What’s the difference between music publishing today versus the way it used to be?
There are many differences but you’ve got to look back at publishing from the beginning to understand them.
In the beginning publishing meant receiving a percentage from the sale of sheet music at first, then from other physical products like piano rolls, and from there vinyl to cassette to CDs to MP3s. This is called a mechanical royalty and results from a sale of a song. Another source of revenue for songwriters ad publishers is performance income. This started out as a payment for a live rendition of a song, then evolved into payments from broadcasting the song on radio and television. The performing rights organizations (the PROs) collect this money from the various radio and TV broadcasters and distribute it to their writers.
There is another source of revenue that has basically saved the publishing industry and this is called a synchronization license. A sync license is required if you use music commercially with moving pictures, and for that there is a negotiated fee. So while mechanical royalties from record sales have gone down, income from sync licenses has gone up. From the early 60’s till the end of the century mechanicals ruled, but that game is over. In 1998 there were over $13 billion in records sold. In 2008 that number is just over $8 billion. And not only that, since it’s a singles market, getting a song on a record doesn’t mean what it used to. But amazingly publishing income has pretty much increased with performance and sync income making up for the loss in mechanical income.
Why has sync income increased?
There are many reasons, but the most obvious is that there are so many more broadcasters today. Where it used to be only the big 3 networks (NBC,CBS, and ABC), now it’s more like 300 with all the cable networks, so there are more sources of income than there were before and on top of that there is performance or back-end income that is paid when they broadcast the show. As a result, you have the increase in these sync fees offsetting and sometimes exceeding the loss of mechanicals. Publishing is really the last man standing in terms of making money in the music business, and still one of the few ways left to monetize intellectual property.
Is there any money being made online?
Yes, but there are challenges. Besides the biggest eternal problem of competing with what people can download for free, streaming isn’t really working as a business model for the publisher. It’s making some money, but unless you’re the guy getting mega-streamed, it’s just a game of pennies. In fact, it can actually cost a publisher more to collect than he receives
Here’s what I mean. If a song is played on the radio or television or sold through i-Tunes, the income statement is pretty basic and from one source. In the case of performance, it’s even easier because half gets paid to the publisher and the other half gets paid directly to the writer, so there’s only the accounting expense of one statement split up among the owners of the publishing. But when a digital track is sold or streamed, all the fees go to the publisher and the publisher is responsible for paying the writer.
With streaming, a publisher might have many sources he collects from but the total amount turns out to be very little because streaming pays very little per stream (how about 18 one/hundredths of a cent per stream). So you could have 100,000 people streaming your song and you’re not going to make enough for a Big Mac. In fact, a publisher I know finished his accounting run with a report as big as a phone book yet the total was only about 12 bucks in royalties. So a publisher with a co-pub deal pays the writer 50% and then takes his portion of the publishing which would end up being a whopping $3. Now figure you’re paying someone $20 per hour to produce the statement and you see how it actually costs more to produce the statements than they are worth! Of course there are some artists who cut through with a huge volume of streams, and other sources like ringtones still bring in big money, but it’s getting more like third world countries with a small upper class, no middle class, and a huge group who makes very little.
For a while, everyone thought digital distribution might be the answer to the industry’s problems, but the problem is that streaming and digital downloads don’t pay enough even with zero distribution or inventory costs involved. And what happens when you fill the bucket up with the Long Tail items? It really doesn’t make sense to a publisher from the accounting perspective because what’s happening online is a disruption of the one time golden idea that you have to buy a whole album to get the one song that you liked. The music industry has gone back to a singles business again.
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