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Insights Blog: Making money from music in five steps

By | Published on Wednesday 28 September 2016


Originally published to accompany the CMU Insights seminar series that explains how the music business works. 

The music industry ultimately exists to help artists turn what they do into money, so they can give up the day job and focus on their music full time. But how do you make money out of music? Here’s a speedy guide from CMU Insights: how artists make money in five simple steps.

1. There are three main ways to make money out of music
If artists want to give up the day job and focus on their music full time, they need to turn what they do into money. And that’s what the music business exists to do. The music industry is simply companies and people who help artists generate revenue from their music.

There are three main ways to monetise music: create and exploit intellectual property (content), stage and monetise live performance (gigs), and/or build a fanbase and monetise the fan relationship (direct-to-fan).

The music industry can be split up according to those core revenue streams, so you have the music rights industry, the live music industry, and the emerging direct-to-fan business.

2. Music rights is mainly about copyright, with some trademarks thrown in
When we talk about music rights we are really talking about copyright. Copyright separately protects words, musical compositions and sound recordings – so if you have a recording of a song with lyrics, there are actually three copyrights in there.

The music industry tends to lump the lyrical and musical copyrights together and call them the song or publishing rights. They are then managed and monetised separately from the sound recording (aka master) rights.

Copyright also protects artwork and photography, and the music industry creates a lot of artwork and photography, so artists can also seek to exploit their visual copyrights (for example, by selling merch) as well as the core music rights (songs and recordings).

Copyright provides certain exclusive controls over the work in which the copyright exists – including the reproduction control, the adaptation control and the public performance control. If a third party wants to reproduce, adapt or perform your song or recording they need your permission. So you sell them your permission. And look, in doing so your copyright has made money.

Copyright doesn’t protect names and that’s where trademarks come in. And for bigger artists, licensing their names to drinks companies and fashion companies and perfume companies and so on can generate big bucks, meaning those acts are also well and truly in the trademark business too.

3. Live music isn’t just about ticket sales
The live side of music is generally easier to get your head around than all that intellectual property stuff: if someone is willing to pay to be in the same room as you while you sing your songs, then you can monetise live performance.

Though the live industry doesn’t just make money selling tickets. For starters, there are the booking fees applied to tickets, which are a revenue stream rather than a cost of sale. And some artists and promoters may resell their own tickets on the secondary market, generating additional income.

But more than that, once you have a captive audience at your gig venue or festival you can sell them other stuff – food, drink, cloakroom facilities, parking, and so on. And that’s a big part of the live industry – indeed, at the grass roots where you are playing to small audiences, it can be hard making a profit on ticket sales alone, and the biggest revenue generator will probably be the bar.

4. Direct-to-fan is the most exciting innovation in music
For all the talk about streaming music, the biggest revolution in the music industry caused by the world wide web is the fact artists now have a direct connection to core fanbase.

Because for all the complexities around copyright law and live entertainment licensing, the music industry is actually this simple: build a fanbase, understand your fanbase, and then sell them stuff.

It doesn’t matter what you sell them. You sell them what they want. Digital channels make it easier to work out what products excite core fanbase, and then you can sell those products direct without worrying about finding a willing retail partner.

This is hugely liberating, and the music industry is still learning how to fully capitalise on this opportunity.

5. The starting point is always about building fanbase
So there are lots of ways to make money out of music, but the key to everything is building a decent sized and engaged fanbase. In most cases, at the outset, that means getting out there and gigging, and then using digital channels to take fans with you beyond the venue, so if people get excited about what you do on stage, they can stay connected via email, the web and their social networks of choice.

The challenge is growing the fanbase to a size big enough to enable the artist to become a viable business. Although these days artists need to start building and capturing a fanbase on their own, they’ll almost certainly need business partners to build a big enough fanbase for long term success, probably starting with management and a booking agent, before seeking record and publishing deals.

For many new artists, the label still plays a key role in significantly boosting fanbase, with record companies often investing the money and providing the marketing resource to help capitalise on the initial momentum built by artist and management.

It doesn’t always work of course, and some new artists do it without signing a conventional record deal, but either way, finding the right business partners and growing a sufficiently sized fanbase is the key to success.

For more details on the CMU Insights seminars and masterclasses click here. For more information on our in-house training services click here.