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Trapital Mailbag #5: Blockchain Opportunities in Music, Middle Class Musicians, Astroworld, Indie vs Major Record Labels, and more

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In today’s episode, I dive into a bunch of questions that I have received from readers. I weigh in on the opportunities that are available for middle-class hip-hop artists and how the creator economy is booming. In the wake of the Astroworld tragedy, I offer suggestions so that artists can do their part and manage crowds during music festivals. I also correct some misconceptions about blockchain technology, record labels, and streaming platforms.

If you have had some burning questions about the future of music, tech, and startups, this may be the episode for you!

Episode Highlights:

[01:30] My definition of what a middle-class musician is

[06:10] How artists can be trained to handle crisis situations

[09:55] On smart contracts, NFTs, and Web 2.0

[16:00] What the best indie record labels are doing that major record labels are not doing

[24:38] How artists have been finding fans and monetizing these past few years

[29:10] How artists get paid today compared to the CD era

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Host: Dan Runcie, @RuncieDan, trapital.co

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Trapital is home for the business of hip-hop. Gain the latest insights from hip-hop’s biggest players by reading Trapital’s free weekly memo

Transcript

Dan: Hey, welcome to the Trapital Podcast. I’m your host and the founder of Trapital, Dan Runcie. This podcast is your home to get insights from hip hop’s heavy hitters, music executives, and media moguls who are sharing their top insights and lessons on how they’ve leveled up in music and entertainment. 

In today’s episode, we’re gonna switch things up though a little bit. We’re gonna do a mailbag. Haven’t done one of these in a couple months and I always love these because people always send in the best questions. 

So, we have five questions. Some of them are a little long so calling them five might be a stretch, but we have a bunch of questions from readers that we’re gonna dive into covering a bunch of topics on how artists are getting paid, the middle class of artists, Web 3.0 and blockchain, and so much more and how all of it affects the business of hip hop.

So let’s get started. 

Today’s episode of the Trapital Podcast is brought to you by Mighty Networks. Mighty Networks has just commissioned the largest study ever done on the creator economy. In the rise of the independent creator, you’ll learn why many of today’s creators feel burnt out relying on social media and algorithms but how they’re starting to reclaim ownership of their communities by going niche, focusing on their community, and building a network effect with the people that make it possible. So go to newcreatormanifesto.com to check it out. That’s newcreatormanifesto.com. 

Dan: First question here is from Dave, who I’m pretty sure has sent questions in before and always brings it. This question is about the middle class of hip hop artists. He asks how would I measure and quantify it for artists, because artists don’t need to be Drake to be living and there’s a monetizable spot above being someone that just uploads all their music to all the services. What type of venues should they be able to sell out? What tier and slot of a festival will they occupy? And do these artists need partnerships? Do they need to have labels? Can they do it on their own? And what does it look like for those who aren’t named Chance the Rapper but they still wanna be able to have that sweet spot?

Great question, a number of layers and areas to go into, but the first thing I’ll say is the middle class of artists and, more broadly, the middle-class musician. This is a term that gets thrown around all the time and different people have different definitions, but, for me, I look at it no different than what the middle-class person is, and if I’m looking at the American definition of what middle class is, at least right now in 2021, in most cases, you’re looking at someone that is earning roughly between $50,000 and $150,000 annually. 

If you wanna extend that to the upper middle class definition, you could go up to those earning up to $400,000 a year. But still, we’re talking nowhere near, to be honest, most of the people that I write about in Trapital, most of the people that you’ll see headlines about. These are people who are doing things on a much more, (a), local or, (b), sustained operation where they are most likely serving a smaller subset of people.

And in terms of venue sizes, I think at this stage, you see a number of things. I think you see a lot of club performances, I think you may see things local, but it also depends because there’s so much optionality here. You may have some people who may just perform at a local spot and they’ll do a few gigs because they’re monetizing more directly using online services. Or you have people that will have a tour of a local area because they’re known well in that area and they may still do something else on the side as well that’s purely their hobbies.

