A lot of people want to get into music, but very few understand how they'll be paid once they do. Knowing more about the money means you'll be better armed to take on the business on your own terms.
Now of course, it's about making music first and foremost, but it can be handy to have an idea of how the music business does business.
Apart from anything else, some of the sources of money are ones you can claim before you're signed. That can help pay for new equipment or an out-of-town gig.
This is probably what most people think being a successful musician is all about: making money from selling records. In practice though, this often represents a relatively small percentage of income for musicians.
When you're starting out, it's often more important to think of record sales in terms of promotion rather than income. On a small deal, there isn't normally a great deal of money knocking around. What's actually more useful is the opportunities that having a release on a label with national distribution can offer you.
When you're starting out, think of record sales in terms of promotion rather than income.
When you come to sign a bigger deal, it's usual to take some of your sales income as advances.
An advance, as its name suggests, means that you get some of your sales income before you've actually made any records.
Once you do start selling stuff, your label will claim these advances back. All of your share of the profits from your album sales will be retained by the company until you've paid back your advances.
Paying off your advances – or 'recouping' as people call it – can have implications that go far beyond money.
If an act is running at a loss from their first album, the label is likely to want to keep a tight rein on things when it's time to record the next one. If it's a big loss then it's unlikely that there will even be a second album. The act will be 'released from their contract' (or in less polite terms: dropped).
If the act recoups, the label will have a lot more confidence in them and will give them a greater degree of creative freedom to make the next record.
It's important to remember that advances have to go a long way. It's not unusual for a large label to advance an act over £100,000 when they sign a deal. But there will be a lot of takers for that money.
For a start their manager will take 20 percent for all the work they did getting the act signed. Then the taxman will want a slice, plus there will be legal fees which can be £10,000 or more.
Some of what's left may be needed for other expenses such as new instruments. Finally, when all that stuff's been deducted the musicians can split what's left to live off.
The money will need to last because any more income from the label will take a while to come through. Obviously, there won't be anything until the record is released, but then it takes time for the money to filter through from the shops to the label and finally to the musicians themselves.
It can take years for a band to recoup and see any more income from the album. In fact there are acts that have careers spanning a few albums who have never recouped at all. So if they never get money from record sales, what do they eat?
Another source of income from records is licensing. This is a catch-all term for any situation where music is used commercially in some way other than simple album and CD sales on your own label.
Mainly it falls into two categories:
- sales of songs as part of a compilation or mix CD
- the use of music in TV, films or adverts.
The first of these is a bit of a movable feast. If you're signed to a small dance label and a DJ uses one of your tracks on a mix CD, it can massively boost your income as a musician. It's also great exposure for your act and can launch your career internationally.
Fees for the use of music in an advert can be pretty large, but they are nothing compared to putting your name on the map as an artist.
Later on in your career, someone putting together a chart compilation may want to include one of your successful singles on their album. In these cases, it's less of a good thing.
The income per artist from these disks is often very low indeed, and it detracts from sales you could make in your own right. But they're very popular and even a little income is better than none.
When it comes to TV, films and adverts it's probably true that the money is less important than the exposure. Although the fees for the use of music in an advert particularly can be pretty large, they pale into nothing compared to the money they can generate in the long term by boosting your sales and putting your name on the map as an artist.
There's one final bit of licensing that we haven't mentioned. It's one that's most common in dance and genres like hip hop and drum & bass, but it's also the way that many small guitar labels work. It's where a single has had a bit of success as a DIY release or on a small label and a bigger one moves in to do a bigger release of it.
This can mean that the demo or white label you've been selling yourselves gets picked up and released on a profit split basis. Or if you've put out a successful single on a small label then a bigger label may step in and buy you out.
Publishing is where the real money in the music business lies. Whereas record labels deal with recordings, music publishers deal with songs.
It's quite a subtle difference to pick up on but it's really important. Songwriters are due for money whenever their songs are used commercially. That does include label stuff like selling CDs and MP3s, but it also includes other uses of music.
For example, when you buy a ringtone you're not buying a recording as such but you are buying a bit of someone's song. And that means that the person who wrote the song is entitled to a slice of the income.
Publishing also covers public performance of songs, which means everything from musicians playing the song live to playing records on the radio and TV, and even things like pub jukeboxes and gym classes.
Publishing is a lower-risk business than running a label. The label pays for all the recording and marketing costs for an artist before they see any money back. Estimates we've seen run between £800,000 and £1million to sign a new act to a major label and make and release their first album.
