How Does the Music Industry Work?

Music Industry

The music industry is a vast and complex ecosystem that involves a wide range of players, from artists and songwriters to record labels, distributors, and managers. It operates across several interconnected segments, each playing a crucial role in creating, producing, marketing, distributing, and monetizing music. To understand how the music industry works, it's essential to explore its key components, the revenue streams, and how various entities interact to shape the global music landscape.

1. Creation: Artists, Songwriters, and Producers

a)????? The foundation of the music industry lies in the creative process. Artists, songwriters, and producers are the primary creators of music.

b)????? Artists are the performers who bring the music to life, whether they are solo musicians, bands, or vocalists.

c)?????? Songwriters compose the lyrics and melodies for the songs. Sometimes the artist writes their own material, while other times, they work with professional songwriters.

d)????? Producers are responsible for overseeing the recording process. They work closely with artists and sound engineers to shape the sound, choose instruments, arrange the music, and ensure that the final product meets artistic and technical standards.

e)????? This phase also involves studios, where the actual recording takes place, and engineers who handle the technical aspects of recording, mixing, and mastering music.

2. Publishing: Music Publishers and Copyrights

a)????? Once music is created, it must be protected through copyright laws. This is where music publishing comes in. Publishers are companies or individuals who manage the copyrights to songs, ensuring that songwriters and composers get paid whenever their work is used.

b)????? Music publishing involves granting licenses for the use of a song in various formats (such as streaming, radio play, or movies) and collecting royalties on behalf of the songwriters and composers.

c)?????? Copyrights protect the intellectual property of the music. A copyright gives the owner exclusive rights to reproduce, distribute, and perform the work.

There are three main types of royalties:

1)????? Mechanical royalties, earned from the reproduction of music, such as streaming, downloading, or CD sales.

2)????? Performance royalties, generated when a song is played publicly (radio, live performances, TV).

3)????? Sync royalties, earned when music is used in visual media, like films, TV shows, or advertisements.

Music publishers play a vital role in negotiating licensing deals, protecting copyright, and ensuring that artists and songwriters are fairly compensated.

3. Recording: Record Labels and Deals

a)????? The next step in the process is the recording and commercialization of music. Record labels are at the heart of this process.

b)????? Record labels are companies that sign artists to contracts, finance the recording of albums, and handle the marketing, promotion, and distribution of the music. They typically offer record deals to artists, which outline the terms of production, royalties, and revenue sharing.

There are two types of record labels:

1)????? Major labels (such as Universal Music Group, Sony Music, and Warner Music Group) are multinational corporations with vast resources and global reach.

2)????? Independent labels (indie labels) operate on a smaller scale but often give artists more creative freedom.

Record deals usually fall into three categories:

1)????? Traditional deals, where the label covers all costs but takes a significant percentage of revenue (sometimes up to 85%), leaving artists with a small royalty share.

2)????? 360 deals, where the label invests in multiple areas of an artist’s career (music, touring, merchandising, etc.) in exchange for a percentage of income from all these sources.

3)????? Distribution deals, where the artist handles the creative and financial aspects, but the label provides marketing and distribution services, taking a smaller cut.

4. Distribution: Getting the Music to the Audience

a)????? After music is recorded, it needs to be distributed to the public. Traditionally, this was done through physical sales of CDs or vinyl records, but in today’s digital world, most music is distributed online.

b)????? Digital distribution involves platforms like Spotify, Apple Music, Amazon Music, and YouTube. These streaming platforms dominate the industry, allowing listeners to access millions of songs instantly.

c)?????? Physical distribution still exists, particularly for niche markets, collectors, or specific genres, but its role has diminished significantly.

d)????? Distributors act as middlemen between record labels and the platforms or retailers that sell or stream the music. They make sure the music is available in all markets and often negotiate placement on playlists and store shelves.

5. Marketing and Promotion: Reaching the Audience

a)????? Once music is available, it needs to be promoted to reach its audience. This involves a variety of strategies, including:

b)????? Social media marketing (Instagram, TikTok, and YouTube) is crucial in modern music promotion. Artists often build personal brands and engage with fans directly.

c)?????? Radio play remains important, especially for mainstream hits. However, the rise of streaming has shifted the industry’s focus away from radio.

d)????? Playlists, particularly on Spotify and Apple Music, are incredibly influential. Getting a song on a major playlist can dramatically increase streams and revenue.

e)????? Publicity involves interviews, appearances on talk shows, and press releases to generate buzz about a new release.

f)?????? Record labels usually handle the bulk of the marketing, but many artists, especially independent ones, manage their own promotional efforts, often using platforms like Instagram, TikTok, and YouTube to build their brand and grow their audience.

6. Revenue Streams: How Artists Make Money

Revenue in the music industry comes from a variety of sources, including:

1)????? Streaming: Artists earn revenue every time their music is played on platforms like Spotify, but the payouts per stream are often very low, requiring millions of plays to generate significant income.

2)????? Sales: Though physical sales are in decline, artists can still earn money from selling CDs, vinyl, and digital downloads.

