How Record Labels Make Money: From Concerts to Merchandise to Publishing
Recording labels also make money through music publishing. The creation and licensing out of original song compositions is a lucrative venture in the music industry. As the industry has developed, it has become a critical revenue source for labels. Publishers don't make money via original compositions, but rather via compositions written by artists on their roster. Labels make income through publishing by collecting a percentage of income generated from the compositions of artists on their roster. Labels also own a percentage of a song's copyright if the musician or songwriter writes new material. The label is thus entitled to a portion of the profits generated from the composition. HapPhi helps artists publish their work by assuming the rewards of owning the copyright.
June 15, 2022
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As the music industry continues to pivot and evolve, record labels are constantly finding new ways to monetize their artists’ success. In addition to selling albums and concert tickets, labels now also make money through merchandise, publishing deals and other business ventures that help them cash in on their artists’ fame. These revenue streams are ever-changing, but they’ve been around for years. Here’s how record labels make money from concerts, merchandise and more.
Concert tours are big business for artists, and record labels have been profiting from them for decades. Concert ticket sales make up a major source of revenue for record labels, but the costs of booking and producing a tour can be exorbitant. To offset their costs, labels will often take a cut of the ticket sales. The percentage of ticket sales that labels take varies from deal to deal, but it will usually be between 10 and 20 percent. Sometimes, that percentage is linked to the tour’s gross revenue and sometimes it’s linked to the profits. The contract between the artist and the record label will determine how ticket sales are calculated, though they are often based on the price of the ticket, including any additional fees. In some cases, labels will take a percentage of each ticket, while in other cases they take a percentage of the gross ticket sales.
Record Label Merchandise Partnerships
Another way record labels make money from concerts is through merchandise partnerships and sometimes even equity stakes in the merchandise companies. During the height of the vinyl resurgence in the early 2010s, labels partnered with vinyl manufacturers to create exclusive, artist-based vinyl. This could mean production runs of just a few hundred records or tens of thousands — and record labels profited from both ends of the deal. Labels also partner with merchandise companies to create exclusive merchandise based on artists’ rising fame. Exclusive merchandise deals are especially prominent in pop culture. For example, artists have been partnering with brands like Disney to release products tied to the release of a new movie or theme park attraction. In these cases, there’s a licensing fee involved and often a percentage of sales. Major concert tours also bring out merchandise partnerships. For example, Justin Timberlake’s 20/20 tour brought out a wide array of exclusive merchandise tied to the tour. Likewise, Taylor Swift’s Reputation Tour came with a wide range of exclusive merchandise. Even brands like Coca-Cola and Fanta are sponsoring artists’ concerts, often with exclusive merchandise tied to the sponsorship.
Another way record labels make money is through music publishing. Publishing — the process of creating and licensing out original song compositions — is a lucrative business in the music industry. And as the industry has evolved, it has become an increasingly important source of revenue for labels. But publishing deals for labels don’t come from original compositions. Instead, they come from songs written by artists under the label. Labels make money from the publishing of original compositions written by artists on their roster by collecting a percentage of income generated from those compositions. When an artist writes new music, or a songwriter writes for an artist, the record label also owns a percentage of that song’s copyright. This means the label is entitled to a portion of the money generated from that composition.
Digital Ads and Sponsorship
Another way record labels make money is through digital advertisements and sponsorships. Digital ads include everything from in-video ads to pre-roll ads, banner ads and more. Some labels even share ad revenue with artists. The revenue generated from ads is based on click-through rates (CTR) and how much each advertiser is paying. Labels also profit from sponsorships. This can take the form of a product placement in an artist’s music video or can even be as simple as a company providing an artist’s tour with discounted equipment. Artists’ fame can also provide labels with sponsorship opportunities. For example, a beverage company may sponsor a concert tour or a music festival.
Video games and Movie soundtracks
As the music industry continues to pivot, it’s no surprise that labels are finding new ways to make money from their artists. One way record labels are doing this is by securing music rights for movie soundtracks and video games. Labels often receive a licensing fee for this, though sometimes they negotiate a percentage of proceeds generated from the soundtrack. Movie studios and game developers will often pay a hefty fee to use a particular song in a soundtrack or game. For example, in 2017, the movie “Pitch Perfect 3” used a new song from the pop-punk band Walk the Moon. The rights to use the song in the movie were reportedly worth $1.5 million, though Walk the Moon only received about $200,000 of that, according to the band’s frontman.
Summing it up
As the music industry continues to evolve, record labels are constantly finding new ways to make money from their artists’ successes. Concert ticket sales, merchandise partnerships, advertising and sponsorships and music rights for movie soundtracks are just a few ways labels can profit from their artists’ fame. As the music industry continues to pivot, it’s important to stay on top of how record labels make money. That way, you can make sure you’re getting the best deal for your music and making the most of your success.