About payday in the music industry: How and when do artists actually get paid?
A closer look at music industry payment schedules.
In the modern workforce, most people receive a conventional monthly salary. However, for musicians, financial realities are much more complex and uncertain. Even among the few artists who manage to monetize their craft, very few can afford to quit their day job.
The digitization of the music industry has made commercializing music as accessible as creating it. Yet, many questions about how and when artists get paid remain unclear. This article provides an overview of the various revenue streams, stakeholders, and processes involved in an artist’s income, aiming to demystify this often confusing topic.
What are an artist’s different revenue streams?
First, let’s explore the different ways musicians can generate income.
Live performances
Live gigs are usually the most significant income source for artists. Payments can be made upfront or after the show. This has traditionally been a reliable source of income, although it was heavily impacted during the COVID-19 pandemic.
Royalties
Royalties are perhaps the most complex and misunderstood aspect of artists’ income. This could be due to the fact that royalties come in various shapes and forms, and are oftentimes synonymous with complex administrative processes that can be daunting to both labels and artists. There are several types of royalties associated with different exploitations of a sound recording (master rights) and a composition (composition rights). Here’s a brief overview of the different types of music royalties:
- Digital royalties: Earned from streaming and downloads on platforms like Spotify and Apple Music. For instance, Spotify pays approximately $0.003 to $0.005 per stream¹.
- Physical Sales: Despite the dominance of digital formats, physical sales of music through CDs, vinyl, and cassettes still generate revenue. Physical sales remain significant, especially for genres with dedicated fanbases and for collectors who value tangible formats².
- Synchronization royalties: Paid when a track is synchronized with visual content like TV, ads, or films
- Performance royalties: Collected and distributed to composition owners when their track is played publicly, typically managed by PROs like ASCAP or BMI, GEMA, SACEM, …
- Neighbouring royalties: Collected and distributed to master owners and performers when their track is played publicly or broadcasted.
- Mechanical royalties: Due when a recording is reproduced (i.e., distributed) digitally or physically (Vinyl, CD, cassette), paid to the writers of the composition.
- Merchandising: Another source of income for artists is the production and commercialization of merchandise that often features the artist’s logo or album/EP cover art. This can be a lucrative revenue stream, especially for artists with a strong fanbase.
Who are the different stakeholders involved?
The music revenue funnel is far from simple, involving multiple stakeholders who profit from the royalties generated. Here’s a closer look:
Recording artists, singers, songwriters
Get eddy.app’s stories in your inbox
Join Medium for free to get updates from this writer.
It all starts with the creators. Music rights are split between master rights (associated with a specific sound recording) and composition rights (associated with a specific composition). While some artists earn royalties from the master side, others earn from the composition side. Artists who manage both sides receive royalties from both streams.
Producers
Producers are crucial for creating commercially viable music and can receive a share of the royalties on the master side
Record labels
Record labels play a central role in the music industry. They manage the marketing, distribution, and financing of albums. Labels typically take a significant share of royalties from the master side to recoup their investment in recording, marketing, and advances. They are responsible for promoting and distributing the artist’s music, often incurring substantial costs for marketing campaigns, tour support, and production expenses. These costs can either be split between the label and the artist or fully reimbursed by the artist once they have earned enough royalties. Additionally, labels often provide advances to artists to support them while they work on new music. These advances must be repaid with future royalties, a process known as recoupment. Until the label has recouped its costs, the artist may not see any royalty payments
Distributors
Distributors act as intermediaries between artists/labels and digital streaming platforms. They collect royalties on behalf of the artist and take either a fixed fee or a percentage of the royalties. Distribution services like CD Baby and DistroKid allow independent artists to get their music on streaming platforms, while larger distribution companies like The Orchard and Believe also offer promotional support.
Publishers
Publishers collect royalties on the composition side and take a share in exchange for their administrative and services.
Collective rights societies
Collection societies are organizations that collect performance and mechanical royalties for songwriters and publishers (e.g. ASCAP, BMI, MLC…), or neighbouring royalties for master rights owners and performers (Soundexchange, PPL…). Each country has one or multiple collection societies that either focus on performance royalties, neighbouring royalties, or mechanical royalties. They take a percentage of the royalties they collect before allocating them to songwriters, publishers and master rights owners.
Licensing companies
Licensing companies and sync agencies find music placements in TV, film, or advertising and take a share of the income generated through sync deals.
How Are Artist Royalties Calculated?
As you’ve probably noticed by now, this whole affair isn’t straightforward at all. And to make it even more complicated, once royalties have been through all these intermediaries and finally reach the label, there still needs to be some calculation to see how much is actually due to the artist. This is, of course, very much dependent on the contract, as there are multiple royalty deal configurations that are more or less advantageous for the artist.
That’s usually where it gets very finicky and very boring. For many labels, endless Excel spreadsheets are the only way to go. For others, accountants will have to do the job. However, digital solutions exist. With our music royalty accounting software eddy.app, labels can automate the whole process and generate detailed, precise, and transparent royalty statements for their artists.
When Do Artists Actually Get Paid?
Traditionally, royalty reporting is done on a biannual basis. A royalty statement is sent to the payee from the label, featuring a breakdown of earned royalties, costs & advances recoupment, and the final balance at the end. That balance is either shown in red, meaning that the artist wasn’t able to recoup all costs & advances, or in green, meaning that costs are fully recouped and the artist is actually making a profit.
In other, more realistic cases, artists do not get detailed statements on a regular basis. Automating the whole royalty reporting process with a digital solution like eddy.app allows labels to save time and pay their artists more regularly. It’s a win-win situation, really.
eddy.app’s ability to allow labels to pay their artists regularly is a significant advantage. With features like a self-service payee portal that validates all the billing and payment data, labels can ensure transparency and accuracy. Additionally, our payment integration enables one-click mass payments, simplifying the entire process for labels and ensuring timely payments for artists.
