How do musicians make money

U2
was the highest-paid musical act in 2017 earning $54.4 million
according to Billboard’s annual Money Makers report. About 95% of
the group’s total earnings came from touring.
Kevin Winter/Getty Images

• The majority of an artist’s revenue comes from touring, selling merchandise,
  licensing their music for things like television, films, or
  video games, and partnerships or side businesses.
• Streaming is often thought of as
  the future of music and can provide artists with a nice source
  of income. But it isn’t nearly as lucrative for artists as
  other revenue streams.
• The future of the industry is unclear, but
  analysts are optimistic about the ability of artists to thrive
  in the emerging landscape.

There’s a common misconception
about how major musicians earn their money: In short, it’s all
about having a hit song that breaks the top 40 music
chart.

In reality, it’s more complicated
than that, and an artist’s financial success often comes from
 revenue streams outside of streaming or downloads.

“Where number of listens comes in
handy is in the algorithms and in social proof,” Zach Bellas, a
professional musician and founder of SMB records, told Business
Insider. “If an artist’s song gets some attention in its
beginning, the algorithms will suggest it to others, and as the
view and play counts rise, it will gain more authority and social
proof in people’s minds, creating a cycle that pushes the song
further into the top searches and suggested tracks.”

But, as Bellas noted, “artists have always made the bulk of their
money from live performances and touring.” And for big names in
the industry, the numbers back this assertion up.

Consider, for example, U2, which made $54.4 million and was the
highest-paid musical act of the year in 2017, according to

Billboard

‘s annual Money Makers report. Of their total
earnings, about 95%, or $52 million, came from touring, while
less than 4% came from streaming and album sales. Garth Brooks
(who came in second on the list), owed about 89% of his earnings
to touring, while Metallica (ranked third) raked in 71% of their
earnings in the same way.

“In the last several years,
streaming revenue has increased, but it is still not enough on
its own to financially support a career with longevity,” said
Erin M. Jacobson, a music-industry lawyer based in Beverly Hills,
whose work involves negotiating record contracts on behalf of
artists ranging from up-and-coming artists to Grammy-winning
musicians.

Other common sources of revenue,
according to Bellas, include sync licensing (for example, when an
artist sells the right to play their song on a T.V. show, or in a
movie or video game), and side-businesses, like fashion lines, as
well as partnerships with brands. Think, for example, of
Rihanna’s makeup and lingerie lines, or the soundtrack to your
favorite movie, or any ad campaign starring your favorite famous
musician.

According to a

recent Citigroup
report,

the music
industry generated a record $43 billion in 2017, but recording
artists saw just 12% of that revenue, or $5.1 billion, and the
“bulk” of their revenues came from touring. Music businesses,
including labels and publishers, took home almost $10 million,
according to the report, which showed that artists are still
grabbing a meager percentage of the increasing revenues in
streaming, where music labels and streaming services act as
intermediaries.

Artists also have to deal with
the issue of copyright, where revenues for their music are
further split among publishing companies, music labels, and
songwriters.  

So, despite common belief,
getting signed to a label isn’t necessarily more lucrative for
artists nowadays.

“Many artists think that they
will make more money when signed to a label, and I have to
educate them that this is not necessarily the case and explain to
them that they have to pay back all the costs the label expends
on their behalf,” says lawyer Jacobson. “Artists still think fame
and fortune is easy to come by, and that they will get high
advances, which most companies are not giving now.”

With the constant changes in the
ways people listen to music, the future of the industry, and what
artists stand to gain, is unclear.

Yet, a recent surge in music
revenue paints an optimistic picture of where the industry is
headed. According to the

RIAA

, music industry revenue has increased for
two consecutive years. That’s the first time it’s happened since
1999.