So, it’s tough to say specifically where they are. That said, it’s easy to say where they’re not going to be. If someone is performing at something like a Regency Ballroom, that’s one of the bigger venues here in San Francisco or the Bill Graham Auditorium, I would not consider that person to be a middle-class musician. This is someone that, at that stage, you have several thousand fans that are coming and paying and you likely have a promoter or a big distributor that helped you make that happen.

The thing is, though, and this is where the monetization piece comes in, I think that we — well, I don’t think, I know that we are seeing many more flexible options here, especially for artists who want to monetize directly with a small subset of fans. And I think we see that in a lot of the platforms, especially with how things have blown up in the creator economy. 

There was this Twitch report, Twitch Rockonomics that was written by Will Page and he breaks down how artists are earning a sustainable living off just a couple hundred people that are subscribing to their live stream. I also had Tracy Chan, who is the head of Twitch Music, on the podcast earlier this year, 2021, and he broke down a lot of this as well.

And we’re starting to see more and more of this on platforms. Patreon also has its fair share of success stories of artists that are in that middle class. To be fair, it isn’t a high percentage of people on those platforms and this is something I actually talked about and written about in the most recent essay that I put out with Future, Andreessen Horowitz. It was about the overlooked levels of the creator economy. 

Most people still aren’t even at that sustainable level but it is important to call out where they are, and they don’t necessarily need to be Chance the Rapper, but there are tools out there and I think we’re honestly gonna see more and more of it as the next evolution of the music industry becomes much more common where artists are selling NFTs and having unique ways to interact and meet their fan base.

They are selling tokens and they’re offering unique experiences to the people that are their fans. They are using platforms like Audius, which I’ll go more into in one of the next questions as well that came up and how they can reach their fans more broadly and they don’t necessarily have to go through the same distributors. 

Because I think the core of the question does highlight how there is so much feast or famine in the music industry but I think we’ve seen a lot for artists that are in the middle class or wanna be emerging there and I think we’ll continue to see that over time. 

All right, next question here. Dimitri asks, “How can artists be trained to handle crisis situations in the wake of Travis Scott’s Astroworld festival?” He talks about how he attended a Run The Jewels show recently and they had said that — the performers, they had said that they would kick anyone out that doesn’t follow the rules that they have, and how the artists do have considerable pull and influence, more so than anyone else in those situations because everyone is there to see the artist, but how can we train artists in a way to make sure that they can do this and how can we make sure that the promoters as well and the folks who are involved can be held liable if that doesn’t happen? 

And it’s a great question because, obviously, so many eyes and thoughts are with what happened at Astroworld. It’s a complete tragedy and it’s truly unfortunate. And, to be honest, a lot of it could have been avoided with better preparation around a number of different areas. I think what we see, though, is that certain artists really have a different spectrum, right? 

Folks like Killer Mike, they are going to be much more likely, at least based on what Dimitri has said from his experience, he’s gonna be much more likely to say something like this at his concert and help set a tone. But that said, Killer Mike isn’t necessarily performing in the type of setting where someone like a Travis Scott would where these things could be more likely to happen.

So, yes, I think there is a great opportunity for the promoter for a lot of these events, whether it’s Live Nation or AEG, to make sure that, yes, their artists are informing and instilling safety and making sure that so many of these protocols are there put in place because you wanna make sure that artists are doing their part here. 

There are a number of things that were challenges even before Travis Scott took stage at Astroworld. We can talk about festival spacing and just festival seating in general and how we’ve seen some of the challenges there. How can there be more flow in the concert — not in the concert, in the festival to make sure that there’s just more spacing back and forth.

But as I wrote recently, some of that is unfortunately difficult in situations where you have these festivals where literally every single person there wants to see Travis Scott perform at 8:45 PM and there’s only so much space given there given the dynamics. But that means it’s an opportunity to help improve upon those things, right?

Could be a great opportunity where, in order to help manage capacity, you have two artists that are wanting to team together the same way that someone like Drake and the Migos may do a joint concert where they go on tour or Drake and Future do a joint concert and go on tour. What if two musicians that are complementary did a joint tour together and they — or not a joint tour, a joint festival, and something like that could help manage the flow?

I think there’s a few different ways to do these things and, obviously, it’s no different than being at somewhere like a Coachella where, yes, there’s gonna be two acts that you would love to see at the same time but part of that is by design and that’s just how these things happen. 

