Shane@ScreamhouseMedia.com         321-331-8890

Are streaming services such as Spotify taking a big piece of your pie?

November 17, 2016

     

 

 Our world of technology is ever changing.  Physical albums are quickly becoming a thing of the past.  In 2000 there were appx 730 MIllion album sales.  In 2015 that dwindled down to a mere 125 Million.  That is an 83% decrease in sales in the past 15 years.  The state of the market today says that the cost of a streaming service to consumers is so astronomically cheap, that when you compare the average price of a cd today vs having the selection of basically all of the music in the world, consumers will and have ultimately chosen to save hundreds, if not thousands of dollars by subscribing to a streaming service.  Not to mention, you don't even have to store the music on your phone, you just stream it from a cloud.  So where does that leave us? 

 

     The first thing we need to do is just accept the fact that things are constantly changing.  Be consistent in you product and delivery, but be prepared to adapt to new ideas and methods quickly.  The second thing we do is to take a step back and look at the bigger picture.  Look at everything from marketing and live performance, to calculations of how much you make per stream, who is finding your music, how are they finding it, and how much of an impact you currently have pushing your product.  Let's find out if you are really missing out.

  

      So, lets kick around some data and ideas.  From what I can gather (and let me preface by saying I am not an expert, this is just the information I have available to me at this time), artists from major labels generally get between 5 and 20% of the profit from album sales.  This is because major labels have to consider the costs of marketing, touring, management, stage hands, and anything and everything else you can think of that goes along with that package.  I'm going to compare album sales and rotations to streaming.  So lets say on average, an artist or group makes about 12% profit form the sale of each album.  If an average album cost is $10.00, then the artist or group would make about $1.20 per album.  People typically listen to an album they really like on average of about 15 times.  If that is the case, that means the value of an album that was purchased for $10, that was listened to 15 times, would be worth about $0.08.  If an average album has about 10 songs, that means that every time a song is played from that album it is worth about $0.008.  Spotify pays on average about $0.006 per stream.  So it looks about even there, and even less if the consumer listens to it more than average.

 

  I know what you are saying.  "I'm not an artist on a major label, I'm totally DIY".  I hear ya.  Lets crunch some numbers.  For an order of 500 retail ready cds, the average cost is about $900.  This is assuming that you recorded it, mixed it, mastered it, and designed your own artwork.  Assuming there are no other costs associate we are going to use that price.  Now, its much harder for an independent artist to sell cd's.  Some artists have to sell their cd's for $5 or less, some of them can get away with $10 or more.  Lets use the average at $8.  So, your cost to manufacture the cd is about $1.80 each.  When you sell a cd, that gives you about $6.20 profit.  Sweet right?  Wait ....were not done.  I'm assuming you are not an internet sensation and your cd is not just blowing up online by itself.  Most likely you had to go play some shows to get your cd sold.  For most bands that can be quite difficult to do.  As a an independent artist you could have shows where you didn't sell anything, and you could have shows where you sell maybe 20.  We have to factor in all of the figures.   The signed artist has a few more machines and advantages working for them that have already been built in to the margin when selling their cds.  Lets factor in how much it would cost you just to gig as an independent artist to get the opportunity to sell your cd. 

 

  Time to set the stage.  Continuing with our average figures between being a solo act and a full band, we could easily say that the average group has about 3 members.  Here are some of the costs involved.  To get to the gig I would assume that it would cost about $20 in gas between all of the members.  Since none of the band members have endorsements yet, lets assume about $30 in basic accessories for the gig such as strings, picks, sticks, and drum heads.  Most independent groups are local bands that are not touring, so lets assume 1 gig a week.  In order to have that 1 chance to sell your cd, you would have to sell about 8 to break even.  Lets say your band was able to keep $1.00 per head for people that came to see you.  You would have to have to bring out 50 people to break even there.  Maybe you have some shirts for sale.  You paid about $5 each for a good quality shirt full color.   Average shirt price is about $15, you would have to sell about 3 shirts to break even.  Lets play the average game one more time and factor in all of the above.  Lets say we sold 4 cds for profit of $24.8, you got $25 from the door, and you sold 2 shirts ($20 proft).  The gig cost your band $50 (gas and accessories), and the band made an overall profit of $19.80.  Crap, you all gotta drive back home for another $20 in gas.   Luckily you were playing a hometown gig, otherwise you would have come out in the negative.  This is typically the state of affairs for most independent artists.

 

    Now, I understand this is not the same scenario for everyone.  Some bands are amazing from the getgo and everything works out perfectly.  Some groups have it a lot worse.  Some actually get signed and make less money than what they did as independent artists.  I believe it pans out, that physical cds are not worth producing, and it would worth it way more to invest your manufacturing costs in other items such as advertising, and touring.

   

    The old adage, "If there is a will, there is a way" comes to mind when talking about this.  What we essentially have is a shift in how people spend their money on music merchendise.  There is SO MUCH music out there today because it has essentially become so easy for anyone to make an album and release it.   Music has become essentially free.  Within a couple clicks of a mouse and about $30, your music can be sold everywhere around the world online.  Just like any other business you have the 80/20 rule.   Which is, 80% of your sales will come from 20% of your customers.  You may have seen some of your favorite artists already figure this out.  According to Statista.com , "As of 2014, revenues generated by live music performances were on average six times higher than revenues from album sales".  Concert T-Shirts use to sell for $15-$25, and now they go for much much more.  Unless I missed some world wide news, I don't think sheep have become an endangered species, and I believe the cost of production for these shirts has come down.  There are shirt companies that can make you full color shirts on average of $5 ea.  For major recording artists and labels who buy in mass quantities, the price could be even cheaper. 

 

  So here is how I believe that we move forward.  The biggest stage in the world is the internet.  Art and entertainment can be shared immediately to everyone, and there are so many free tools to use.  In fact, the only thing the success of your music has ultimately ever cost you is your time.  If you are not willing to put in the time, you are not really interested in success.  Theoretically, you can be an independent artist, and never play a gig, and become successful.  You could create a demand for your live performances simply by marketing the right way and pushing out content that captures an audience.  Using the simple formula of supply and demand, when you have enough demand, you will be able to play shows that draw large numbers,  and then you can charge a fee that will earn you a profit.  Of course, if you are horrible live, then you probably wont be too successful. 

 

   So my conclusion is that I do not honestly believe streaming services are taking anymore of your pie.  I actually believe that they are worth way more to you than any physical cd you could produce.  Look at it from a different point of view and use the tools of this new day and age.  In all reality, you get out what you put in.  Use your time wisely. 

 

I hope this has been helpful.  I wish the best to you and your career.

 

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