Making Cents

Damon Krukowski of Galaxie 500 and Damon & Naomi writes:

My BMI royalty check arrived recently, reporting songwriting earnings from the first quarter of 2012, and I was glad to see that our music is being listened to via these services. Galaxie 500’s “Tugboat”, for example, was played 7,800 times on Pandora that quarter, for which its three songwriters were paid a collective total of 21 cents, or seven cents each.

Even with those pitiful royalty rates, Pandora lost more than $20 million dollars in that same quarter. Krukowski rightly notes the substantial changes in the music business in the last 20 years. He posits that the music business is now defined by capital, invested in companies like Pandora and Spotify, who do next to nothing for musicians. Pandora’s executives, on the other hand, have sold more than $63 million worth of shares in 2012. I can see how Krukowski feels slighted, sales of recorded media that peaked after the turn of the century were probably the high point for the music business, and today’s streaming royalties pale in comparison. Nevertheless, his theory is wrong: the music business is defined by performance and distribution and always has been. The business model for music performance has worked for hundreds of years, people have always been willing to pay to go to a concert. Distribution has been changed by technology, and shaped by a variety of different business models.

In Mozart’s day, wealthy benefactors put the musicians on retainer to perform and compose. If you didn’t have a benefactor, there was no distribution. In 1895, Ernest Hogan, a ragtime composer, published “All Coons Look Alike To Me” as sheet music and eventually sold one million copies. Radio dramatically broadened distribution, and the record companies used payola to maximize the distribution opportunity. Consumers spent billions of dollars on recorded media, including tapes, and compact disks. Today’s business models for distribution rely on digital distribution via the internet. The technology and business models have changed a lot since Mozart’s day, but performance and distribution are still the only ways to make money in the music business.