I do think that, of course, you’ll see differences with someone like Travis Scott, hopefully now just seeing that some of this could have been avoided and I think that a lot of his past actions and instances where he has reacted to crowds in ways that could have incited danger are coming into play now, but I do think that these things will improve over time. 

And as someone that attended a music festival myself not too long ago, I went to Outside Lands very recently here in San Francisco, I think we may see even different precautions there continuing to change and grow over time. 

For our next question here, Jay asks, “How do you think blockchain technology can create more transparency and equity for hip hop artists, managers, publishers, labels, promoters, etc.,” and can I speak about any companies that are enabling this today?

So, one of the things that is often talked about that I do think can play a big role and has and I think will continue to play a big role for musicians are smart contracts, and smart contracts are a type of contract that exists on the blockchain and it allows artists to sign agreements dealing with the rights to their music and it makes it much more efficient to make sure that any person that was involved and working on that track or working on that album in some way can instantly get compensated based on whatever splits or percentages or terms or agreements, referrals, bonuses, any of those things are implemented there so it can happen instantly.

This can create more transparency and it can reduce a lot of intermediaries that are often relied upon to execute these things even after they’ve become agreed upon. And, to clarify, I think some people hear these things and they think that, “Oh, are smart contracts or NFTs and things more related to blockchain music opportunities going to take away the role of managers or attorneys, X, Y, Z?” No, not at all. That isn’t the case. 

However, what it does do, it creates an opportunity for those experts to focus more on the things that require human capital; therefore, technology can just help improve upon the things that can be automated and can be made more easily for everyone involved, as technology has done for so many other things in the music industry and in society and business and technology more broadly.

So, I do think that we’ll continue to see that and I think that that creates a good opportunity for artists to have a bit more ownership in these situations as well. 

I think you’re seeing more artists just talk about how there’s limited that they may know and that they may sign or give the decision making power over to someone else, but what I think that smart contracts and what blockchain, in many ways, the artists that are using it, in many ways, it forces them to have more of a deeper understanding for what’s happening and how best they can take advantage and manage their careers. 

So, I think, given the nature of the technology itself, it forces the artists using it to be much more aligned and much more incentivized to have agency in their own careers in a way where, given the complexity and the frustration of where things were before, they may have been more likely to just delegate that to someone else on their team or an attorney or a business manager, whoever it may be.

And, a bit more broadly with the blockchain but overall with startups that are in this space, Audius is one of the ones that has gotten a good amount of funding. They recently just raised a fund and they had backing from Katy Perry, they had backing from Nas, The Chainsmokers, a few other artists. 

And it is an opportunity for artists to release music on these platforms and it’s a 90/10 payout where the rights holders, in most cases, whether it’s the artist or if they’re signed to a record label, that entity gets 90 percent of the revenue and Audius keeps 10 percent to run the business as is.

And, by being part of it, the artists themselves could also get a token in Audius and that token then helps them attribute — not necessarily attribute but it helps them gain more value as the platform continues to grow in power. Because this is one of the powerful things that people have often talked about with Web 3.0 and one of the challenges they talked about with a lot of the Web 2.0 companies. 

So many of the Web 2.0 platforms, whether it is a Spotify or a Facebook or YouTube, it’s the platform that gains the power from the users that are continuing to contribute to it but those same users don’t necessarily get any type of stake in ownership or buy-in. So, mainly, the things that you’ve heard people complain about how the users are the ones that make these platforms rich or make these platforms wealthy. And this is what platforms like Audius and what Web 3.0 more broadly is trying to do.

If you are not just a power user but if you are one of the main people that you yourself have a big following and you’re gonna bring yourself and your followers onto this platform to help it grow, this gives you but it also gives the fans themselves an opportunity to have a stake in that. And that’s what’s powerful and that’s what interests so many people about these tokens. 

And when you just combine all of that, it is extremely bullish and exciting and it’s exciting for sure to see exactly where things are going to go and I think that Audius is just one of the many platforms here. 