3)????? Live performances and touring: Concerts and tours are one of the biggest revenue generators for artists, especially in a world where album sales have decreased. Revenue comes from ticket sales, merchandise, and VIP packages.

4)????? Merchandising: Selling branded merchandise (T-shirts, hats, posters) can be a significant source of income, especially during tours.

5)????? Sync licensing: Licensing music for TV, films, video games, and advertisements can provide artists with substantial income, especially for established songs.

6)????? Publishing royalties: As mentioned earlier, songwriters earn royalties whenever their music is played, reproduced, or performed.

Artists often face challenges in seeing a large portion of this revenue, especially if they are signed to a traditional record deal, where the label takes a significant cut. Independent artists may have more control over their earnings but bear the costs of production, marketing, and distribution themselves.

7. Management and Legal Support: Guiding the Artist's Career

a)????? Behind every successful artist is a team of professionals guiding their career.

b)????? Managers handle the day-to-day business operations, from booking gigs to negotiating deals with record labels. They often take a percentage of the artist’s earnings, typically between 10% and 20%.

c)?????? Booking agents specialize in securing live performance opportunities for artists, ensuring they get exposure and income from tours and shows.

d)????? Lawyers play a crucial role in negotiating contracts and protecting the artist’s intellectual property, ensuring that deals are fair and that the artist retains ownership of their work where possible.

Conclusion: The music industry is a dynamic and multifaceted network that blends creativity with business. From creating and recording music to promoting and distributing it, each stage involves various players who contribute to the final product we hear. With streaming becoming the dominant force in how music is consumed, the industry continues to evolve, and artists, labels, and distributors must adapt to new technologies and trends to thrive. The key to success in this industry lies in understanding both the creative and business sides, ensuring that artists can build sustainable careers while their work reaches a global audience.

India's music industry

The?Indian Music Industry (IMI)?is a trust that represents the?recording industry?distributors in?India. It was founded on 28 February 1936, as?Indian Phonographic Industry (IPI). It is the 2nd oldest?music industry?organisation in the world that was involved in protecting?copyrights?of?music producers?and supporting growth of music?entertainment industry. In 1994, it was renamed as Indian Music Industry (IMI) and represented India at the?International Federation of the Phonographic Industry?(IFPI). It is also registered with the West Bengal Societies Registration Act. All major music labels in India are part of this association. The Indian music industry is largely dominated by?Indian film?soundtracks, which account for nearly 80% of the country's music revenue, followed by?Indi-pop.?As of 2014, the largest Indian music?record label?is?T-Series?with up to 35% share of the Indian market, followed by?Sony Music India?(the largest foreign-owned label) with up to 25% share, and then?Zee Music Company?(which has a partnership with Sony).?As of 2017, 216?million Indians use music streaming services such as?YouTube,?Hungama,?Gaana?and?JioSaavn.?T-Series has the world's?most-viewed?and the second?most-subscribed YouTube channel. India's music industry is made up of several parts, including the formal sector, the informal sector, and the music value chain:?

1.?????? Music value chain: The music value chain starts with songwriters, composers, and singers who create the music.?They then assign the rights to the music to a producer, who may commission the music and lyrics.?The producer then assigns the rights to a music label, which can use the music in movies and videos.?Streaming platforms get permission to use the music and allow people to listen to it online.?

2.?????? Formal sector: The formal sector includes music publishers and major record labels.?

3.?????? Informal sector: The informal sector includes local bands, street performers, and independent musicians.?In 2022, the informal sector was worth an estimated trillion Indian rupees, which was larger than the formal sector.?

4.?????? Partner industries: The partner industries to the recorded music industry include television, radio, events, film, and audio OTT.?A large portion of the business of these partner industries is tied to music.?

India's music industry is primarily governed by the Copyright Act.?However, there are differing viewpoints on the applicability and quantum of the act, which has resulted in low compliance.

Structure of the Indian Music Industry: With its primarily young, rapidly growing population — currently at 1.4 billion — many music professionals are now looking to India as the music industry’s next great frontier. The revenues of the Indian music industry are on a rapid rise for the last few years — primarily driven by the country's growing online population. However, India’s massive film industry still plays an outsized role in the music business — with?80% of the country’s music revenue?reportedly generated by soundtracks for Bollywood films. That is for various reasons, which we'll explore down the road — but for now let’s start with a couple of quick statistics to underline the structure of the market and get everyone on the same page.?

Indian Media & Entertainment industry: Each year, 20,000 to 25,000 original songs are made by over 40,000 music creators in India (this excludes remixes and music by the unorganized sector). Music is integral to streaming, films, television, radio, gaming, and social media. It helps generate over INR12,000 crore of revenue in India, which is around 6% of the?Media and Entertainment?industry Indian songs are amongst the most popular in the world - they hold seven spots on the Top Ten YouTube Global Charts for 2022. In addition, they are the most streamed artists on YouTube in seven of our neighbouring countries, a testimony to the soft power of Indian content India’s music business is primarily governed by the Copyright Act. However, divergent court decisions have resulted in differing viewpoints on its applicability and/ or its quantum, resulting in a market which has little awareness thus a low compliance. Of the INR12, 000 crore (US$1.5 billion) generated by music, recorded music revenues of labels have crossed INR2, 500 crore (US$312 million) in 2022, while music publishing revenues will approximate INR884 crore (US$100 million) in 2022-23. However, India’s global revenue ranking is far behind other developed markets.

