How Independent Record Labels Make Money in 2017
April 4, 2017
The music industry’s independent sector is expanding, as more artists turn away from the standard major label model to go independent. From hip-hop icons like Chance the Rapper and Macklemore, to up-and-coming bands, solo artists and songwriters, there’s more independent music out there than ever before.
Look at this study from 2016, which shows the increasing proportion of music industry’s revenue that comes from the independent sector. Representing close to 40% of the global music market, now is a great time to get involved with independent music and establish an indie label.
It’s important for label owners to understand where their cash flow will come from in order to sustain their label as a business, and identify the main potential revenue streams available to independent record labels and artists.
Record Label Revenue Streams & Sources of Income
Sales & Streaming
Artists and labels earning sales and streaming royalties is hardly surprising, but exactly how much they stand to earn from the major online music stores is not common knowledge.
When it comes to streaming and download royalties from iTunes and Spotify, generally, you’ll keep around 60-70% of the price of every iTunes download, and receive about £0.003/$0.005 for every stream on Spotify.
While payouts from other stores will vary, these figures offer a good ballpark average which – if you have worked out your target and projected sales and streams – you can use to calculate your potential revenue from the stores.
Label owners can also use the financial planning spreadsheet on this record label business plan template to work out their potential sales earnings, as well as other revenue streams. Just make a copy, and enter your own projections.
Publishing & Licensing
Music publishing and licensing is an increasingly important revenue stream for independent labels and artists. Publishing refers to the ownership of songs and compositions, while licensing makes your music available for sync deals with visual media, including adverts, games, TV shows and movies.
You’ll need to register your tracks with a Performing Rights Organisation (PRO) to collect all the mechanical royalties you’re owed. Your PRO will depend on where you are based; PRS and PPL in the UK, BMI or ASCAP in the USA, or APRA and/or AMCOS in Australia.
Unless you plan on doing all the legwork and administration yourself, it’s worth signing up with a music publishing company. Music publishers can help you find potential sync opportunities and make sure you and your artists receive royalties whenever your music is used commercially.
While publishers offer an easier way to secure synchronisation deals and get your music into a range of high-profile media, they will also take a cut of any royalties you earn. Check out this article for a more detailed overview of exactly what music publishers do and whether you should sign up to one.
Registering your music with Performing Right Organisations is not only for sync deals, but for public performances and radio airplay royalties too.
Make sure your songs are properly registered with PROs, as performance royalties can be an easy earner. You'll need be recording all your gigs your Performing Rights Organisation to get hold of the royalties you're owed.
Whether you’re heading out on a massive arena tour or playing a small open mic night in a local pub, you can earn royalties.
Here are some of the average UK performance royalty earnings for gigs:
|Pubs & Clubs||£5 - £6|
Source: Sentric Music
If your music is played on the radio you should be receiving royalty payments too. Here are the average rates for BBC radio stations in the UK:
PRS average payment
PPL average payment
|BBC Radio 1||£14.91||£37.76|
|BBC Radio 2||£21.77||£82.07|
|BBC 6 Music||£4.55||£8.06|
Source: Sentric Music
Performance royalties are an often untapped source of income for independent artists and record labels, so get your tracks registered with a PRO and don't miss out on the money that's rightfully yours.
Artists and labels can always earn some extra cash by selling music merch at live events and online. The key to selling enough merchandise to make a profit doesn’t simply lie with how good the music behind the merch is, but how cool your branding looks. So make sure to focus on quality and design.
The idea behind selling merchandise is to make a profit of course, so think carefully about your ROI (return on investment) and profit margins. Take the time to compare the prices of different merchandising companies, and perhaps buy in bulk to cut costs. Once you know how much you’ll be paying to order your products, you can set your prices accordingly.
If you want to make sure you maximise your merch sales at gigs, you can use one of many ways to accept credit and debit cards. All you really need is a smart phone or iPad. You’ll also want to make sure all your merchandise is available to buy online too, and advertise it via social media and other channels.
If you’d like some more expert advice on merchandising, read these tips on music merchandise ideas for some extra inspiration.
Putting on a live event or label showcase is a great way to raise awareness for independent artists and win over new fans in the process. While making a big profit from your very first showcase can be tricky; as time goes on, you’ll want to start turning a profit from tickets sales and increasing demand among potential punters.
It worth considering going through a booking agent to secure shows that pay. They may take around 20% of your fee as commission, but they’ll always get you paid gigs.
Whether you travel the world or play a series of local venues, taking your artist’s music on tour can be an great experience, and help to make name for themselves in new locations. Look at these tips on how to plan a tour if you’d like some more advice on organising a series of sell-out gigs.
Focussing on these revenue streams as potential sources of income for your independent label, and making a detailed plan and financial forecast for your first few years, you’ll stand a better chance of running your label as a successful business long term.
Do you have any questions or advice for other record label owners? Or any stories to share on making money as an indie label? Let us know in the comments below.
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