First, to understand the big picture – the big machinery – here is a graph that shows every major process in the music industry. I can split it more sections, but I thought in this way you can understand it better.

This graph is made from the artist perspective.

how music industry works

Artist

Everyone who creates music, compose music, writes lyrics, performs are Artists. In this graph producers, recording studios, engineers also go under Artists section. Artists are responsible for creative work. Artists record songs and albums, go to tours, show themselves in society.

When I was younger I thought that to be an Artist is really cool – everyone knows you, you have this creative, careless lifestyle and you have a lot of money, because if you create music and you show yourself on the stage you definitely get a big part of a total income. When you think that some artists sell more than 10 million albums and one copy costs around 10$, you don’t need a calculator to understand how much money the is.

I was wrong…

Yes, Artists get a lot of attention and If You are successful fame is guaranteed.

When talking about music, things are different. Everyone who’s involved gets their share. First of all, there are a lot of expenses – CD printing, recording studio costs, promotion etc. Also managers, publishers, agents are not working for free.  Later the big money investor (label) gets his share back.

Only then when everybody gets their slice, artist gets their profit. Of course, artists have a different kind of royalties but when you sign a record deal with a major record label, they keep a share from royalties too. It doesn’t sound fair, but this is how it is.

If You write a song and you are under big record company, this song belongs to them.  If You compare music industry to the restaurant business, a chief who implements new dishes on the menu and cook them for 10 hours a day 5 days a week doesn’t earn millions.

There are different types of contracts with different rules – some of them are friendly for artists, some of them are not. Indie Labels are much more friendly for musicians than major record companies.

Long story short – music industry is a huge machinery and we all have to remember that this is a business! Artists are creators – we are the first peace in music industry puzzle but the last peace when the money is shared.

 

Manager 

Managers play a very big role. Managers are always really close to artists. They are a bridge between a creative part and business part. Sometimes managers are working for labels and they are managing many bands, also management agencies are pretty popular. Management agency can work for both artist and the record company. If there is a law issue, then it’s under manager responsibilities. 

 

Label (Record Company)

I like to call record companies or labels as investors with benefits. When a record company signs a deal it lends money for the artist. This money is a loan which is given to the artist. This money is used for recordings, cd printing, promotion, agency costs etc.

Why investors with benefits? Because record companies are working close to booking agencies, publishers, music distributors, radio stations etc. Labels give you money and also they offer their services. And of course, nothing is for free – they invest, they work with you, they involve other companies and they take their share – the largest piece of the pie.

 

A&R – Artist & Repertoire

A&Rs work for record companies. They are scouts looking for new talents.

 

Publisher

Publishing is exploitation of your track in any form and publishing income can be gained from a wide number of sources. Money is earned whenever a song is played on the TV, radio or on a film soundtrack, when it’s covered by another artist, when it’s performed live, when it’s played in a closing store changing rooms etc. etc.

Theoretically, whenever a track is aired in public artist gets paid. This system works thanks to collection agencies such as PRS or ASCAP, which monitor such airings and collect and distribute the money accordingly.

 

Synchronizing / Licensing (Movies, TV Shows, Games, Commercials)

One of the major growth areas in music publishing – and an increasingly important revenue booster for artists releasing their own material – is having music synced to TV, commercial, film and video game projects.

The advantages of sync are pretty big: you’ll be paid to have your track used; you’ll generate a fresh revenue stream if your song makes it onto the film/TV show’s soundtrack, and you’ll raise awareness of your record as it’ll reach a potentially huge audience who might not otherwise have heard your track. It’s not easy to get your music synced to TV and film projects, but there are special production companies who will do that for you.

Making your catalog of tracks available to a Production Music company is, therefore, a no-brainer and potentially the most lucrative thing to do. Normally, such a company will take a percentage of the sync fee as their payment, which is good for you as it means no money to pay them upfront to represent you, also they don’t get paid unless they’re getting cuts, meaning they’ll work the music in their catalogue as hard as they can.

I have to admit that every single production company or publishing company have a lot of artists in their catalog and often they spend most of their efforts and time working with the TOP artists. So it’s better to work with the smaller company at the early stage.

 

Distribution

When your material is recorded it’s time to put it in record stores, digital stores (iTunes) and streaming services!

A distributor is responsible for shipping units of records from warehouse to shop and if you’re creating physical content – you’ll need to get covered by striking a distribution deal. Digital distribution means making sure your record is available for sale digitally in all of the places your fanbase will expect to find it, which means iTunes, Amazon and the like for pop/rock releases and, additionally, specialist sites for dance music such as Beatport and Juno.

Companies such as CDBaby or TuneCore offer distribution to these sites and more for a one-off fee, meaning that once you’ve uploaded your album to a company like this, they’ll do all the MP3 coding and will make your record available for sale via a variety of sites with a minimum of fuss your end.

Professional record labels have deals with distribution companies that send their records to stores, whether physical or digital. The majors have direct deals with the largest companies like iTunes, Spotify, Beatport, etc. Smaller labels are working with a distributor company to sell music both physical and digital. In turn, the distribution commission (percentage or flat fee) reduces the income an artist will receive.

 

Booking Agency

Booking agencies are responsible for tours, gigs, festival slots, negotiating deals, arranging proper technical set-ups for shows and in many cases also securing hospitality (hotels, dinners), logistics (tour bus, flights) and promotion efforts.

The booking agent is as important as the manager. Manager connects an artist to a label and publisher, booking agent connects an artist to festivals and gigs. If You want to go to tour or get a festival line-up slot, it’s almost impossible if you don’t have any contacts. Professional booking agents have their contacts and experience. Good agents make sure that contracts are signed long before the actual show or tour and collect deposits

Agents represent artists for specific regions. The major territories are split up as Europe (EU), North America (NA), South America (SA), Asia and Australia + New Zealand (Aus / NZ). Asia, Australia, and New Zealand are often combined.

 

Old Way vs New Way 

Thirty years ago this graph was the same except ‘world wide web’.

Music industry scheme was pretty simple. If Artists wanted to make a record and release the album, they were looking for a record company (label). It also was working opposite – labels were looking for artists.

Label organized the whole recording process, contacted producers and hired recording studios. After a record was done label connected publishing company to put songs on TV (music videos) and radio, later they released CDs and cassettes and distributors put those records in music stores. Live gigs went through booking companies. People were buying records, fans were going to gigs – distributors, bookings agencies were collecting money for label and publishing company was collecting royalties.

To summarize artists was only music creators with no impact of the music business. The only way how artists could reach the audience was by live performance.

Today music industry scheme in many situations can work the same way, except the internet is a big accelerator. Because of internet – artists have the power, they can communicate with their fans through Facebook, upload videos on YouTube and it costs almost nothing. Also, technology is different today, twenty years ago you had to rob a bank to record an album, today home recordings are 100 times cheaper and quality can be the same as professional studio record.

Artists don’t need major labels anymore to record their tracks and release music.

Because of the internet, artists have more freedom. And it leads to a lower bar to be into the music industry. So today there are 10’000 or 100’000 more bands out there, some of them are great but some of them are pretty bad. That’s only because rules are changed.

 

Today you can work the old way or you can work the new way.

New way gives you more power and more money, but also all responsibilities are on your shoulders. And you need a start capital!

To be successful as an artist you need a good manager (or management company), contacts, workforce and money to record your music and promote your creative work. The next step is booking agency that will put you in festival lineups and will organize tours (also you can do this by yourself).

One thing is clear – Your music MUST BE really, really good.

Good luck!