I’m gonna repeat something I heard on a podcast, I think it was Naval Ravikant, the founder of AngelList, had mentioned that we are still in the early days, we’re still in the Flickr, del.icio.us early days of Web 3.0 and that’s true because some of the platforms that exist today may not be the dominant ones. 

If we just look at how things happened historically, whether it was when the internet first came, if you wanna call Google a Web 1.0 company, it took a lot of time during 1.0 until we created a company like Google. If you wanna say that 2005 or 2004 and 2005 is the birth of Web 2.0, it took a great amount of time until we got to Instagram or Snapchat or TikTok or some of these other platforms. 

We’re still in the early days, and I know that the rush and the excitement is there so Audius is just one of the platforms but two years from now, there’ll be another thing, and five years from now, we’ll see even more of it. We’re still here developing these things but this is definitely where the industry is going and it’ll take time to get there, but excited to see how it all plays out. 

Our next question comes from Visage who asked, “What are the best indie labels doing — indie record labels — doing that the major record labels are not doing?” And this is a good question because it implies a few things that I do wanna break down just for the sake of communication and transparency here.

So, a lot of independent record labels have been able to pull and attract artists to them, to sign deals with them, that they may not necessarily — those artists may not necessarily have wanted to sign at one of the major record labels.

And this is one of these things where people may often wonder, “Okay, well, why is that? If you had the opportunity to be with the biggest record label in the world that has all of the power and the marketing and experience to make sure that your music could ring out in every corner of the world because they have that reach, why would you turn down that opportunity?” 

And I think there’s a few things here and the things that people can recognize that has to do a lot with why people partner with the companies that they do to begin with, right? There’s a reason that all of us don’t just go purchase everything we buy on Amazon, there may be other places that may be a bit more boutique or may be a bit more niche that are better tailored to what we need.

So, from a high level, that’s the answer. But more specifically, with music and with music independent record labels, you’re seeing a few things. One, there’s a big relationship factor here. That’s the relationship that the indie record labels may have with artists themselves because they may be on the ground and they may be local in an area.

Or it’s also the relationships that the indie record label may have with each other. Let’s take both of those, for instance. Earlier this year, I had Benjy Grinberg, who is the founder/CEO of Rostrum Records on the podcast and we’re talking about how he had had Mac Miller and how he had had Wiz Khalifa as two of the biggest stars on his record label early on and how that was able to help things continue to grow.

Benjy is from Pittsburgh, Mac is from Pittsburgh, Wiz is from Pittsburgh, there’s a local connection there that he had tapped into that isn’t necessarily going to be the same way when Sony calls or when some of the others call.

And, of course, with this connection, he can make sure, whether it’s through distribution deals or other things, he can help those artists maximize the platform when the time is right, but he is able to leverage that relationship and leverage that tapped-in base of trying to put this Midwest city on.

And the second perspective, from a relationship perspective, looking at the teams themselves. I actually had a conversation with a friend a couple weeks ago about this, look at what Empire has done. Empire, of course, was focused on distribution, has expanded now, they are a record label offering a number of services, but Empire has had a team of leadership that has been pretty solid for some time now.

And that’s not just impressive but it’s a bit more unique, especially in days when, every other week, you’re seeing some headline of turnover or a new leadership position from someone that is a new SVP or VP or leading some other unit at one of the sub labels at a major record label. So there’s a piece there and a tapped-in piece that is gonna resonate with people so those are just two examples. 

Another piece is that there’s also a vibe where a lot of people want to support and a lot of artists wanna feel like they are riding with the company or riding with the independent record label that isn’t “the man.” They are riding with the company that is growing and they wanna be able to grow and rise with that company as well, right? 

It’s not too different from the people that may want to join a startup as opposed to joining a major organization. There are some differences there, of course, because it’s not like indie artists that join indie labels — or artists, rather, than join indie labels necessarily get equity in the indie label but you never know.

There’s a bit more leverage and opportunity to pull things like that. Like, for instance, I think what Kendrick Lamar was able to do with Top Dawg Entertainment is an example of that, right? Kendrick wasn’t a founder of Top Dawg Entertainment. Pretty sure Top Dawg found him, I forget the exact year but maybe it’s ’03, ’04, it was somewhere around there, Kendrick was still a teenager, but then he’s able to grow and develop but Kendrick puts out the note earlier this year and says, “I’m gonna go do my own thing.” But Top Dawg, in so many words, had said that, “Oh, yeah, Kendrick has a piece of this,” because of just — you can’t ignore how much work Kendrick did to help build up Top Dawg Entertainment so you’ll see things like that.

