The Major Labels Conducted a Study to Determine Why Their Artists Make So Little…

sherlock_holmes

The International Federation of Phonographic Industry, or IFPI, is a trade group that represents recording labels, most importantly Sony Music Entertainment, Universal Music Group, and Warner Music Group.  This morning, IFPI chief executive Frances Moore released the preliminary findings of a report on why artist royalties are so low.

ifpi_compensation_study1

The most important conclusion of the study was that artist losses over the past five years are actually far less drastic than those experienced by the labels themselves.  “The IFPI research covered payments to locally signed artists by record companies in 18 markets worldwide,” the report stated.  “It found that industry revenues in those countries declined by 17 per cent over from 2009 to 2014, while corresponding payments to artists declined by only 6 per cent.”

“That meant the proportion of record companies’ revenues paid to local artists in those markets increased by 13 percent over five years.”

And what about the gains?  The IFPI study took a look at the hyper-explosive Swedish streaming market over the past five years, and found that artist compensation gains are at least double that of the labels.

ifpi_compensation_study2

The report also included a surprising statistic: 70 percent of unsigned artists want to get signed by a label.  “No other player takes the financial risk that record producers do in backing new artistic talent,” the report noted, while pointing to a 27 percent reinvestment rate in artist discovery, development, promotion and marketing.  “In a fiercely competitive market, where the majority of recordings do not prove to be commercially successful, their investment is essential to help performers cut through to a mass audience.”

“That is why most unsigned artists – 70 percent in the latest survey we published – want a record deal.”

But, back to the actual reason for the study: why are major label artists making so little money?  One explanation might be that labels frequently don’t pay their artists, and never compensate on lump-sum, multi-million dollar advance payments from streaming services, payouts from equity shares, or revenues from preferential advertising space on platforms like Spotify.  But the IFPI report concluded that streaming services are actually the prime culprit, thanks to loophole-skirting royalty evasion and other suspect practices.  “It is true that artists and record producers are not being paid fairly for the use of their music,” the report concludes.

“This is because user upload platforms, such as SoundCloud and YouTube, are taking advantage of exemptions from copyright laws that simply should not apply to them.”

“Laws that were designed to exempt passive intermediaries from liability in the early days of the internet – so-called ‘safe harbors’ – should never be allowed to exempt active digital music services from having to fairly negotiate licenses with rights holders.”

 

Image: Evening silhouette of Sherlock Holmes’ statue on Baker Street in London, shot by dynamosquito in December, 2009 and licensed under Creative Commons Attribution 2.0 Generic (CC by 2.0).

35 Responses

    • Musicservices4less

      At least they got this right:

      “Laws that were designed to exempt passive intermediaries from liability in the early days of the internet – so-called ‘safe harbors’ – should never be allowed to exempt active digital music services from having to fairly negotiate licenses with rights holders.”

      Reply
    • John Matarazzo

      This is really laying the groundwork for part of an upcoming comedy series, right?

      Reply
      • John Matarazzo

        This Just In:
        Wal-Mart is said to be doing a similar study; looking into why their employees are paid so little.

        Reply
  1. Anonymous

    Major label execs to artists: you don’t have it so bad, not like we do! *cashes million dollar annual bonus*

    Reply
    • Anonymous

      I think it’s awesome that we don’t need labels anymore — provided we’ve got the cash to do our own stuff (and yes, it is at least as expensive to produce music in the quality people want today as it ever was).

      But most people here — all of you? — completely miss this point:

      “No other player [than the labels] takes the financial risk that record producers do in backing new artistic talent”

      You seriously need to see the movie about the most legendary band ever The Wrecking Crew (available on Netflix) to understand the role labels play in creating songs you love.

      Show me anybody else who’d actually pay a band like that — day after day, week after week, month after month — just to build one single song like Good Vibrations.

      Reply
      • Anonymous

        Quit pretending the majors and their lavish wastefulness are the only labels out there.

