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« MusicThinkTank.com Weekly Recap: Songwriting 101 & More | Main | To Indie Artists and Dreams »
Friday
Feb152013

What Does an Indie Get Paid? #1: iTunes

I’m doing my taxes this week.

If it helps you maintain my “image”, imagine I’m A.) really sad about it, philosophically pondering how Western Civilization and Capitalism got to the point that I, one whose job it is to write poems and sing them so that we can momentarily forget about these things, am sitting at a computer figuring up royalties to the .000000000000001th decimal point. (this part is actually true.) and B.) Not wearing glasses and my hair looks super cool. (this part is not true.)

I know a lot of you are also hoping that one day, you’ll be able to pay your bills making music. (Hallelujah.) So over the next few weeks,  I’m going to try to help, by filling you in on the Top 10 “interesting” (ha) things I discovered while doing my taxes. Even if you make enough money that you can pay an accountant to do these things, I feel like it’s important to know what’s going on with your money, so you don’t get Leonard Cohen’d.

NUMBER ONE: iTUNES

If you put your music on iTunes via CDBaby, as I’ve done in the past, your accounting doesn’t tell you how much the websites charged for your music. You need to know that number, because the difference between that number and the amount you got paid is a fee. You are paying a store to sell your music, so it’s a tax deduction.

Now hang on, because this is going to get SUPER NUMBERS-Y, HERE.

(Edit: This section was originally wrong. I had called CDBaby.com to get some details on how the math was figured, and the guy on the phone told me wrong. Below, you can see the comment that Chris from CDBaby left to clarify. SO: the numbers have been edited to accurately reflect this.)

The report I get only tells me how much I ended up with ($0.637/song, after CDBaby’s 9% fee, if you’re wondering). I tried to come up with the simplest equation to figure out exactly how much was taken by each party. I ended up with a few that worked, but here was the simplest one:

p = original price on the store (in this case, 99.9 cents)

s = amount kept by the merchant (in this case, iTunes)

c = amount paid to CDBaby.com percentage (9% of the “post-s” total)

x = actual money that came to me ($0.637)

Since we know a few of these factors, the equation looks like this:

.999 – s – c = .637

-or-

.999 – s – (.09(.999*s)) = .637

I’ll spare you all the steps because you either don’t care, or you already know how to do this, and skip straight to the answer:

p = $0.999

s = $0.292929292865656

c = $0.063636363642091

x = $0.643434343434344

Chris from CDBaby says that iTunes takes 30%; I have it at 29.3%.

I don’t know if 30% is an estimation, or if their price is closer to 99.999999999999 cents. Either way, it’s probably not important unless you care about millionths of a cent. (Which I do, because I’m an independent musician. )

29.3% to the store feels like a high percentage, but you have to consider that most large venues take somewhere from 10 to 25% of the artist’s physical merch sales at any concert. After an album is recorded, mixed, and mastered (which, let’s not forget, costs tens of thousands of dollars) it costs me approximately $1.50 to print up a CD, and $4.50 to print up a vinyl record. It costs me approximately $0.00 to print up more iTunes copies.

What I’m saying is that 29% feels like a rip-off, but not as big a rip off as 15% of my physical merch feels. (I’ll go into profit margins of physical merch in a later entry.)

—–coffee break—– 

I want to go back and revisit something. I set the price of a track in iTunes to 99.9 cents a minute ago. That’s because I noticed that I was being paid $0.637 for a 99-cent song, and $6.37 for a $9.99 album. There were only two possibilities:

Scenario #1: iTunes was employing the old gasoline-prices trick and actually charging 99.9 cents per song,

OR

(Scenario #2) they were charging the artists a higher percentage to sell an albums than a single.

Scenario #1 made more sense to me, AND, when filtered through the equation, left their percentage closer to the 30% that Chris told me they took.

In case you’re curious, I ran the numbers on Amazon while I was at it, and they charge almost exactly the same. I have them at 28.5%. The biggest difference is that they sell my album for $1 less, so I make $5.92 per album instead of $6.37.

If you’re willing to shop outside the “usual” places, you’ll find stores that give artists a bigger cut. CDBaby recently dropped to a 9% charge for digital if you buy straight from their site. Bandcamp takes 15%. But some people will only buy music from iTunes or Amazon, so taking it down from there would mean a net loss, even though it feels like a lot of money to pay for the privilege of being there. 

(DEEP BREATH)

Those of you that have never seen Office Space are probably wondering why I would be digging in to figure out discrepancies that amount to $0.009/album.