If Kendrick had just signed with Universal Music Group when he was 17 years old, they wouldn’t give him a piece of the company. That’s not how this works. But so those are some of the things that I think you can pull. Of course, Kendrick, once-in-a-generation talent so we’re talking unicorn examples here, but that’s an example of the type of thing that we’re talking about. 

The other — two more reasons why someone may prefer one of the indies over one of the major record labels. One of them is deal terms. You may be more likely to negotiate a 50/50 deal term or an opportunity to maintain ownership or a licensing agreement with your masters if you go to an indie label. That’s gonna be a much tougher conversation if you’re going to Interscope or if you’re going to RCA and try to do the same thing. They’re big dogs there. 

I mean, if you are — it’s another one of the big fish in a small pond, right? If you go to Columbia and you try to get the same kind of deal that Beyoncé gets and you’ve just started putting out music a year ago, they’re gonna laugh at you. But if you got some buzz and you try to do that with a local indie, you might have a little bit more pull, so that’s an example of that. 

And then the fourth piece is you do tend to see, depending on the label, there could be a little bit more creativity or a little bit more of a vibe that works more directly with who you are as an artist and by being able to tap in with your people, that can help put you to that next level. 

I had Jonny Shipes who is CEO/founder of Cinematic on the podcast earlier this year and we’re talking about how he has essentially built up a content studio where artists who are signed to Cinematic can come through, they can make their content there so it’s not just that they’re making music, they can make videos and they can do the — 

I forgot what they have, it’s like the paint and pour, they have one of those type of things where people are either smoking up and painting or some type of show like that, I’m misquoting it right now, but they have some type of show like that, which is a unique thing that you just may not see at a major record label. Those kind of opportunities, especially if that’s your vibe, you’re gonna gravitate more to that.

So those are some of the reasons why someone may choose it. On the other hand, of course, if you’re trying to be the biggest star in the world and you wanna get there, then, yeah, it’s understandable to see why an artist like Lil Tecca would wanna sign with Republic Records. The track record’s impressive, they have Drake, they have The Weeknd, they have Taylor Swift and Ariana Grande and so many more artists. There is a pedigree there that if you wanna be the biggest in the world, you could do that. 

But, once again, it all goes back to the artist preferences and the artist interest because there’s so many — I don’t even wanna say pros and cons because it’s not necessarily a negative thing, but there’s so many trade-offs and opportunities that say more about where the artists themselves may lie than where the actual opportunity is. 

Let’s take a quick break to hear a word from this week’s sponsor. 

Let’s talk more about the new study from today’s sponsor, Mighty Networks. The creator economy says it’s all about independence, but most creators are still quite dependent — they depend on algorithms to grow and they depend on audiences that they don’t own. 65 percent of creators say they feel overworked and underpaid. To address these challenges, Mighty Networks has commissioned the largest creator study ever, the Creator Manifesto. It’s a report on the rise of the new independent creator that’s emerging. Independent creators can own a direct relationship with their audience, earn more money from cultivating communities, and create a network effect to grow their audience. It doesn’t take millions or thousands of followers to succeed. The independent creators succeed by going niche, empowering their audiences to build with them, and focus on serving their community. The independent creator can succeed with a much smaller audience than previously thought. To learn more, download the free report at newcreatormanifesto.com. That’s newcreatormanifesto.com. 

Dan: All right, our next question is from Anush who asks, “Is there a difference between how artists are finding their first fans and monetizing them today versus a few years ago? And if it’s different, what’s different? And if it’s similar, why not?”

So, the easy way to say this is yes and no, but let’s break it down. So, I do think that there’s, at least in the past few years, especially in the streaming era, we’ve seen a few different types of artists, right? We’ve seen those artists that are more likely to lead and they’re more likely to follow the latest trends and the latest things, whatever they are, and there are other artists who are a bit later.

