source http://thecynicalmusician.com/2010/01/the-paradise-that-should-have-been/

A somber shot of reality, IMO.

quote:

You may have gotten the impression that I don’t like the Internet. Some people certainly have. Some are convinced that the reason for it is my ignorance of how it works. The truth is I am deeply disillusioned about how it turned out and I’ll take this opportunity to tell you why. The Internet should have been a godsend to musicians and creators of replicable works in general, for two reasons: The two biggest problems an independent creator faces are distribution and promotion, which in the past meant the need to deal with publishers (and all associated creative and financial trade-offs). The Internet has enabled even the smallest business to reach a potentially global consumer base. Creative works such as books, movies and music are pretty much the only products (others include software and news) that can be delivered on-line and as such seem custom-fitted to e-commerce. Looking at the two points above, we see that the Internet should have opened wide new vistas for the creative sector and enabled thousands of independent creators to flourish without the need to court big business. So why didn’t it pan out that way? Or did it? Some would say it did. However, looking at matters realistically, the amounts earned from creative output delivered through the Net verge on the laughable. It so happens that I write this from a position of someone who makes money from making music available through the Internet, so let’s take a look at some numbers. Just how much can we make from this new method of distributing our work that should have been our paradise? Starting with MP3 downloads, the wholesale price per track is typically 70 cents. Depending on your distributor, you will receive a bit less. For myself, distributing through CD Baby, both Amazon and iTunes sales bring in 64 cents per track – more precisely 63.7 cents. A full EP download from Amazon works out at $3.82. Things begin to look up for full-album sales direct from CD Baby. Under the old scheme, $9.99 from the purchaser would bring in $9.09 for the artist. After CD Baby increased its commision towards the end of last year, the payout to artist decreased to $7.49. These are not generous margins to be sure, but the fun starts when we consider streamed music. Rhapsody streams generate just under a cent per play – 0.91 cents to be precise. Recently we’ve began to be credited for Last.fm plays and frankly I do not know whether to laugh or cry about the handsome sum of 0.015 cents per play. I’ve yet to receive any numbers from Spotify, but if there’s anything in the Lady Gaga story, they’re likely to be in the Last.fm region. For additional perspective, permit me to quote David Harrell’s findings with regards to the subscription/download model at eMusic, posted at Digital Audio Insider. His Q3 2009 payouts worked out at 34.2 cents per track (compared to 33.4 in Q2). David attributes the increase to eMusic rasing its prices following the introduction of the Sony catalog. He also provides additional insights with regards to per-track income on full album downloads – read his post for the details. Now that we have our raw data, let’s see what it means for recorded output as an income source. Let’s start with some assumptions (since we’re striking out into economic territory). The Federal minimum wage rate in the U.S. is $7.25 per hour (Source: U.S. Department of Labor). We’ll assume a 40-hour working week and a four-week month for ease of calculation. The result will be somewhat lower than you’d expect for full time employment, but since we’re looking at minimum earning levels, this does not impact our calculations negatively. Rolling it all together ($7.25×160), we get our benchmark minimum monthly earnings for one person: $1,160. Over twelve months, this gives as an annual income of $13,920, which is above the Federal poverty line for a single person ($10,830 – source: U.S Department of Health and Human Services), but under it for two ($14,570 – source: ibid.). In other words: make sure your wife has a job. Now that we have our benchmark minimum earnings level, we can check just how much we would have to sell of each of these products in order to earn these amounts. Note the additional assumptions that there is a single creator (a self-recording solo artist) and that her costs of recording the material are zero. In the case of Amazon and iTunes single-track downloads, 1,813 units must be sold monthly; 21,750 units a year. For CD Baby full album downloads (under the new commision rates), the numbers are: 155 units a month; 1,859 units a year For eMusic single-track downloads, at the rates reported for Q3 2009: 3,392 downloads a month; 40,941 a year. With Rhapsody streams, you’ll need 127,473 streams a month; 1,529,670 a year (yep, that’s over one-and-a-half million). Finally, Last.fm rates mean you’ll need 7,733,333 plays monthly; 92,800,000 plays a year. I don’t know what these figures tell you, but my opinion is that Last.fm is not a viable income stream. Maybe there’s something in that Lady Gaga story after all. What about a band? Let’s just quickly go over the same calculations for a standard four-piece rock group (vocals, guitar, bass, drums): Amazon and iTunes, single-track downloads: 7,250 a month; 87,000 a year. CD Baby full-album downloads: 619 a month; 7,433 a year. eMusic single-track downloads: 13,567 a month; 162,807 a year. Rhapsody streams: 509,890 a month; 6,118,681 a year. Last.fm plays: 30,933,333 a month; 371,200,000 a year. Aside: Even if you got the entire Chinese web-connected population to listen to your song on Last.fm just once, you still probably wouldn’t meet your annual quota. To put things in perspective, let’s consider a final scenario: the humble CD. Taking a quick quote from Disc Makers, for jewel-case CDs with full-color 8-page booklets to a customer-supplied design with UPC bar code included, a 1,000 unit run, the duplication costs for a single CD work out at $1.88. If we sell these for a tenner at gigs, our margin works out at $8.12. Looking just at the band example, we see that they have to sell 571 of these a month and 6,857 a year, which actually works out at less than full-album downloads that are cheaper by only a single penny. We’re talking about a physical product, that at least some people consider as having additional value (the artwork and liner notes, for instance). For completeness, we should add that if we’re to distribute the same CD through CD Baby and wish to preserve our margin, it would have to be priced at $12.12, to account for CD Baby’s $4 cut on each CD sold. Thus we see, paradoxically, that in terms of generating realistic income, the CD is still our best bet. The direct digital replacement – bundled download sales – is comparable. Unbundled track downloads increase the number of necessary transactions by a factor of magnitude and subscription-based downloads by yet another. The supposed future of recordings on the Internet – cloud-based streaming – barely deserves mention. I can’t imagine an independent artist receiving millions of streams a year, much less hundreds of millions. Let me re-emphasise that all of the above assumes zero costs of origination and minimum earnings. If we were to account for the fact that music does cost something to record and that creators should earn more than the minimum wage, the numbers would have been a lot higher. Finally, let me address some potential criticisms. I’ve focused on the “pure recording artist” for a reason. Yes, it is true that the artist can supplement her income from other sources: playing live, licensing, merch sales or whatever, but that’s exactly the point. The further we go towards the “new” methods of distributing recordings, the more it becomes necessary to do just that. The Internet should have been a paradise for the recording artist, but it became hell. The trends on the Internet are such, that it is becoming harder and harder to pursue recording music as a career. If recordings aren’t a money maker, they’ll be treated as one of three things: advertising, a hobby or not worth the bother. But we still want recorded music, don’t we? One thing I did not do, was consider the joint impact of these various income sources, for the simple reason that the number of possible combinations is infinite. To give you some perspective on how this might work, I’ll now take the $8.12 margin on a CD sale as a benchmark. To earn the same amount as you did on that one CD sale you’d need: 1.08 full-album sales through CD Baby, 12.7 single-track downloads from Amazon or iTunes, 23.7 single-track downloads from eMusic, 892.3 streams from Rhapsody, or a whopping 54,133.3 plays on Last.fm. These numbers should serve to illustrate that whatever benefits “music 2.0″ may have, it’s certainly done nothing for the recording artist, save make her noticeably worse off than she was in the old CD-based market. If recording artists ever go the way of the blubber merchants, it won’t be because there’ll be no demand for their product. It will be because making recordings makes no economic sense.

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