And you might have a point. It’s probably curiosity more than anything. It’s not going to be the difference between forced retirement and buying a house; but it’s important for me (and you) to know that for every $1,000 that ends up in my pocket from sales on iTunes, you guys were charged APPROXIMATELY …..$1,554.1603198653830

Think about that for a sec. When you buy music on iTunes, even for artist not dealing with the various legalities/expenses of being on a label, iTunes gets more than half as much as the artist.

If you’re asking me where to buy music (You’re not, I know.) I’d first say buy my music however you like. I’m just happy you’re still buying songs. (THANK YOU.)

But if it’s important to you that the artist get the biggest percentage of the price, CDBaby.com takes the lowest amount at 9%. Those links are all here:)

Later this week, we’ll look at Spotify, Tour Income, Cost of Merch, Profit Margins, How to Budget a tour, and whatever else pops up.

If you are still reading at this point, I wonder what went so right in your life. I’m proud of you. YAY MATH. 

 

Levi Weaver is an independent artist and plays as a one-man band with his loop pedals, dual mics, and a violin bow which he occasionally takes to his guitar strings. But more than anything, he is a story-teller. Levi is currently at home in Nashville working on the follow-up to 2011’s The Letters of Dr. Kurt Gödel and 2012’s I am Only a Tiny Noise; the new album is anticipated to drop in 2013. Read more from Levi on his blog here, follow him on Twitter @leviweaver or join him on Facebook.

Reader Comments (18)

CDBaby takes a low percentage, but they also make you pay a fee upfront. I would take a look at RouteNote which offers both a Free and Premium option.

February 15 | Unregistered CommenterAdam

Great article, really insightful for stats lovers like myself !

But when reading you (and quite a bunch or articles on the same subject) it looks like most people simply settle for the lesser of evils. If you want to make the bet that iTunes & Amazon aren't the be-all and end-all of digital music sales a platform like official.fm cuts a much fairer deal for the artist : 100% to the artist, minus $5 if he makes more than $30 in a month.

Of course there is an idea of "prestige" and exposure attached to being on iTunes & Amazon, but the emergence of platforms like bandcamp, souncloud, and official.fm, tends to push the point that a lot can also depend on how active an artist is in promoting his tunes himself...

Disclosure : my day job is at official.fm, a place where we tend to think current revenue models don't really have the artist at heart :)

February 15 | Unregistered CommenterYannick Servant

Your math is incorrect. iTunes takes a straight 30% regardless of the cost of the track or album. Anything else is coming from your distributor.

February 15 | Unregistered CommenterCorrection

Nice stuff Mathboy!

I don't want to detract from the excellent point you're making. That Itunes charges 36% to sell your stuff.

However, I'm curious about your time/money rational. With CDBaby, they send your digital stuff all over for sale. And since the "inventory" doesn't exist, does it really matter that we take such a big hit on the sales? At least for us DIY guys? I'm cranking out a fair amount of recordings, play a lot of gigs and have more going on in a day that I can possibly hope to get to. I suspect that I'm not the only one who doesn't have the time or inclination to direct upload to several services every time I put out a record.

I'm curious as to how much product you sell online as compared to live. I sell much more live than I do online. I suspect that's common. As such , I look at the online sales: physical, digital (albums and tracks), and streams as "bonus" money. And from those revenue stream, I'm far more interested in getting more money from streams than anything else because I, (and I'm going to guess you too) get a lot more of those than anything else.

I've got one sold out record (physical). All the digital income that keeps coming in from that record is sweet. I love it. "Bonus" money. I'm on track to sell out another physical CD this year.

I've learned to to try and keep production costs low, run an inventory that I can actually sell and still turn a profit. Even if it's a small one. That way, all the digital income is pure profit and any licensing is pure profit. Throw in publishing revenue from broadcasts and performance and it's a nice little chunk of change; after you move 100-200 records. And that's a low price point.

Granted, adding 36% back into all those sales would help the bottom line a great deal. But I only move a small amount revenue through Itunes. At what point does the money really become worth the time? Is it really about maximizing every sale, or just maximizing sales? Percentages matter, pennies matter; but is our time better spent getting more pennies from Itunes and every other digital Point of Sale, or is it better spent getting more fans and creating more music for them to buy?

February 15 | Unregistered CommenterNoah Peterson

Thanks for posting this - just as a follow-up, this blog post has since been edited to reflect a slight change in math. When I called CDBaby.com to ask them if the $0.637 was BEFORE or AFTER their cut, the guy in customer service said it was before. Chris from CDBaby was kind enough to later get in touch and let me know it was the other way around.

