The MP3 Economy – How Your MP3 Dollar Is Divvied Up

By | June 22, 2003 at 12:00 AM

The going rate for downloading songs from online music services like Apple’s iTunes Music Store, MusicNet, Pressplay, and Rhapsody is about $1 a pop. Yet the economics of recorded music sales haven’t changed much since the vinyl era – despite the fact that digital files cost very little to produce and distribute. So how much of your buck makes its way back to the artists? Not much, though it’s clearly a better deal than they get from piracy.

The Site’s Cut – 40%

The biggest chunk of your dollar goes to the online music provider. This explains why sites like Rhapsody can offer promotional discounts: When you buy a song for 49 cents, the site sacrifices its profit but the label still gets paid.

The Publisher’s Cut – 8%

This sliver goes to the music publisher in the form of “mechanical royalties,” the amount paid to license the written music. While other fees can vary from artist to artist, mechanical royalties are always a flat-fee transaction.

The Label’s Cut – 30%

The record company receives “performance royalties” that are paid to license an actual recording (not the written music). That explains why some performers, like alt-rocker Aimee Mann, run their own labels – it allows them to keep a larger share of these royalties for themselves.

The Middlemen’s Cut – 10%

A small portion is reserved for various other intermediaries. Sites like Liquid Audio, MusicNet, and Rhapsody often sell their services through secondary distributors like Amazon and AOL, so they, too, get a cut.

The Artist’s Cut – 12%

Twelve percent is average, but successful bands often hammer out better contracts. In many major-label contracts, charges for “packaging” and promotional copies are subtracted from the artist’s cut, leaving the talent with a measly 8 percent. BMG, Universal, and Warner have announced plans to do away with such deductions for digital downloads.