A closer look at online earnings (and losses) per platform

(originally published September 27, 2011)

If there’s a lesson to be gleaned from the recent kerfuffle over Spotify and artist payments, it is this: fans of indie music should buy directly from the artist whenever possible.

The dust-up started when Uniform Motion posted earnings from various platforms on their blog.  In a follow-up, they wrote:

First of all, the blogpost was not an attack on Spotify. We don’t have a problem with the concept of streaming music services at all. What we dislike about Spotify, is the lack of transparency in their business model. With Apple, it’s simple. They take 30%. With Spotify, we don’t know if we’re getting a fair deal or not.

~ Uniform Motion: Clarifications

This chart shows what Uniform Motion calculates they earn from each platform when an album is streamed, downloaded or purchased on CD or vinyl.

The data is from their original post: Release Day Economics. It has been standardized by displaying each transaction as a one-album unit, and converting all amounts into US dollars.

Of course, it’s not really fair to compare the earnings from streaming with those from digital sales. Sales are a one-time event, while streaming can result in cumulative earnings over time. As you can imagine (and as we shall see), it takes a LOT of streams to generate meaningful earnings.

So it won’t be easy for most independent artists to make a lot of money on Spotify. But hey, it’s not easy for Spotify to make money on Spotify (see Spotify Bleeding from Licensing Costs).

With the exception of a dip due to the name-your-price deal on Bandcamp, it looks like there is a steady increase in earnings as you move away from Spotify and towards direct sales. But there are two big pieces of data missing: volume and allocated costs.

Volume is where iTunes shines. Or as Fugazi drummer Brendan Canty said at last year’s Future of Music Conference: “God bless Apple.” Although Fugazi earns most of their money from CD sales, Brendan figured that they make 10 times more from iTunes than from all other digital sellers combined.

On to allocated costs. Without going all general ledger on you, allocated costs are expenses that can’t be attributed to a specific platform or transaction; they need to be spread over multiple platforms. Like recording, mixing, and mastering costs, which Uniform Motion detail here. Another example is the cost for digital distribution:

It costs us 35 EUR/year to keep an album on iTunes, Spotify, and Amazon (105 EUR per year for all 3 of our albums!) so we don’t make any money until 24 people have bought a digital copy of the album on iTunes, or 150 single songs, or if we get tens of thousands of listens on Spotify! In most cases, it’s actually more economically viable not to sell the music at all.

But…if you buy directly from their Bandcamp Page:

We allow people to pay what they want for the digital version. If you choose to pay 5 EUR, Paypal takes 0.37 EUR, Bandcamp takes 0.75 EUR. Uniform Motion keeps 3.88 EUR — it doesn’t cost us anything to have a page on bandcamp….However, the average price people pay is actually 2.82 euro ($3.95) which leaves us with 2.21 euros ($3.09) after Paypal and Bandcamp fees.

The highest price anyone has ever chosen to pay is 20 euros ($28). The lowest is 0.50 euros ($0.70)…If you decide to pay nothing, well, we get nothing, but at least you didn’t give money indirectly to major record labels, which seems to be the case with Spotify!!

Knowing that digital distribution costs put a dent in their iTunes earnings, it would appear from the chart that selling CDs and vinyl LPs is where the money is. It’s not. Due to minimum order requirements and other production costs, Uniform Motion has never earned a profit on these sales.

So the only transactions they can count on to be profitable are digital downloads from their Bandcamp site. As a bonus, you can get higher quality music, including 320 kbps MP3 and lossless FLAC files through Bandcamp.

Remember, this is a chart of Uniform Motion earnings: the results wlll vary for other artists with different volume and cost structures. But in general, an independent artist will end up with the biggest cut from sales made through their web site or services such as Bandcamp or CD Baby. This is easy to see from the below chart, which is based on the popular infographic from Information is Beautiful: How much do music artists earn online?

[Disclaimer: The original chart was based on data published in January 2010 by The Cynical Musician. Things change quickly, so some of the information is out-of-date. In particular, Spotify has changed their payouts, and the amounts listed on the chart seem be lower than the Uniform Motion earnings by an order of magnitude. Still, it captures the general shape of the subject and gives some context to the numbers. For an alternate take, read the commentary by Bob Lefsetz.]

For a solo artist to to earn the monthly minimum wage of $1,160.00, they:

adapted from the presentation of this data by Ryan Flynn: Selling Out

Where do we go from here?

Musicians and composers: take the online survey on artist revenue streams from the Future of Music Coalition.

Everyone: take a quick 3-question survey on how you feel about Spotify as musician or music fan.

You: go buy some music from your favorite artists on Bandcamp.

Update 10/4/2011: I asked Uniform Motion to check my work, here is their response:

Thanks, your conclusion is correct. When someone buys directly from our Bandcamp page, there’s no cost involved. However, since we have already manufactured CD’s and Vinyls, it’s best to sell as much stock as possible. Thanks for spending so much time on your article and digging up the facts.

~ Uniform Motion