The introduction of music streaming websites like Spotify that pay the artists ‘per play’ was meant to introduce another stream of revenue for artists and labels but in reality they have seen little of the advertising and subscription money generated. This week it transpired that Lady Gaga got paid a paltry £108 for over a million plays of ‘Poker Face’ on Spotify!

David McCandless at InformationisBeautilful.net has illustrated the challenges facing musicians with this graphical representation of how many CDs/internet plays it takes an artist to earn the US average wage. For the data sources and the full article visit How Much Do Music Artists Earn Online? | Information Is Beautiful.

As the graphic shows, compared to selling CDs at gigs the revenue from streaming is virtually pointless and I think it further emphases how important it is really focus on doing incredible live shows and offering your audience some really solid music and merchandising items to take away with them after the show.

Steve Lawson makes the astute point in this article asking DO musicians earn online? that in many ways streaming and CD sales should not be compared because they are actually part of a cause and effect cycle. Spotify streams shouldn’t be regarded as a revenue generator but as a method for fans to discover you and then come to your gigs & buy your album. Certainly music discovery has been at the heart of sites like Spotify and Last.fm and was even what initially drove the MySpace boom. How to turn that discovery into an income stream that you can live off remains a huge challenge that I think can be different for each individual artist and is as much down to hard work and perseverance as it is about producing music that connects with people.

UPDATE: Really good reply to the initial graphic and great discussion in the comments from Bruce Warila at Music Think Tank.

The second side involves finding ways to market your new release through the distribution channels. For example this used to involve things like trying to get your album prominently displayed, preferably near the checkout in a special display stand, to lobbying to be included on the in-store listening posts.

Physical Distribution

In the modern music industry the Internet has opened up a huge amount of different ways of distributing your music aside from the traditional retailer. Having said that it must be stated that a huge amount of music sales still happen on the high street and through independent music stores and none of these potential sales outlets should be neglected. Traditional distributors will do a distribution deal with you if you have a profile that they think will sell stock, for this they’ll normally they take 25% of the RRP. If you’re a new or low-profile artist though then it’ll probably be more fruitful to go store-to-store locally. Independent music stores are often especially willing to take a few copies on sale-or-return, especially if you are willing to do promotional work with them like signings or in store appearances. These local stores also deserve artist’s support because an indie music scene without them would be tragic.

Licensing Your Music

This leads up briefly onto licensing deals, these are becoming more and more popular as the industry prefers to take fewer risks. In this situation an artist or band will cover all the expenses of recording an album and then ‘license’ that recording to a record label (with a distribution arm) or independant distributor who will then distribute and market it. The label usually takes between 10-25% of the retail price once their marketing costs have been recouped which is significantly less than the 50-75% they can take with traditional deals.

The advantages for the artist is that they retain creative control and ownership of the recording and the label does what it does best which is just distribute and market the final product. The label also has to invest a lot less because the recording has already been made and therefore the artist can demand a lot more favourable terms to the deal with a higher royality percentage. For the label, they get a chance to earn some money off the record by selling it but without the risk of having to invest large amounts of money making it. There’s also not the normal huge risk of paying for the something to be made on the basis of a few demos, a band will often let a label hear the finished masters before the deal is signed and so the label knows exactly what they’re getting with no nasty surprises.

The challenge for unknown independant artists is to convince a label or distributor that they are worth investing marketing money into. A distributor will be able to get copies of the product into the shops but without press and marketing behind it then all those copies will simply be returned and you’ll be left with a big bill for the transport.

Digital Distribution

Physical sales (sales involving a physical product) though cost money because you obviously have to produce a physical product to sell and the usual minimum quantity to make this cost effective is 1000 units – which is expensive! However the music industry revolution is currently being fuelled by digital distribution that costs virtually nothing. There is a plethora of online digital music download sites now that offer to stock your mp3 in return for a percentage of the sale price.  The terms that these digital download sites offer can vary considerably and this is worth considering when thinking about where to direct your audience to. Some sites will offer you a much larger cut of the sale price than others and allow you to set your own price. Some sites are a fiddly nightmare to navigate and purchase from where as others are a breeze; some enforce DRM and device specific formats and others don’t. Some sites might also be willing to help with the second side of distribution and do promotional work for you, eg. Feature you in a newsletter or front-page ad to bring people’s attention to your release. All this is worth considering when deciding with whom to sign up with.

Taking iTunes as an example – they do not have the most favourable terms on royalties for independent artists. It’s a set fee that many have argued is comparatively small compared to other online retailers. It’s also almost impossible to get any promotional help from them or product placement in the site, anecdotal evidence says that you are unlikely to be featured on the front page or on the itunes podcast without either a major label behind you or a large amount of money to pay for the privilege. However on the plus side iTunes is fast becoming the first place people go when looking for a band they heard on the radio or read about online. The integration with the ubiquitous iPod and one-click buying systems means that it is easily one of the easiest to use sites in the online world and the most popular (though it will be interesting to see if Amazon’s new MP3 site will change that.) Even though other websites offer better terms the bottom line is that it is fast becoming the online equivalent of Virgin and HMV, big and impersonal but essential for selling your music to the average punter.

While iTunes offers a ‘one size fits all’ approach there are other smaller websites who have innovative pricing structures and ways of helping promote you and boost your profile amongst their user community. One of our favourites is amiestreet.com which not only has a vibrant community of indie music fans and musicians but also a genuinely innovative pricing structure that ends up giving the artist 70% of all profits. There is a genuine opportunity with these sorts of small social networking sites to promote your music in a way that large corporate sites just don’t allow so if you feel like you can successfully direct your audience to them then don’t be scared to make wide use of them.

There are loads more out there and some are listed in the links section. Getting your music into these online stores can seem daunting as many of them require you to be an offical label to submit songs to them. However help is at hand because there are ‘music store aggregators’ like tunecore, CDbaby and emubands who for a small fee will submit and get your songs listed onto all of the major online digital retailers.

If you don’t want to go with an established company you can always try selling your music direct from your own website. Easybe do some great cheap software that allows you to run your own online download shop with the minimum amount of programming knowledge. If your not interesting in every charting on any charts and feel like you’ll gain nothing from the other services that online stores offer then just do it yourself and keep 100% of the profit.

Current pricing is £249 for 1000 cards and £199 for 500 inc delivery and VAT.