Money Matters – A New Report on How Money is Made in Music

Is copyright law effective in achieving its intended purpose of incentivizing creativity? Professor Peter DiCola of Northwestern University Law School is the author of an interesting new study, Money from Music: Survey Evidence on Musicians’ Revenue and Lessons About Copyright Incentives.

Professor DiCola once named Sufjan Stevens’ Illinois album as the best album of the prior decade. ( Professor Peter DiCola showed perfect judgment in that regard. So I pay attention to his work.

In the course of the study, thousands of musicians (including performers and composers) were surveyed in order to try to determine accurately how musicians earn revenue. After all, our copyright system under Article I, Section 8 of the U.S. Constitution is based on financial incentives, rather than on copyright being a natural right of creators. Knowing with precision if and how the copyright system pays off (literally) for the creators of works should be useful in determining future copyright law policy.

The study showed, for example, that only 6% of revenue came from sound recordings. 22% came from teaching. The study concludes that “Rather than providing marginal incentives to create to all musicians at all times, copyright law mostly affects the revenue of the highest-income musicians in a direct fashion.” That’s not really surprising. Based on my empirical observations in the field, the number of musicians (not speaking of percentages) making enough money from music to live relatively well is small and getting smaller.

It’s true that musicians are incentivized by all sorts of things other than money including fame, men, women, immortality, ego, and, unfortunately, easy access to illegal substances. However, money matters, too. For some musicians any one of these other “incentives” might be enough to encourage the creation of music, but without a trust fund, how to sustain a career in music? (Excepting the old joke, “Question: What do you call a drummer without a girl friend? Answer: Homeless”.)

Importantly, if the companies that help fund, produce, and distribute music can’t make money, it’s all the harder for the individual creators. The whole food chain from musician to music retailer needs to be rewarded and healthy. Without support from record companies many musicians never get the chance of a well-promoted album or a second album after a first-time record release. Critically, in the weakened ecosystem, labels and music publishers can’t or don’t provide anywhere near as much additional advance money against future royalties to support bands. I’ve seen firsthand that a few thousand dollars from one of my record company clients can go a long way in making a live tour possible and otherwise extending a band’s career.

New technology and new models have opened up amazing opportunities. How can the opportunities turn into revenue for all participants in the business of music? If the current and ever-changing music business environment teaches anything, it’s that many different models and alternatives exist. There is no one way to be a successful music company or to be a financially rewarded musician. With the financial base of the music business becoming smaller, the disintegration of so many large and indie labels in turn causes many musicians to go to their “Plan B” (especially if the musician has music school college loans to pay off). Although technology has made it ever easier to create and to distribute, making money as a record company or as a musician is, I’ll submit, a lot harder today.

Professor DiCola seems to recognize this aspect, writing, “Another way to think of the relationship between these revenue sources and copyright law is to consider the institutions of the music industry. If copyright law is necessary for record labels, music publishers, PROs [Performing Rights Organizations], and other music-industry intermediaries to exist, and if these intermediaries create opportunities to earn revenue and increase consumer demand for music, then copyright would be responsible—indirectly—for supporting live performance, merchandising, and other revenue. I am not necessarily arguing that this is the case. A survey about musicians’ revenue cannot resolve the complicated microeconomic questions embedded in the question of what music-industry intermediaries do for consumer demand.”

I’ll argue that capitalism works in the music business. Copyright works. It’s no coincidence that the rise of US and UK music hegemony occurred when copyright protection was high (even if the copyright protection was really de facto — that the public lacked the Internet and Bit torrent, etc. and that unauthorized copying and worldwide distribution was difficult). Incentives result in permitting creators to have the time, facilities, tools, and ability to create and distribute. Professor DiCola says the study will continue. Better data may well inform the debate about the future of copyright so that a better functioning music business will benefit musicians, the music companies, and music fans.

In February 2015, our colleague and friend, partner Mark Fischer, passed away. We have made his blog posts available in honor of both his nuanced and wide-ranging knowledge of intellectual property, new media and entertainment law and of his entertaining style. Please read our tribute to Mark in the firm’s Alumni Spotlight publication and his obituary in the Boston Globe.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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