A publisher will normally pay their writers an advance which, although it may be tens of thousands of pounds, is a lot less than the label's outlay. That's pretty much it until the records start selling and getting played on the radio, when they collect the income. So there's much less at stake for a publisher.
This can mean that publishers are more likely to take a flier on an unsigned act – they'll sign them and then help them get a record deal.
But remember: publishing income is only paid to people credited as the writers of songs. If you're a non-writing member of a band, or a member of a manufactured band which doesn't write its own material, this income does not apply to you. You're limited to sales income, and some of the performer royalties.
Mechanical royalties, or 'mechanicals', are one source of publishing income. They're the royalties due for copies of songs made 'for reproduction my mechanical means'.
This is an old-fashioned term from the days of wind-up gramophones. These days 'mechanical means' includes CDs, MP3s, mobile phone ringtones, even things like alarm clocks and cuddly toys that play tunes.
As the writer of a song, you are entitled to a fixed percentage of the income from the sales of these things. This is in addition to any income you may be making as a member of the band through your record contract. So if you're a writer-performer you win twice.
The other main source of publishing income is through public performance. Everyone who plays any kind of music in a public place, from a hairdressing salon to a national radio station, must buy a license in order to do so. The fees from these licenses are collected up and distributed to the writers of music.
You don't need to be signed or have a publishing deal to collect royalties. Even a demo which gets airplay generates a performance royalty for its writers.
As an example of how lucrative this can be, BBC Radio 1's license fee works out at about £18 per minute of music they play - or nearly £60 for a three-minute record.
When you think that a tune on Radio 1's 'A' list can get anything up to 40 plays a week for five weeks or so, that's a fair old wedge.
And that's just one station. Add in all the plays on local radio, TV and other outlets plus income from jukeboxes (you have to have a license for one of them, too) and you're looking at a sizeable income – if you wrote the tune.
Live music venues must also report the music that's played in them. So if you're a writing member of your band, you may well make royalties from playing your own songs on tour. Performance royalties also apply to DJs playing records in clubs.
When it comes to these royalties, you don't need to be signed or have a publishing deal to collect them. Even a demo which gets airplay generates a performance royalty for its writers.
Collecting and distributing all this is quite a complex business. In the UK it's done by a body called the Performing Rights Society (PRS).
There is another royalty body called Phonographic Performance Limited (PPL). PPL licenses recorded music played in public or broadcast on the radio or TV and then distributes the fees to its tens of thousands of performer and record company members.
PPL does not retain a profit for its services and its members range from session musicians and emerging artists to major record labels and globally successful performers.
When a song is played in public, it's not just the writers that are due a royalty. The people who own the rights in the recordings are also due for a dab of cash.
If you’ve ever performed on own the rights to recorded music, PPL could be collecting royalties from the UK and internationally on your behalf. They also collect royalties from public performances, but for a slightly different group of people.
If you're putting out your own stuff on your own label then you can also claim these royalties.
In addition to the royalty for the labels, PPL also collect a royalty for the people who performed on it. Frankly, it's is all a bit messy, but it's one of those historical things that came about through laws being revised. But when a recording is played on air, the people who played the instruments on it can also claim a royalty.
Other types of income for music
There are a few other streams of income that artists can benefit from, but not as many as you might think.
It's unusual, for example, for a fee for appearing on a TV programme or radio show to be very high and most don't pay anything at all. It's a mutual thing – the producers get content for their programme and you get a way of promoting your record so no money changes hands.
Likewise, touring is not the money-spinner you might think it is. Audiences these days expect great sound and sophisticated light-shows. All that equipment costs to hire. And roadies are no longer the unwashed party-monsters of rock 'n' roll legend, but highly paid technicians.
Touring is not a money-spinner. Audiences expect great sound and sophisticated light-shows. Equipment costs to hire. Roadies are highly-paid technicians.
Add the costs of hotel bills, air fares, shipping costs, health & safety insurance, and you could never charge enough on the door to have any money left to keep for yourself.
So unless you're playing arenas, live performances are usually seen as a way of promoting a record.
As well as the actual gigs, you can use the opportunity to do some TV and press in parts of the world it would be too expensive to visit otherwise. So most tours aim to break even, and many even lose money.
There is a related area that is a definite money spinner for acts: merchandising. The sales of t-shirts, hoodies, wrist-bands and posters can be a healthy source of income. It's harder than it used to be, as many venues now charge for space to sell 'merch' (as it's known in the trade), but by the time your punters have downed a few ales and you've wowed them with a blistering set, there will be plenty of impulse buys after the show to offset that cost.
© BBC Radio 1