Overall, the music industry has revolutionized many an economy, as well as provided a great source of entertainment to the general public. Though a very lucrative and well oiled machine, there are many pieces that go on behind the scenes of which the average person is unaware. Still, the music industry (and its corresponding parts) have made a great impact on the world economy, and the world itself.
[1] “About Music Copyright Notices.”
RIAA. 03 Dec 2009. Recording Industry Association of America, Web. 3 Dec 2009. <http://www.riaa.com/ispnoticefaq.php>.
[2] Obringer, Lee Ann. “How Music Royalties Work.” 24 May 2003. HowStuffWorks.com. <http://entertainment.howstuffworks.com/music-royalties.htm> 03 December 2009.
[3] “Royalties.” Wikipedia. 2009. Wikipedia.org, Web. 3 Dec 2009. <http://en.wikipedia.org/wiki/Music_Royalties#Music_Royalties>.
[4] Klein, Allison. “How Record Labels Work.” 25 May 2003. HowStuffWorks.com. <http://entertainment.howstuffworks.com/record-label.htm> 03 December 2009.
[5] “Top record labels: artists, market share.” USAToday.com (2008): n. pag. Web. 3 Dec 2009. <http://www.usatoday.com/tech/products/2008-10-10-367143278_x.htm>.
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