Critically, when artists make a deal with a record label, they typically sign away a portion of their mechanical royalties, but not their license. Artist can even receive royalties from cover songs (although a portion of the cover’s royalties must be paid to the original composer). Mechanical licenses are the most broad-ranging rights available to musicians. These encompass any form of compositional reproduction, whether it be from the sale of physical music (CDs, vinyl records, etc), or digital (purchased from iTunes, streamed through Spotify). The most relevant (and generally lucrative) licenses are mechanical licenses. Music royalties are divided into six categories, each of which delivers different levels of royalties to the artists/rights holders. Sinatra, The Beatles, and The Beach Boys were all signed to Capitol. So let’s start by breaking down the different types of music licenses.Ĭapitol Records is probably the most iconic record label & building in LA. This asset class is a bit more complex than others. And as we’ll get into shortly, despite the negative press around streaming, the prospect of owning music rights has never been more intriguing.īefore investing though, you first need to understand exactly how people make money from music rights. There are new ways for artists, record labels, and outside investors to make money from music. The 80% take rate may seem high, but it’s what makes the endeavor worth it for them.īut times have changed. (In fact, most don’t.) So while a record label may not need to hit home runs to the degree that VCs do, you better believe they need to recoup their costs. Remember that, just like with startups, not all artists succeed. In return, labels typically get 80% of album revenue, with 20% going back to the artist. It kickstarts careers and solidifies the path forward. Getting signed to a label is like plugging into pipeline. Similar to Y Combinator and other startup accelerators, they provide value, and lots of it. In a nutshell, labels pay for nearly everything except touring. They act like investment banks, but instead of giving money to the artist directly, they do nearly all of the heavy lifting. Record labels are the original music rights investors. This is why record labels exist in the first place. It has been a sought-after income stream going back decades. To be clear, ownership of music rights is nothing new. Record labels are the original music rights investors Streaming is changing the nature of songs.How much do artists earn from streaming?.Record labels are the original music rights investors.
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