Yesterday I woke up to the news that MUSICA will be closing shop officially on the 31st of May 2021 after 29 years in business. For those of you who are not familiar with Musica, they are (were) a major music retailer of CDS’ and DVD’s in Southern Africa.
When I was scrolling though the comments sections of one of the most popular forums online, I noticed that most people were critical of Musica’s inability to move with the times (Which makes sense).
Online seems to be pretty much the only avenue to sell music for artists, BUT are digital music sales profitable?
Let’s Do the Numbers
During the Compact Disc era, music stores provided value by displaying CD’s on their shelves and this made things easier for the labels and artists because consumers could easily walk in and purchase your product.
Now I’m going to give you a hypothetical example. Let’s say you were signed to your own record label and had direct-distributor deal. The deal with your distributor is 20% of the profits, the retailer keeps 30% and you/the label keeps 50%
CD Manufacturing cost per unit @ R12.00
Retail CD price: R90.00
Retailer Fee: R27.00
Distributor Fee: R18.00
If you were to sell 1000 units, you would receive R45000 in royalties based on my above example. Your gross margin is 86%. But of course, there are other expenses such as marketing, shipping costs that you should take into account.
Digital Music Sales
The internet has made it easier for any artist to release music to a global audience. However, because the barrier to entry is so low, making money via digital music sales is quite a challenge and a half.
Most digital distributors will allow you to keep between 18-100% of your royalties – On paper that seems very lucrative but in reality not so much.
According to Business Insider, a South African artist would need about a million streams in order to earn $3800 (R52 000) on Spotify.
That’s about $0.0038 (5c) per stream on Spotify. Now let’s compare that with the previous example I gave you earlier on CD’s.
Say you have 1000 streams, which means you would earn $3.80 (R57.55).
In order to scale and reach high numbers, you would have to invest in radio plugging, marketing and building a team to help you reach your goals.
To sum things up, digital music sales are not profitable until you reach a million streams and up. It’s a tall order; however as Independent your initial goal shouldn’t be money but exposure which can eventually lead to money.
If you think you will rely on digital sales in order to make a living, you will be setting up yourself for failure and disappointment.