Hand to Mouth music industry continues to make money while its artists starve

The Grammy Award-winning lead singer of Garbage posted on Instagram, “A large percentage of the musicians you know and love probably live hand to mouth.” Manson continued, “So many artists that we revere and cherish throughout history would have been completely destroyed by this system entirely. Musicians cannot survive without being paid fairly for their music.

Juxtapose this sad situation with the fact that Goldman Sachs predicts that the music industry will grow approximately 2x by 2030 to reach $142 billion in annual revenue. Indeed, the main driver of growth in the music industry is streaming which, as of 2021, accounted for 83% of recorded music revenue according to RIAA.

Streaming is great for the industry, but terrible for the artists it relies on, because it earns the artist the least of any form of distribution today or at any time in the past 70 years. If we take into account the 10 most popular streaming services (“PPS”) in the world, the average collective value of the “payment per stream” (PPS) is around $0.0071. Also, to be clear, the PPS value is split between the rights holders – and the artist is rarely the sole rights holder. To begin with, the stream is divided into three types of copyrights: recording rights, performance rights, and mechanical rights. The largest share of money goes to recording rights (80%), which is split between the record company (64%) and the recording artist (16%).

Vinyl records to the rescue?

So, with streaming not putting food on their plates, what have musicians done? They resurrected vinyl records – buying them from record presses and selling them to fans at their gigs. 10 years ago, less than 1 million vinyl records were sold in the United States, but by 2021 that number had risen to nearly 42 million vinyl records and sales topped $1 billion for the first time since 1986.

While $1 billion is still a small number compared to the $15 billion in US streaming revenue in 2021, the main difference is in the profit retained by the artist. A vinyl record costs around $7 to make, and a band usually sells it directly to fans for $25, or $18 profit. A band would need to amass 450,000 streams on Spotify to equal the profit from selling just 100 vinyl records. Demand for vinyl records has reached the level where major retailers like Walmart and Target once again have vinyl record aisles.

Contrary to what you might think, this boost isn’t driven by baby boomers nostalgic for the skips, crunches, and pops of vinyl. A 2019 YouGov poll found that 31% of adults in the United States are willing to pay for vinyl, and the numbers are pretty consistent across all age brackets. Additionally, a look at the best-selling albums of 2020 shows an even split between modern and vintage albums.

Vinyl supply is running out

But unfortunately, demand has outstripped supply and record presses can’t keep up. Currently, the minimum order is 1,000 discs and the delivery time is 14 months. The situation is so dire that Jack White of the White Stripes and owner of Third Man Records has written an open letter to major record labels – Sony, Universal and Warner – pleading with them to invest in record presses.

White says, “To be clear, the issue isn’t big labels versus small labels, it’s not indie versus mainstream, it’s not even punk versus pop. The problem is simply that we have ALL created an environment where the unprecedented demand for vinyl records cannot keep up with the rudimentary supply of them. With that in mind, I turn to our big college brothers in the music world, Sony, Universal and Warner, and politely implore them to help reduce this unfortunate backlog and start devoting resources to building pressing plants.

How do you give artists what they need and fans what they want?

“I’ve been a musician all my life,” says Scott Arey, CEO of Community Musician. “It was never easy to put food on the table as a musician, but now it’s almost impossible.” Arey knows where he’s talking from – as a young musician he signed with Warner Music and started touring as a warm-up act for the Indigo Girls, but soon found he couldn’t earn enough money to pay his bills.

Arey decided to pursue a career in finance. After graduating from Stanford University, he began his career at KPMG and soon moved to Bank of America where he worked for ten years, eventually becoming Chief Financial Officer of Commercial Banking Division and Chief Financial Officer of BofA’s International. Trade Bank. He then led a string of successful start-ups to growth and investor exits, such as Journey, Alsbridge and public company MoneyOnMobile. Arey used these “day jobs” to fund his music industry endeavors, including composing and recording over 60 commercially released songs with 2 different bands, performing live on stages around the world. whole, owning 6 recording studios (which he built himself), owning a CD replication business and owning a “Craig’s List for Musicians” with over 150,000 members in the early 2000s.

“I’ve been working on this problem for 25 years – how to help artists make enough money to support themselves through the art they create,” Arey says. “Not all artists will be superstars – but with a little persistence, a little talent and encouragement, they will produce really good art that the fans they develop will love and support financially. We just need the business people and platforms that don’t create any product or artistic value are stepping aside and if they don’t, we’re going to kick them out.

Idealistic? Maybe, but you probably don’t want to bet against Arey. In 2019, he joined a video game company (Gearbox) valued at $66 million and sold it two years later for $1.3 billion. “The music business is more difficult than video games. The problem is like a “Gordian knot” – every time I thought I had a solution to this mess of an industry, I find yet another tangle, another knot. Right now, unless we find a way for artists to make money from their recorded music, I think the rest won’t matter. It took me a minute, but I think we now have an innovative approach that combines the strengths of vinyl with the convenience of streaming.

Community Musician is still in its infancy with a patent-pending product being piloted with a relatively small number of artists, but early indicators are very positive. Community Musician can produce their Collectible Music Cards at a fraction of the price of vinyl records, with a much lower environmental impact, in batches of 200 with a delivery time of less than 1 month. The fan who buys them after their favorite artist’s show can enjoy both the band’s collectible artwork as well as the convenience of “tap to play” on their phone. Once the card is tapped, they can play it from their phone anytime with all the convenience of streaming platforms. More importantly, fans know they’re supporting the artists they love and who keep the bulk of the profits since the transaction takes place outside of the app stores.

Arey says: “The same artists who brought back vinyl records and can’t make one anymore, can buy the cards from us and resell them to their fans for a profit – just like vinyl! Good for musicians. Good for fans. Good for industry. Good for everyone!”

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