What Is The Business Model Of The Music Industry?

All businesses are based around a model that becomes the path to follow in order to generate income.

In the simplest of terms, a business model is simply a plan that details how income is to be generated and the method with which this is going to be made possible.

In the music business any business model that is developed should plan for the successful operation of the business by identifying various revenue sources, the intended customer base, the products to deliver to market and the details of the financing required to make all this possible.

This post will discuss all these components of the music business model.

Revenue Sources

There are various revenue sources that are available in the music business and the digital age has brought about more variety.

Streaming revenue

This is revenue that is generated when music is played on streaming services such as Apple, Spotify, Deezer etc.

The streaming service pays the music owner a license fee per stream of the music.

Digital Store Sales.

Digital Stores such as Amazon and Apple music allow music creators to upload their music and sell it on the platforms.

The revenue generated is paid to the owner of the music.

Video Monetization

Music videos and audio can also be distributed to video streaming platforms of which monetization fees are paid to the owner of the music.

Such platforms are YouTube, Facebook, TikTok etc.

The YouTube partner programme also allows video owners to monetize their videos by partnering with YouTube, which then places ads on their videos.

Physical CD and Vinyl Sales

Music can also be distributed in Physical CD and Vinyl form of which customers can buy.

Digital stores have hijacked physical sales but some artists are able to make money off them.

Mechanical Royalties

Mechanical royalties are royalties that are a result of music publishing.

In the older days it meant CD sales, these days streaming and digital stores pay the owner of the music a publishing royalty.

Performing Rights Organisations are usually the organization’s that are hired to collect these royalties on behalf of the musician.

Performance Royalties

These are royalties that are owed to the musician when there music is played on public radio, or performed in public.

Performance royalties are another kind of a publishing royalty that is paid when the “composition” of a rights holder are used.

Non Interactive Royalties

These are royalties paid to a musician when their music is randomly played for users on platforms like online radio services like Pandora.

On interactive streaming platforms, a user chooses what they want to listen to. Non interactive platforms are the equivalent of a radio station on which you cannot choose what music you want to listen to because it is selected and played for you.

Production fees

Another way music is generated in the music industry is through fees that are charged for the arranging, composing, remixing and so on.

Live performance revenue

This is money generated when a musician performs live. Live performance revenue is usually in terms of ticket sales when expenses are subtracted.

Synchronisation

This is sometimes referred to as Sync licensing.

Synchronisation is when music or audio is paired with motion picture, which is usually music in Film, TV Video games, Ads, Commercials Etc.

When a song is sync licensed, the owner of the music is paid for the use of their composition.

Merch

Merchandise sales is another way the music business generates revenue.

This can begin in the form of Clothing, posters, mugs etc.

A brand is chosen and branded on various items that are later sold for profit.

Brand deals

Brand deals also make up a good portion of income for musicians that partner up with brands and promote them for which they are paid a fee.

Customer Base

The customers in the music industry can be split into categories to understand the music business model a lot better.

Core Fans

These are fans that make up the fan base of the music being made. Core fans buy music, stream it, watch it, download it, attend live shows and purchase merchandise.

They are all-in-one clients that make a huge part of the revenue generated by any music business.

Buyers of Music

This segment makes up people that are interested in the music and actually support it so they buy it either digitally or physically.

Buyers of music make a portion of the core fans because not every custimer is open to actually buying the music, now that we have streaming services all over.

Streamers of Music

These customers are the people that utilize streaming platforms and actually stream/play the music.

They give the owner of the music an opportunity to make money each time they play their record.

Live show attendees

These are fans that actually show up to the shows to watch their favourite artist perform. They buy tickets to the shows and attend them.

Licensees

These are usually companies or industries that pay a license fee to use music to accompany their content.

Examples of these are TV, companies, content creators etc.

Brands

Brands are part of this customer base though they offer more of “partnerships” which can benefit both parties.

Products

Music

Music is the primary product in the music business and brings in most of the revenue for publishers.

it can be sold and licensed to generate money. It can be in the form of Mixtapes, LPs, EPs, Albums, Joint Albums etc.

Video Performances

Music videos are also another huge part of the product package. Videos provide entertainment value to customers (fans) and can in turn earn income on various video streaming platforms.

Merchandise

Merchandise created by the use of the musicians brand is another form of product in the music business.

Brand

The musician brand itself is a product because it can be used to partner up with people and entities to work together to generate income.

Shows

Live show performances are another form of product that the music business offers to its clientele.

Clients pay a fee to attend a show.

Financing

These are various sources of finance that are used in the music business:

Crowdfunding

Crowdfunding can be a great way to raise finances for your music business but it takes careful planning and proper execution.

There are various crowdfunding platforms available online that are available to anybody that needs finances fot their business.

Investors to invest in the business

Investors come in many forms in the music business, they can be record labels, angel investors, venture capitalists etc.

Check out this article on how how to find investors for your music.

Personal Income to put into the business

A person may decide to put their own money into the business and start everything.

Bank loans to invest in the business.

A loan can also be a good way to invest heavily into music. Takes some careful planning to use and procure a loan.