By Milana Lewis, Co-Founder and CEO of Stem
When COVID-19 took full effect in March, touring and concerts, which contribute billions of dollars to the music industry annually, were immediately canceled, leaving tens of thousands of artists financially scrambling to make ends meet. As the pandemic continues to carry on with no end in sight, artists are still bracing for impact. The loss of income from touring and the lack of a PPP program in place to support their unique needs has led artists to turn to alternative methods of financing to sustain their careers and cover basic daily expenses.
Historically, record labels have been the gatekeepers of music distribution, but over the last 10 years distribution has become more self-serve. While record labels still have the ability to create musical icons, there are over 40,000 new songs being released every day and labels can only serve a limited number of artists each year with marketing and label services. Over time, major record labels have become more like banks and offer big checks with unfavorable economics.
As pointed out by Courtney Love and Kanye West, there is predatory nature to “recoupable advances” that intentionally misguides artists around the specifics of deal structures. For example, a typical income sharing agreement on an 85/15 royalty deal equates to an advance with a 566% fee. On top of this, labels take a 15% distribution fee off the top of total earnings which would equate to a $1.5M fee on a $10M project. Not only are artists blindsided by how these agreements are calculated, but few receive the creative and label services they are promised upon giving up ownership of their work.
This year’s unprecedented socio-political climate has brought to light how major labels and their unsavory practices around advances have given artists no choice but to pursue other options for financial sustainability. This has presented an opportunity to reimagine the future of the music industry. Here are a few industry recommendations and fintech solutions that will ensure artists are able to continue making music and an income:
An Industry In Need of An Open-Sourced Playbook
In 2019, independent record labels held a market share of 35% of all U.S. sales and the independent sector grew to $7.5B in revenue. On the heels of this growth, many managers have felt increased pressure to step up and run artist development independently. However, with a lacking ecosystem to support artists as entrepreneurs, many are in need of resources and tools to help them learn how to scale their businesses, diversify revenue streams, and monetize their work.
In the startup and technology sectors, entrepreneurs have a plethora of resources, including blogs, websites, and podcasts, that unlock intel and frameworks to support founders and operators at every stage of their company’s life cycle. The music industry has just scratched the surface on providing similar resources – for example, Dan Runcie’s Trapital newsletter highlights consistent strategic analyses on the business of hip-hop – but there are still not enough of these insights at scale. In order to continue advancement and support innovation, the creation of an open-sourced playbook for independent artists and managers will be needed to provide increased clarity on how to run their businesses.
New Financial Tools and Union Structure to Support Artist-Centric Businesses
The music industry has been slow to adapt to financial technology innovations that cater to artists' livelihood and business needs while many resources exist for consumers and workers in other industries. For example, tools such as Mint are used to organize finances, Stripe and Braintree to accept credit card payments, Square to accept digital payments, and SoFi to demystify debt; however, these tools are not equipped to dictate the flow of funds in music. By creating similar fintech solutions tailored to the music industry, artists and their management teams will have the sophistication to manage expenses and build their businesses. Additionally, in an effort to offer sustainable options for artist welfare, the development of a music industry union such as SAG-AFTRA would ensure that artists have the ability to fight for fair compensation practices and protections to support them amidst market downturn and global crises.
A Financial Dashboard to Elevate Payment Transparency Across Collaborators
With artists losing out on revenue from concert and touring cancelations, streaming and music production have become an artist’s main asset. However, collaboration between artists and their teams has been an industry pain point due to confusion on royalty percentages and who should be included in the splits. Artists are in need of a streamlined payment system that allows for collaborators to have visibility into who is getting paid and their percentage of monthly earnings. Financial technology provides a solution to helping creators receive timely payment and sustain an independent career without the restrictions of a typically predatory record label deal.
As we look at the future of the music industry, it will be imperative to support creators and their teams with tools to run their businesses autonomously. The adoption of technology in recent years, especially the rise of social media platforms, has already created new avenues for creators to diversify their revenue streams and foster a more authentic connection with their fans. Without needing to rely on record labels to provide capital and resources, artists are empowered to go independent, own the rights to their masters, avoid debt from hidden record label costs, but most importantly, to run their businesses on their own terms.
About the author: Milana is Co-Founder and CEO of Stem, a distribution and payments platform empowering independent musicians and labels with tools to grow their business.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.