With all the hysteria about global currencies volatility and the trade war with China and the USA, the global markets in the world are going through a bit of a frenzy due to news of another global recession. This is particular to the financial markets with accusations flying around about currencies being either overvalued or undervalued, depending on what each individual country’s (or region in terms of the European Union) agenda is in the global trade arena. With many businesses now plying their trade in the modern global game as either importers or exporters, the situation could adversely affect businesses depending on which on end of the foreign exchange rates is conducive to the particular success of the business. With all that is going on in the global economy, a good question would be how does this affect the music industry?
In the short term, when there’s a global recession or depression, it can usually be a very good thing for music entertainers! Usually when uncertainty looms the tendency “to distract and divert attention” is deployed by governments or businesses, whenever there’s a looming down turn in business or productivity. For example – when companies know that business activity closer to the end of the year will wind down, they then decide that this is the ideal time to have their office parties which involve bringing, food, liquor and entertainment (music). Much as office parties are a genuine gesture of employees thanking their employees, they can also be seen as an anomaly due to the employer “surrendering” to the forces of the market environment. When the festive season hits with all it’s “festivities”, it’s usually a good time of the year for artists as that is when they are at their busiest in terms of bookings. However, musicians can be busy at other times apart from the festive season. For example, when politicians around the world want to campaign elections – a lot of the time they would turn to musicians for endorsements.
In the current paradigm music artists find themselves in the position of being wholly independent, which leads to many of them thinking they would be entitled to keep all of their earnings! Unfortunately, it doesn’t quite work like that, as “independent” doesn’t necessarily mean that an artist did everything by themselves – it’s actually quite the opposite! The more successful artists are the ones who actually know who to keep in their circle that make valuable contributions towards their careers. Through various forms of revenue such as royalties, commercial deals, album sales etc, an artist would somewhere down the line have to pay people who are imperative to their success. This ties in with subject we have covered in our value-chain analysis article. The music economics series this time around discusses how special people are compensated for their efforts.
The splitting of the revenue comes in the form of management fees, agent commission, distributors duty & fees etc. All these forms of revenue split vary and depend on how the artist’s bargaining power is determined. The final fee or cut (in percentage form) from the point of view of the product or service (music album or stage performance) an artist has to sell, goes a number of ways to cover expenses and then to determine how the profits are split. The moment the conversation comes to profit splitting, there are a number of dated principles that are still presently applied that need to be understood first before deciding to part with 10%, 20% or 30% and so on…
Dr Boyce Watkins from Your Black World speaks with a young artist Jay Ortiz about the importance of approaching the music industry with a business mindset. The focus of artists building stages instead of them looking to just jump on to a stage, was the main focus of discussion which was what Jay Ortiz managed to do.
When we started Lavatory Records, it was not just about starting a label, rather more about setting up artists as business people.
Watch this discussion on YouTube or SoundCloud.
In this era of the music economy many artists are looking for sponsorship and endorsement deals, to compensate or supplement for the lack of revenue meant to be generated from album sales and royalties. We’ve already discussed many of the quantitative aspects pertaining to an artist’s branding concepts in previous article published in 2016. So, in this article we’ll be giving a qualitative perspective on how an artist can monetise from fame. This is to add further understanding for artists to be able to integrate the information from the music economy series and convert it into a business model which works best for them.
We’ve seen instances where some artists seek attention through all sorts of strange manners, just to “stay relevant” and become the talk of the town. As a basis of income levels, terms such as ‘mass markets’ and ‘niche markets’ are thrown around. These are two broad types of economic markets, which enterprises try to target in order to generate revenue and grow their businesses. According to the Chron, “the term mass market refers to a large, undifferentiated market of consumers with widely varied backgrounds. Products and services needed by almost every member of society are suited for the mass market.” This mainly means that, this would be inclusive of a market of people of all income levels, which does not exclude anyone. For artists, this offers them a chance to sell to as many individuals as possible – for as long as the merchandise price point does not exclude consumers from lower income groups. In musical terms, this could be assumed as catering to the mainstream audience who make up the majority.
The music economy series of articles looked at a number of areas where an artist can make their money from. Determining one’s worth in line with competitive forces and industry trends is particularly challenging in this era of the independent DIY (do it yourself) artist. This time around the focus is on the buzz word that many like to throw around, called “branding”. Let’s first have a look at what constitutes the establishment of a brand…
According to investopedia , a brand is “a distinguishing symbol, mark, logo, name, word, sentence or a combination of these items that companies use to distinguish their product from others in the market. Legal protection given to a brand name is called a trademark.” In the Accounting discipline the element of “brand value” would be categorised as an intangible asset because one cannot see or hold a brand. According to financial principles, establishing the value of a brand is measured by past performances in order to determine the future selling value, were it to be sold to a willing buyer.
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.
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.
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.
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.
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.
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.