        Reply
        • Anonymous

          I didn’t.

          Just saying that the really, really big events — the kind that shapes culture and history — are financed by the majors.

          No one else can afford it.

          Reply
      • Paul Resnikoff
        Paul Resnikoff

        You’re right, that important role is frequently overlooked, as its importance in the digital era. It turns out that marketing and media spends to develop artists may actually be more important in the digital era, as counterintuitive as that seems. There’s just that much more noise, it’s nearly impossible to have a bubbling-under, non-financed rise to the top.

        Reply
        • Anonymous

          And think about if the majors didn’t waste tens (hundreds?) of millions of dollars on executive bonuses and expense accounts, how much more than could be spending on / making for their artists.

          Reply
          • Anonymous

            A lot of them deserve every cent they make.

            Again, we wouldn’t have the music we all enjoy without these guys.

            Compare to companies like Google that don’t create anything at all — but make far more money than any label…

          • Anonymous

            “A lot of them deserve every cent they make.”

            LOL this is my favorite

        • Anonymous

          “marketing and media spends to develop artists may actually be more important in the digital era”

          Indeed — and artists are as much to blame as anybody else, spending years on trend analysis and social media strategy.

          Imagine if somebody reversed all that. Just once, for shit & giggles.

          That’s why I mentioned the Crew. Wouldn’t you love to see the damage guys like that could do to the current model if somebody paid them to work on one song, non-stop, for the next 6 months, and just released the damn thing on iTunes?

          —————————————
          🙂 The real Anonymous 🙂

          Reply
      • GGG

        You know, me and you have argued about this before and you still put waaaayyy too much emphasis on time/minimum cost, mainly because you’re such a shill for soulless mainstream pop music and must get a kickback for dragging artists along endlessly in the studio or something. I do agree with you to an extent, but just because you work on a song for x hours, doesn’t mean it’s going to be good/better. There are countless songs I know of, both through stories of famous writers/bands, and first hand experience, that went nowhere after hours/days/months of working on it. Obviously, there are plenty that support your claim, too, but it’s not a given. Not to mention, you can’t argue either way how well a song would or wouldn’t have done if you took out a track or two and/or had a different mic set up, or used a different guitar tone, etc.

        As for cost, I work with a couple producers who work with legitimate acts, and their fees range from 3-6K for a track, around 20-25k for an album. Now, are they pumping out hits like Dr Luke? No, but they work with people you’ve heard of, and produce just as well from an aural standpoint. It’s just they work with acts who actually have substance, not just shit out some mind numbingly bland “hit.” Yes, obviously $20K is a lot of money, but it’s not the $100K you’d probably quote as what you need to make a “good” album.

        Not to mention, there are tons of great indie producers I know here in NYC, in the UK, etc that do fantastic work for comparatively less, as well.

        Reply
        • Anonymous

          “me and you have argued about this before”

          We sure have, and forgive me but I’m not going into that again. 🙂

          And of course you can produce superior tracks for 3k or less, though it doesn’t happen that often.

          The music I was talking about here is the kind that changes our culture. That doesn’t happen too often either, and obscene amounts money are usually involved when it does. It involves pushing limits technically as well as artisticly, and people who can do that know what they’re worth.

          Also, do you seriously think Good Vibrations is soulless mainstream pop? 🙂

          Reply
          • Troglite

            I think you raise a valuable point. But, I also think there is a flipside to that coin.

            Good business management is based on effectively balancing risk with opportunity. During their peak (yes, I consider them in decline), the majors relied on a system where a small number of really huge hits balanced the losses that the majority of releases incurred. That hit allowed them to take larger risks in the hopes of developing artists in the earlier phases of their career. In some ways that was positive for artists, but the cost of failure was also very high if that hit never came or the artists under development didn’t meet expectations. I think it also encouraged bad practices like trying to manufacture hits and preying on young artists when they have very little leverage.