It’s no different than your typical adoption curve, right? You have your innovators, your early adopters, and your early majority, then you have your late majority, which many others end up falling into. 

And what we’re seeing now, and this is probably part of the question, what we’re seeing now is that the artists that are in those innovators or early adopter phase, these are the ones that are getting early out on Web 3.0 and cryptocurrency or other types of things. They are launching their own tokens, they’re trying to bring their communities onto these platforms, and they’re trying other new and inventive things. 

But, four or five years ago, they might have been a bit more reliant on trying to still see, “Okay, how can I get on the biggest playlist possible? Or how can I try to navigate Twitch?” or some of the other things that are, at least at that point, were becoming more and more like the new it thing that people weren’t really tapping into but now they are. 

So, you’ll see things like that, especially from the innovators, but, the thing is, on the other side, and this is why I actually said no to the question, for a majority of artists, we are still in the streaming era. And even two, three years ago, the streaming era is largely made up of artists who are releasing their music on streaming platforms and they are using social media in some type of way to build a following and show their presence and they’re using the combination of these tools to make sure that they are showing their personality but also releasing music on a semi-regular basis.

And people were doing that two, three years ago, they were definitely doing it five years ago, and they’re still doing it now. I think what you’re seeing is you’re just seeing a little bit of a different variety and I think with certain artists, there’s a bit more risk taking. 

And, to be clear, at least for most artists, sure, there may be a few unique things that they are doing with tokens and things like that, but they still know where a majority of their audience is and for a lot of artists, a lot of them still are reaching fans that have Spotify subscriptions, are still reaching fans that spend countless hours a day on YouTube, on TikTok, elsewhere.

So I think you’ve seen these things shift over time. So, roughly, it still is at least doing the same thing. We’re using some type of social media to reach them on some type of streaming service. Depending on the year, some of those things may have ebbed and flowed. Now, you’re definitely seeing much more focus on TikTok and especially to music, TikTok has become more of the top of the funnel not just for the music industry and streaming but also top of the funnel relative to other social media services. 

For instance, I know I’ve written about this before but one of the advantages of TikTok is that people can see your content even if you’re not following them. I know that Instagram and others have been trying to shift this but if you could get on that For You page, that gives you so much exposure that is much harder to get on the other platforms where you really have to follow someone or hope that a tweet or hope that a post gets viral enough that it gets re-shared by someone that you end up following. 

So, you’ll see more of those things shift over time. I think, like anything, we’ll see the adoption curve slowly shift but we are very much still in the days where Spotify is still growing, all these things are still growing, and even though they may not be the trendiest of trendy technologies and even though there are still many people, rightfully so, looking to move beyond the $10 a month, all-you-can-eat subscription models, 

there’s still a lot of growth there, especially in emerging markets so the best artists are still putting their music on those platforms where the audience is, but, hopefully, finding that their early and loyal subscribers or loyal followers are willing to take a journey with them to try out some of the newer ones as well. 

Our last question, a few people asked this question so I’m excited to break this one down. This is asking how artists get paid today and how it compares to the CD era. And I know this question has been asked oftentimes before, whether it’s people just getting a better understanding for how streaming works or how things may compare, but I actually don’t know if I’ve actually answered it so — answered it myself on a podcast,

so I’ll go a high level without getting too much in the weeds, but from a high level, how artists get paid today and where that money comes. Let’s, for simplicity, just focus on streaming and let’s just focus on Spotify because I think that can address a lot of the questions here.

So, artists get paid from a pool of money that is distributed based on the percentage of listening that actually happens, but it’s not as cut and dry as a lot of the headlines that will say, “Oh, artists get paid less than a penny per stream.” 

Okay, so let’s look at my own revenue that goes directly to Spotify. So, my wife and I have the Spotify duo plan so that’s where the two of us subscribe, I think it’s $12 or $13 a month. That $13 a month goes directly to Spotify. 30 percent of that stays with Spotify that they keep themselves and the remaining 70 percent goes to the rights holders.

So, with that, that 70 percent then gets distributed based on a few things. One, so it gets distributed to the rights holders but, specifically, for simplicity, it gets distributed to the major record holders and any other rights holders based on the percentage of listening that happens for the artist or for the songs that are played for their particular artists, right?

