Music Royalties in the “free” digital age

An interesting debate has since sparked, following the revenue creation through music royalties article that we published on the in June 2016. It’s a known fact that traditional radio and TV stations usually make money through advertising revenue and subscription fees. In all forms of media (print included), the assumption has always been that media communications,  as a service, were paid for by the consumer.

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However, the Internet era has presented independent artists with a variety of platforms to ply their trade on, with some being free. This is one of the reasons why social media as a free service, has become the most popular method for musicians to market their music and content.

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Your bargaining power as an artist is in your ability to walk away!

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The term bargaining power is a concept that was widely discussed by economist Michael Porter, when he conceptualised the “Five Forces Theory”. This framework as developed by Porter is a business industry analysis tool to measure a business’s performance in terms of profitability and strategic sustainability. Porter listed these five elements: Threats of New Entrants, Threats of Substitutes, Degree of Rivalry, Supplier Power and Buyer Power. The real reason any business would do an industry analysis is to gain a competitive advantage over other rival firms. Quick MBA gives an extended explanation of Porter’s five forces theory.

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Revenue creation through music royalties!

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One must confess about the subject of royalties, no matter how many times it was explained over and over to this writer, the concept of earning royalties just never truly hit home! This was down to the fact that seeing value in the “unseen” is a difficult concept to grasp for people who are not investors.

With music, the impact of one’s works is not something tangible or physical. For instance, how would something as subjective and experientially based as music be measured in quantifiable terms? Perhaps to fellow right brain thinkers, royalties are simply a good thing because it means more revenue streams for the artist. It is nice to know that you can earn money from making music, depending on how much an album sells or how often the radio and television stations play your songs. However the justification of why and how much is due to you is one that requires much deduction. This is again where financial literacy comes in and understanding all the aspects and perspectives, that would best explain the justification of royalties and different forms of them.

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Value Chain: The kind of relationships you form will make or break you

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While growing up you may have heard sayings like “birds of a feather flock together”, “you are who you surround yourself with” etc. These sayings, pertaining to the company one chooses to keep, may be cliched but never get tired. The fundamental principle is that those who value the same things and share the same interests will find each other; and therefore naturally add value to one another. The concept of value adding is very important in trade and commerce and can be applied in music too.

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According to Investopedia: “Value added is the enhancement a company gives its product or service before offering the product to customers”. In the context of the artist operating within the music industry, this would entail the artist having to take the role of being a producer in the economic sense. Your music composition would be adversely affected by your band mates, featured artists, music producer/ beatmaker, your post production audio engineer, and the publishing house that manufacture your CDs – all these people would be established as adding value to your final song as a product. These inputs ultimately affect the final outcome of the song you compose, to which you (as a composer) would find hard to quantify. This means, for as long as you as the composer/producer and your fans are happy with the final product, how much you spent into creating that piece of art is of little importance. Bearing in mind that the entire process of the creation of your work does not leave you in a pool of debt and you are staying within your means.

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Opportunity Cost – The cost of taking that free gig!

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For many artists who are just starting out in their career there is always the possibility of finding themselves in a situation where gigs or bookings will be rewarded by “do it for the exposure” phrase as much more polite way of saying “you will not get paid”. Many will usually rant and rave and start talking about exploitation and being taken advantage of. However, there are a few things one must consider before writing off an opportunity. This again is a principle of economics in regards to Opportunity Cost, starting from analysis of one’s economic situation at individual level. By mastering the principles of being able to stay within and below your means, you would then be able to maximise off opportunities through developing an investment.

What we are saying at Lavatory Records: STOP COMPLAINING! No one can do to you what you don’t allow. Think carefully before deeming situations as “exploitative”. Taking a free gig can be beneficial to one’s career if done under the right circumstances.

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Music Economics: Stay within and below your means!

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Continuing in the series of establishing a music economy, we want to stress to all readers that you must remain economical and grow incrementally by staying within and below your means. The universally agreed way of making money in the music industry, is through live shows. Live shows on their own are a great way to explain the applicability of economics. The concepts of understanding the equilibrium and developing good habits in this regard, will ensure you stay within your means.

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Being a music producer entails building your music economy

As often mentioned here on Lavatory Records, the music industry is in a state of a “breakdown” – in order to rebuild. We regularly get approached by young musicians who ask how they can build their careers and make a living from their passion. It is a rather difficult question as there’s no actual blue print laid out for everyone to follow

Being a musician or working within the performing arts is a profession that has its own sets of challenges. Compared to other ‘formal’ professions like being an accountant, music has no clearly defined path of advancement, where you would know for sure that in about 7 years you’d be worth and making a certain amount of income marking your set value. 

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