How pop music artists make money? Why do they make so much money? First and foremost, it is important to note that celebrities such as Britney Spears and Lady Gaga are not only singers and recording artists. These high profile pop music artists have established brands that individually represent a multimillion business empire.
In this article, we discuss the general revenue model applied in the music industry, specifically by breaking down the different sources of income of pop music artists. Take note that some of the figures are estimates based on industry research.
How do pop music artists earn money: The different sources of income
Income from singles and albums
1. Record or CD sales: The most basic source of income for most music artists is CD sales or more appropriately, mechanical royalties. On average, an artist earns around USD 2.00 per unit of CDs sold. Other portions of CD sales go to the record label and other professionals or groups involved in music production and distribution.
Income from CD sales has become less lucrative, however. Apart from the need to produce and record a compelling single and/or album, an artist needs an effective management team to help with marketing and promotion. Adding to this is the fact that CDs have become less popular due to the rise of digital music and streamlining services.
There are still high profile pop music artists who earn a lot from CD sales. Adele is a prime example. In 2015, she released her record-breaking third studio album “25” that sold 3.38 million copies in its first-week debut. A large portion of her USD 80.5 million earnings in 2016 came from CD sales. Her success revolved around building anticipation after taking a four-year break and opting to exclude her new singles from streaming music services.
2. Digital downloads: Sales from downloading digital music have been competing with traditional CD sales. The growing popularity of consumer electronic products such as laptops and smartphones has further advanced digital music sales. In 2015 in fact, for the first time, sales from both digital music downloads and streaming music services have overtaken sales from traditional physical formats.
Based on estimates, an artist earns around USD 0.25 for every download worth USD 1.30 or to give a better overview, approximately 10 percent to 14 percent of the download price. Other portions of the sales go to the record label and other professionals or groups involved in music production and distribution.
3. Streaming music services: The rise of streaming music services such as Spotify and Apple Music has opened another source of income for music artists. The revenue model centers on a per-stream basis. This means that an artist earns a particular amount whenever his or her music has been streamed by a particular subscriber.
Several artists and industry players have protested against what they deemed as low rates, however. Through Spotify for example, an artist earns USD 0.005 per stream. This means that a specific music that has been streamed 20,000 times will earn an artist an amount of USD 100.00.
Income of pop music artists from live performances
4. Concert tours: Touring around the country and across the globe is one of the most lucrative sources of income for music artists. A lesser established but budding independent artist can earn from around USD 10,000 to USD 15,000 per show, granting that ticket sells at USD 20.00 to USD 30.000 apiece. However, a more popular artist signed under a major label can earn at least USD 600,000 per arena show.
Coupled with a highly successful album, a high profile pop music artists will definitely earn more. Take note of Taylor Swift as an example. She remains as one of the top-earning women in music from 2014 to 2016, and a great portion of her earnings came from concert tours. In 2016 to be specific, her “1989 Tour” that accompanied her “1989” studio album earned a gross income of more than USD 200 million in North America alone.
5. Residency show: Other pop music artists choose to focus on residency show instead of doing concert tours. Some do both. As a backgrounder, a residency show is a series of concerts performed at one location and arranged between an artist, including his or her management, and a single group of individuals, usually the owner or operator of a particular venue such as a hotel and casino.
An example of a residency show is the “Celine” series of concerts performed by Celine Dion at The Colosseum at Caesars Palace in Las Vegas that started in March 2011 and will end in January 2018. Terms of the contract include 70 performances per year. From 2011 to 2013, the show grossed at USD 116.5 million.
The “Britney: Piece of Me” is another example of a residency show headlined by Britney Spears and performed at the Planet Hollywood Resort & Casino that started in December 2013 and will end in December 2017. As of February 2017, the show earned a gross of more than USD 103 million. Note that Britney Spears also launched her “Britney: Live in Concert” world concert tour in 2017.
Income of pop music artists from songwriting
6. Royalties and licensing: Recording artists who also happened to be songwriters earn more than an average non-songwriting recording artist. Take note of Lady Gaga and Taylor Swifts as examples. Both artists have received income from royalties and licensing fees.
One source of income for songwriters is mechanical royalties. In the U.S. for example, the record label is responsible for paying a songwriter a fixed rate of USD 0.091 for each song sold. Thus, a recording artists-forward-slash-songwriter receives two income streams from record sales. Songwriters also receive mechanical royalties from having their songs streamed online.
Another income source is radio airplay. Note that radio airplay is considered a public performance and thus, every song played over the radio airwaves receives performance royalty that goes to the songwriter and music publisher.
Synchronization royalties are the payments received for having a song licensed for use in a particular film, television show, video game, or television or radio commercial. Film licensing can amount between USD 20,000 and USD 30,000 while a TV license can amount to around USD 50,000.
The total amount that songwriters and for this instance, singer-songwriters receive from royalty fees varies. To provide an example nonetheless, Lady Gaga received USD 728,000 in 2012 for co-writing the hit single “Poker Face.”
Income of pop music artists from non-music endeavors
7. Celebrity endorsements: Celebrities can use their social status and popularity to promote a particular brand or products and services, or even an idea. Marketers believe that the positive image of a celebrity endorser can be passed on the associated product or brand image.
Endorsements can be a very lucrative source of income for music artists nonetheless. In 2003 for example, Justin Timberlake landed a USD 6 million endorsement deal with McDonald’s. His specific duty included recording a song and appearing on a music video.
Another example is Justin Bieber who got paid USD 12 million to endorse the “One Less Lonely Girl” nail polish collection from beauty care company OPI in 2010. The pop singer was 16 at that time. While a young male endorsing a beauty product for young girls seems off, the marketing strategy makes sense. Justin Bieber has a fan based composed primarily of young girls.
8. Branding and merchandising: The name and image of a high profile music artist can collectively form a brand and a trademark. Some manufacturers or producers of toys, apparel, and/or beauty products, among others have used the trademarked name of a celebrity through a licensing arrangement to attach it to a particular product.
The phenomenal though now defunct boy band One Direction is one of the prime examples of high profile music artists who had their collective trademark licensed for different products and merchandises such as apparel, pieces of jewelry or accessories, perfume, and even toys, among others.
Other pop music artists have capitalized on their fame and resources to venture into entrepreneurship and launch their own product lines. One prime example is producer and rapper Dr. Dre who founded the audio products manufacturing company Beats Electronics before selling it to Apple Inc. Take note that Beats also used celebrity endorsements and trademark licensing to further promote its products. Among the pop music artists who represented the brand were Justin Bieber and Lady Gaga.