The New Economics of the Music Industry

The economics of the music industry has been radically changed in the past two decades or so. Ever since the internet became a reality, music could be shared for free. The entire industry faced the onslaught of the latest developments in web technology. Companies like Napster encouraged piracy and allowed users to download and share music for free. People have essentially stopped paying for music since the 1990’s. Many business analysts thought this would be the end of the music industry. However, the industry has defied all odds and still continues to survive today. In this article, we will understand how companies survive selling a product which is free!

New Sources of Revenue

It is true that companies can no longer sell music to end consumers for money. However, with changing times, the industry seems to have found out new ways to monetize their product.

  • Streaming: Music streaming has now become the norm. Companies like Spotify are now the new face of the music industry. Apps like Spotify provide consumers with access to free songs. Consumers can choose to listen to these songs for free, but they will have to bear with advertisements. Instead, they could pay $10 each month and listen to their favorite music ad-free. From the producer’s point of view, companies like Spotify buy music from artists to stream on their apps. This has now become a major source of revenue for the music industry.

  • Product Placement: Music videos have also become an important part of the revenue strategy. The producers are well aware that as songs become popular, they are viewed almost as much as they are heard. Hence, they have the user’s attention and can influence them. This is where product placement is used. Music producers often tie up with brands and promote their products in the videos. Some music producers even imbibe the name of the product in the lyrics itself. Companies pay good money to the producers of popular songs and hence this has become an important source of revenue.

  • YouTube Monetization: The success or failure of a song is now gauged depending on the number of YouTube views that it has managed to garner. It is not uncommon for songs to have millions of views. YouTube allows creators to monetize their content. As a result, this also becomes an important source of revenue for music producers.

    YouTube has allowed many youngsters to bypass the record label companies completely. Theoretically, they can place their content on the web and earn revenue from the same. However, as we all know that the web is a sea of information. Hence, gaining popularity from the web without the help of any corporation is a daunting task, to say the least.

  • Licensing: Creators of songs can also license their songs to corporations for use in advertisements. This is not the source of revenue that a music company can foresee. Also, this revenue is not sizeable. Hence, this can be thought of as a windfall gain for some of the content that the producers have created. Nonetheless, this has also become another unique source of revenue for the music industry.

  • Touring: Artists and music companies also make a lot of money via tours and concerts once their songs become popular. It is true that the music can be downloaded for free. However, there are still a lot of music enthusiasts who will pay money to watch their favorite artist perform live. Music companies negotiate contracts wherein they get a percentage of the revenue that has been generated from ticket sales. It is not uncommon for artists to be on tour for the major part of the year since touring is what generates maximum revenue. Touring has become the number one source of revenue for music producers. This is because the web makes it easy for the music to spread worldwide. Hence, concerts can be held in different countries and more revenue can be generated.

  • Merchandising: Music companies also make money from merchandise sales. Some of the clothes and other items worn by the artists in the song become famous. People are willing to pay money to be able to buy similar merchandise. This is the reason why music companies often have merchandise sales at their concerts. Also, it is not uncommon for music producers to collaborate with professional merchandising firms to sell their products online.

  • Royalties: Lastly, the artists and music producers are entitled to get royalty from their content if it is played on air. This means if the music is played by music channels such as VH1 and MTV, they have to pay royalties to the producers. The same is the case with radio stations that also have to pay royalties to the music producers. This can also add up to a significant sum.

The bottom line is that even though nobody pays to buy music in the 21st century, there is still a lot of money to be made in the music industry. The revenue from selling audio cassettes and CD’s may have been lost. However, the industry has found over a dozen new sources of revenue which compensate for the loss.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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