Reality of Indian Music Industry

1.?????? Subjectivity of Song Appreciation: While listeners have diverse opinions on what makes a song memorable—lyrics, music, or vocals—ownership and rights in the music industry are not subjective. These aspects are governed by structured legal frameworks, particularly copyright laws.

2.?????? Understanding Copyright in Music: Copyright laws determine who the "owners" of a song are, and this isn't merely based on artistic contribution. Different stakeholders—lyricists, composers, and producers—each have varying rights to the song depending on contractual agreements.

3.?????? Multiple Components in a Song: A song involves several layers of creative contributions: lyrics (literary work), music (artistic work), and the final production. Each component is copyrighted separately, and these rights are typically assigned to producers who commission the work.

4.?????? Role of the Producer: Producers commission both composers and lyricists and subsequently gain the rights to the final piece. They are responsible for consolidating the rights from individual performers and assigning them to a music label, which controls future exploitation of the song.

5.?????? Music Labels Control Exploitation: Once a producer assigns rights to a music label, the label has complete authority to use the song across various platforms, including mediums that didn't exist when the original contract was signed, such as streaming services. Artists like A.R. Rahman, despite creating the original work, may not have control over future versions, as seen with "Masakali 2.0."

6.?????? Amendments to Indian Copyright Law (2012): The 2012 amendments mandate that even if the copyright is assigned, the original artist must receive royalties whenever their work is used. However, many labels exploit loopholes in the law through creative contracts, like offering “Advanced Royalties” that clear them from future obligations.

7.?????? Issues with Royalty Sharing: The term “payment of royalties on an equal basis” in Indian copyright law is vague and does not specify how royalties should be split, leading to disputes about unequal sharing of profits.

8.?????? Backdated Agreements: To avoid paying royalties as per the 2012 amendments, some labels have created backdated contracts, exempting them from applying these rules to agreements signed before the law took effect.

9.?????? Role of Performing Rights Societies: The Indian Performing Rights Society (IPRS) allows artists to register their work and claim royalties on their behalf. However, the system has its own set of challenges and inefficiencies, which will be explored further in subsequent discussions.

10.?? Artist Exploitation Continues: Despite legal protections, many artists are still unfairly treated in terms of their rights and earnings, with contracts skewed in favor of producers and music labels. The Indian music industry needs better enforcement of copyright laws to ensure fair compensation for creators.

How Does the Music Industry Make Money?

1.????? Streaming Revenue

a)????? Platforms like Spotify, Apple Music, and YouTube pay artists and record labels per stream.

b)????? Payouts are typically small, so high volumes of streams are required to generate significant revenue.

2.????? Physical and Digital Sales

a)????? Artists earn money from selling physical copies of albums (CDs, vinyl) and digital downloads on platforms like iTunes or Bandcamp.

b)????? Although physical sales have declined, vinyl has seen a resurgence among collectors.

3.????? Live Performances and Touring

a)????? Concerts, tours, and live events are major revenue sources, especially for big artists.

b)????? Income is generated from ticket sales, merchandise, VIP packages, and sponsorships.

4.????? Merchandising

a)????? Selling branded merchandise (T-shirts, hats, posters) at concerts, online, or in retail stores is a significant income stream.

b)????? Artists often capitalize on their brand and image through merch sales.

5.????? Sync Licensing

a)????? Music is licensed for use in TV shows, movies, commercials, and video games.

b)????? This generates royalties or one-time fees paid to the artist, songwriter, or record label.

6.????? Publishing Royalties

a)????? Songwriters earn money through mechanical, performance, and sync royalties.

b)????? These royalties come from song usage on radio, streaming, live performances, and media syncs.

7.????? YouTube and Social Media Monetization

a)????? Artists earn money through ad revenue from YouTube music videos.

b)????? Content creators using songs in their videos can also generate royalties for the artist.

8.????? Brand Partnerships and Endorsements

a)????? Artists often partner with brands for endorsements or promotional campaigns, earning fees or shares of sales.

b)????? These deals help artists expand their income beyond music alone.

9.????? Crowd funding and Fan Support

a)????? Platforms like Patreon or Kickstarter allow artists to raise money directly from fans for projects, tours, or releases.

b)????? This model provides a direct revenue stream from the artist’s fan base.

10.? Performance Royalties

a)????? Collected by performance rights organizations (PROs) like ASCAP, BMI, or PRS.

b)????? Artists and songwriters earn royalties whenever their music is played publicly, including in restaurants, bars, or retail stores.

These combined revenue streams help sustain the industry, although their relative importance can vary depending on the artist's reach and business model.

CA Harshad Shah, Mumbai [email protected]