Key Players in the Music Industry

The music industry is a multifaceted landscape with various key players, each contributing to the creation and monetization of music. They all play distinct but interconnected roles:

Artists

Artists are at the heart of the music industry as the creators of the music itself. They write, perform, and often produce their own music, depending on their role. Some of their revenues flow to the artist and subsequently to investors. The share of royalties an artist receives can vary greatly depending on their deal with the label or publisher. Independent artists typically retain a higher percentage of royalties, making them an attractive option for investors.

Licensors

A licensor is an entity or individual that owns the rights to a piece of music, whether it be a song, album, or catalogue, and grants others the right to use that music in exchange for royalties. The licensor’s importance lies in their ability to control and monetize these music rights, which can be a valuable and consistent source of income.

Licensors can be songwriters, producers, record labels, or publishing companies—anyone who owns the copyright to a musical work. The music they licence is used in various commercial activities, such as streaming services, films, television shows, commercials, and public performances. In return, they collect royalties from these uses, which are distributed to them by performing rights organizations (PROs) or licensing agencies. 

A licensor’s catalogue of music is an asset that can appreciate over time, particularly if the music continues to be used in popular media or sees renewed interest. Additionally, licensors often work with multiple stakeholders, including publishers, agents, and digital platforms, to ensure their music is widely accessible. This network of relationships can be a strategic advantage, as licensors with strong industry connections may secure more lucrative and diverse licensing deals. 

Record Labels

Traditionally, record labels have been the dominant force in the music industry, controlling the production, promotion, and distribution of music. Record labels have shifted towards a digital-first strategy, focusing heavily on streaming platforms like Spotify, Apple Music, and YouTube. They prioritize digital distribution, typically releasing singles and albums directly to streaming services.

Many record labels now offer 360 deals, where they take a percentage of not just music sales, but also touring, merchandising, and other revenue streams. This model allows labels to profit from various aspects of an artist’s career. 

Record labels tend to negotiate favourable revenue splits with streaming platforms, meaning they take a substantial portion of the income generated from streams before royalties are distributed to artists. This affects the amount of royalties available to investors.

When a song is streamed, the platform collects a portion of this revenue as its fee, primarily from subscriptions or advertising.

Over the years, the traditional role of musicians has evolved, with labels increasingly relying on data analytics to discover and sign new talent. Following that, they analyse streaming numbers, social media engagement, and fanbase growth to identify potential hit artists.

Major record labels

Major record labels, like Universal Music Group, Sony Music Entertainment, and Warner Music Group, have traditionally controlled the majority of music production, distribution, and promotion. However, with the rise of crowdfunding platforms, the dynamics are shifting. 

In a traditional major label deal, the label often takes a substantial percentage of the royalties, sometimes up to 85% of the income generated from the master recordings, leaving the artist with a smaller share. When crowdfunding is involved, investors typically receive their returns from the artist’s portion of these royalties, which can be quite limited after the label takes its cut.

Independent labels

Artists with independent labels can explore and cater to niche markets that major labels might overlook. This can result in a dedicated, although smaller, audience that supports the artist’s unique style and vision. Independent labels typically allow artists to have the final say in all aspects of their work, from the music production process to visual representation (like album covers and music videos).

Music publishers

Music publishers play a critical role in the music industry by managing the rights to songs and ensuring that songwriters and composers are properly compensated. They are responsible for licensing music for various uses, such as in films, TV shows, and advertisements, and collecting royalties on behalf of the creators. 

The three largest music publishers — Sony, Universal Music Publishing, and Warner Chappell Music — control 58% of the music publishing market.

Unlike record labels, which focus on the recording and distribution of music, publishers are concerned with the underlying musical compositions. They ensure that songs are used in ways that generate royalties, and they collect these royalties from various sources, including radio play, live performances, and digital streaming.

Producers 

Producers often receive a percentage of the royalties from a recording, known as producer points. These points can range from 1% to 5% of the revenue generated by the music. When investing in music royalties, the involvement of a produce can be a strong indicator of potential success.

A well-known and skilled producer can elevate a track’s quality, making it more likely to achieve higher royalty payments for investors. Mark Ronson’s work on “Uptown Funk” with Bruno Mars exemplifies this, as the song became a global hit, topping charts in multiple countries and generating substantial revenue from sales, streaming, and synchronization deals

Crowdfunding Platforms

Crowdfunding platforms have emerged as a disruptive force in the music industry, providing artists with an alternative deals with greater control over their music and offers fans a direct stake in their success. Platforms like ANote Music and Sonomo allow raising funds directly from fans and investors in exchange for a share of future royalties. 

In a crowdfunding model, investors typically receive detailed royalty statements that break down the revenue by source, including different streaming services. However, the percentage of revenue retained by the artist after platform fees, label cuts, and other deductions directly impacts the royalties distributed to investors. As major labels continue to take a significant cut of streaming revenue, the actual returns to investors can be limited, so you need to understand the financial dynamics at play.

Royalty Funds

Music royalty funds, such as Hipgnosis Songs Fund and Round Hill Music, focus on acquiring existing music rights with a history of stable cash flows. These funds invest in catalogues of songs that have proven their ability to generate consistent income, offering a relatively low-risk investment option compared to funding new projects

These funds have grown significantly in recent years, driven by the stable and predictable nature of music royalties. Royalty funds provide an opportunity to gain exposure to the music industry without the volatility associated with individual artist projects.

FAQ: Key Players in the Music Industry