            This appears to be changing. From what i have seen, the majors can and have reduced their risk by relying on other parties to develop new artists. It’s not just youtube. The indies, crowd funding, managers, marketing agencies, and artist to fan models also increasingly fulfill this role.

            This isn’t unique to music. Traditional R&D has dried up across a number of industries in favor of venture capital funded startups. The successful startups get acquired and the failed ones die. That means nearly zero risk for the established players in that industry. The obsession on short term returns ( gotta beat last quarter, every quarter ) within financial services and the fail fast and often culture of Silicon valley both seem to contribute to this trend, too.

            I do think majors still have an important role to play. My intention isn’t to bash them. But, their role is changing and will continue to because the world around them is changing, too. If they want to continue to be the best choice for the most successful artists, they have to manage their risk differently than they have historically.

            Finally…. it seems like someone has to point out that the record labels recouped all of those investments in expensive recordings and agressive global marketing campaigns before paying the artist a dime??? Yes, they still take on substantial risk when making those investments in a project, but in my opinion… the risk is not shared equally.

          • GGG

            It doesn’t happen often because of promotion money, not creation money.

            And no, of course I don’t think Good Vibrations is soulless pop, but when we’ve discussed this in the past you are clearly talking about Max Martin, Dr Luke, etc tracks. Being wildly popular for a year and changing culture are two very different things. Firework didn’t change culture, it’s just an ear worm.

  2. Jason

    That’s all nice, but why are they paid so low? 7% increase of $100 is 7 cents. All the numbers, fact and figures givenare irrelevant – WHY ARE ROYALTIES SO LOW? Answer the question.

    Reply
    • Anonymous

      7% of $100 = $7. Regardless should still be a higher pay through

      Reply
  3. DavidB

    Nobody is going to believe this without seeing the full report, with sources, definitions, etc. For example, it is mentioned somewhere that ‘artists’ revenue’ includes unrecouped advances, but does this include amounts earmarked for production costs?

    Reply
  4. Anonymous

    “because user upload platforms, such as SoundCloud and YouTube, are taking advantage of exemptions from copyright laws that simply should not apply to them

    This is the truth.

    Reply
    • Paul Resnikoff
      Paul Resnikoff

      So why don’t the labels do something about that? Doug Morris makes $20 million, yet he said this as it relates to Youtube (I added the italics):

      “Free has been way overdone, and the biggest culprit is YouTube, with their links to free sites. This has to be curbed if we’re going to have a successful business.”

      http://hitsdailydouble.com/news&id=295008

      Reply
      • Anonymous

        “So why don’t the labels do something about that?”

        Indeed, they should.

        But suing Google is a big step — and that’s what we’re talking about, isn’t it?

        Reply
        • danwriter

          It’s not as though it’s never been done, and to effect. It’s why we have a Federal Trade Commission.

          Reply
  5. Allen

    I’m glad the labels are getting so desperate that they’re losing their skill of spreading cool calculated propaganda. This “study” is so poor that even the most brainwashed artists will see right through it. I’m honestly shocked that they decided to run with it.

    Reply
    • DavidB

      Have you seen the full version? I didn’t think it was available yet.

      Reply
  6. King Shlomo

    I’m now convinced the IpF whatever should be in jail along with the attorneys and accountants at major labels. Where’s Anoymous when you need them.

    Reply
  7. Ariel

    70% of artists may well want to be on labels, but that doesn’t necessarily mean signing with a label is rational.

    I personally know a lot of musicians who grew up before the internet came to dominate, and for most of them, success = contract. They’ve never considered the alternative. Musicians, to my genuine surprise, are pretty conservative

    Reply
    • Troglite

      +1

      Can a major record label help an artist by effectively managing the marketing, financing, and distribution of their work?
      Yes!

      Are there other avenues for an artist to get assistance with marketing, financing, and distribution of their work this as effective or more than what a major label offers???
      Yes!!

      Reply

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