What is it worth?
We need to grasp the value of the intellectual property that we work with in the music business. When we have actual sales figures, this is easy to evaluate. If we don’t have actual release details we can estimate the “value” of a release. In a sense value is only used in an economic context here and we are not evaluating the artistic contributions of the album or song to the wider music business. We work in the music business so businesses inherently need to profit - or at the very least break even - for them to have any length of success from a corporate standpoint.
If we look at revenue as the marker for this success, we know we have several traditional revenue streams in music. Sales (digital and physical), streaming and synch fees associated with the master recording are the main revenue drivers for a label or rights holder. We know that the 2019 RIAA figures indicate that recorded music is now valued at $11.1 billion and the IFPI figures show that the recorded music business is worth $20.1 billion globally. Of this, the majority is driven by streaming services. Streaming accounts for 79% of all revenue within the United States. Physical goods (10%) and permanent digital downloads (8%) make up the majority of the remaining revenue with synch only accounting for 2% (Full Report from the RIAA is here). Note that the figures do not total 100% due to rounding.
To estimate the revenue of the IP, we can calculate what we’d expect to earn based upon known industry figures.
Streaming
As the largest driver of revenue, streaming payouts from Spotify, Apple Music, Pandora, Tidal and others are not a fixed figures. These payouts vary month to month based upon the type of stream (ad supported vs. subscription supported stream). Streaming services are even beginning to explore the option of a reduced streaming rate in exchange for more promotional opportunities on the platform. We have several reports of streaming rates from sources like artists, media (Digital Music News) and distro platforms (Ditto)
Cassettes
Cassettes offer low quantity solutions for a physical release. Typically the cassettes can be ordered in quantities larger than 50 making this a boutique product for most artists. This format does not provide significant revenue to the rights holders when compared to other formats but is valuable for many DIY artists. Estimate costs associated with manufacturing here.
CD
Once the industry standard, CDs are only a fraction of what they once were. At the peak in 2000, CDs accounted for $13.2 billion in revenue and lots of margin for each product. In 2019 the value of the CD had dropped to $614.5 million in the United States. CDs can be manufactured inexpensively and depending on the type of packaging (sleeve, jewel box, digipack, eco wallet) and quantity will cost from $1-2 per album. Estimate the costs with Discmakers.
Synch
Fees associated with licensing the master recording for use in television, film and advertising add to the synch revenue. The free market rates for synch allow for a good deal of variety in payments for the use of music. These fees will vary based upon length of music being used, the type of use, media in which the master will be used (web, streaming services like Netflix, broadcast television, film) and the territory where it is to be used. These fees can vary and Digital Music News highlights a few variables (2015 article).
Vinyl
Vinyl peaked as the top format in 1978 and was valued at $2.5 billion. As a format it declined in popularity for the next decade and had a minimal impact to the bottom line of the recording industry from 1990 to 2010 where it contributed less than $100 million in revenue to rights holders. It has been steadily embraced for the last decade and vinyl currently contributes $497.6 million in revenue to the business in 2019. Vinyl is more expensive to manufacture and distribute than the CD. Estimate costs for vinyl production at United Record Pressing or Gotta Groove Records.
Others
There are additional revenue streams for labels to exploit the music they control. This is not an exhaustive list, however it will allow you to model how much a release should earn before any royalties are paid to the artist.