And then that number then goes directly to each of those rights holders so, for the major record labels, it goes directly to them. And then, based on that, it then is distributed to the artists depending on whatever deal that the artist has with the rights holder. 

If the artist themselves is the rights holder, an independent artist that doesn’t have a split with anyone else, they keep all that money. If the rights holder is the record label, then the record label gives a percentage based on whatever deal terms that they have. 

So, because you can see the way the money flows there, the whole concept of an artist getting paid less than a penny per stream is largely a backed-in number that is based on all of those things in the split and everything else there because, let’s say in a hypothetical world that I was the only Spotify subscriber in the world, my wife and I were the only subscribers, right? And it was only our $13 per month that was contributing.

And we only streamed one song in that $13 month span, let’s say we streamed Drake “One Dance” once and that was the only thing. So, at that point, the 70 percent that would go to the rights holders, that would then go to Drake specifically through Universal and through Republic. So, based on the math there, he would get more than a cent per stream.

Obviously, that’s an extreme example to just show the highlight but I’m highlighting that to say that that is why the whole “less than a penny per stream,” although backing the math into it, it can be a directional guide for how artists are getting paid but it’s not 100 percent accurate. 

But, that said, just based on the way things are, you could say that your average artists, at least on Spotify, because they do have their free and paid tiers, at least from what they’ve calculated on average, they expect to make around $3 to $5 for every thousand streams that happen on the platform.

So, this is a good point to be able to just compare to where things were because, before, in the CD era, let’s say a CD sells for $20. Based on the agreements that are in place that the artists may have with the record label, the artist may be getting $4 of that money that comes in, $4 of the $20 of the CD sale.

So, if you’re an artist that sells 100,000 CDs in their first week and you are doing well on the Billboard charts in that perspective, the artist themselves would get $400,000 of the revenue from that CD sale, right? $4 of the $20, 20 percent, if you sold $20 of the CDs for 100,000 copies, that would be $2 million, but the artist would then get the 400K of that.

However, in the CD — in the streaming era, if you were to sell 100,000 album equivalent units based on the methodology that Billboard has, it would take around 150 million streams in order to do that. But then, based on that calculation, the rights holders would then make just 150— or the artist, rather, would then just make $150,000 compared to the $400,000 that they have made in the CD era. 

So, that is a very back-of-the-envelope calculation and comparison just to show how the amount that artists do get paid is less, relatively speaking. There’s a number of reasons for that. The agreements that a record label or a distributor may have had with an outlet like a Tower Records or a Walmart or some of these other places where you can buy CDs is very different than what it is like at Spotify. 

And, honestly, this is why a lot of folks in technology, why a lot of folks looking at the future of music tech and startups are trying to push for a better way for artists to get compensated. This is also why you see things like SoundCloud introducing fan-powered royalties. 

If you wanna learn more about that, if you haven’t already, definitely listen to the podcast episode that I had with Mike Weissman, the CEO of SoundCloud, and he breaks down why the company had made that decision and more. 

So there’s a bunch more to break into there and I definitely — I would say this. I don’t know if I recommend going down a rabbit hole because it can be a lot to break down and decipher but if you’re curious beyond the topic, there is a good amount of breakdown there and there’s a good amount of interest of how platforms are trying to help artists be better compensated for their art and trying to reverse things and not just relying on touring revenue and some of the things that have become more popular in today’s age.

So, thank you, everyone, for sending in those questions. Those were great. I hope you enjoy it. I really do like doing these. I gotta do them more often, and I may do them by tacking them on to an episode as well just to keep things going and I’ll also try to give advance notice for these as well. I know that I had dropped it in the newsletter and I had dropped it on Twitter as well but I’ll do it for the podcast as well to make sure you get it so I’ll keep that as a rolling invite, I’ll put it that way.

If you have any questions that you have related to music industry, media, entertainment, hip hop, anything that covers a topic that I would likely address on the Trapital Podcast, send the questions in.

This was a lot of fun and thank you all for listening.

Dan Runcie

Dan Runcie

Founder of Trapital

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