The updated version, with the correct math is here:

http://leviweaver.com/2013/02/04/what-does-an-indie-get-paid-1-itunes/

thanks!
-Levi

February 15 | Unregistered CommenterLevi Weaver

Just a quick heads up; this is the first version of this post... there is some incorrect math here that I have since edited (original version is here: http://leviweaver.com/2013/02/04/what-does-an-indie-get-paid-1-itunes/ )

In short, when I first called CDBaby, the customer service guy told me that the $0.637 was BEFORE they took their cut. After I posted this article, Chris from CDBaby.com commented to let me know that $0.637 is the amount I was paid AFTER their 9%.

This tweaks the numbers a little, so if you want to get the updated (accurate) figures, they're up on that blog link.

Thanks, everyone!
-Levi

February 15 | Registered CommenterLevi Weaver

I *always* think of Office Space when I'm looking at my reports!
I like it when people get numbers-y - glad I'm not alone.
I love cdbaby too. Have used them for years, and don't foresee changing that.

February 15 | Unregistered CommenterKim Jarrett

Well.... I agree...perhaps iTunes charges too much,
but at the end .. I spend around $10000 on iTunes buying music created by guys like you so I paid to musician around $6000. Without iTunes I'd use torrents perhaps as many of my friends. There were no alternative to itunes several years ago. Now you can buy music from Amazon or ours Google Music but I believe everybody charge you more or less the same amount and most people buy at iTunes so ...

February 16 | Unregistered CommenterDrewG

Hey Levi,

I appreciate the spirit of the article. Been there myself! But I question the entire premise.

Just report what CD Baby pays you as income. You don't have to worry about what it was sold for at retail minus fees.

Seems to me you are making this a lot harder than it needs to be! :)

Brian.

February 16 | Registered CommenterBrian Hazard

Thanks for shared info. How bout the distribution fees? Is it true that for streaming service,
200x streaming equals to 1 full-track download?

February 16 | Unregistered CommenterAnton Kurniawan

Hi:
I agree with Brian. What you are receiving isn't a royalty, it's a sale. Even though digital download sales are physically less visible, it is just the digitized version of a music sale. Royalties are from intangible intellectual property, like songwriting and publishing royalties. If you sold a CD for $10 through a distributor, and the distributor takes $3 and you keep $7, your $7 is not a royalty, it is the net proceeds from the sale of the CD. So report your digital sales as part of your gross receipts, then deduct the cost of doing business (expenses like the fee you paid CD Baby or the cost of printing your CDs/records in that tax year). Report your royalties separately on your taxes.

(I have business tax experience but I am not a tax professional. So check with one if you need help!)

February 16 | Unregistered CommenterElectrotype

The author obviously means well, but...this is a silly article. You don't need to report taxes on what a CD/download/vinyl album/tee shirt SOLD for. You only report how much you personally make from it. If Metallica was being paid $1 for every copy of the Black Album, would they have to report on their taxes $18.99 per album or whatever the CD was selling for? Think about it. To eliminate confusion, I would suggest taking this article down.

February 17 | Unregistered CommenterHorace Copes

Personally, I think the services are worth what they are in terms of things I don't have to do. If all I have to do is collect money then I really don't get the point of this article either. At the end of the day %30 percent of 9% is okay with me. It saves me time as a Owner/Artist, which allows for me to create more content to sale. Would I like to see all of my money? Yes. Am I going to complain because my music is selling? No.

February 18 | Unregistered CommenterM.A. Cee-Kings

Good article, but for most of us it's doubtful that we'll get rich at it. It's nice to make some money selling our music (regardless of where the non-negotiable profit decimal point lies) and to know that others appreciate what we create, but when you figure in what it costs you to generate sales (DIY recording gear, production of cd's, etc., promotion, upload fees and so on) you can obviously understand that it might be more realistic to consider all of this to be more of a fun and serious hobby than a way to make a living. Keep what you do in perspective... You'll enjoy the ride more.

February 23 | Registered CommenterChristian Stone

There can't be anything, that's legal money, be less than 1cent. So when they figure royalties, anything that's less than 1c., can't be added. You can't buy anything with .000000001 of a cent!!!! So, until songwriters and artists, make some noise about this nonsense, THE BEAT GOES ON!!!! for them, not for U!!!!

Late comment, but possibly of interest to anyone searching on this subject (as I was):

Subject to not knowing the exact terms Levi has signed up to, I disagree with Brian, Electrotype and Horace Copes.

Electrotype is correct that the payments Levi receives are not royalties, but the content stores such as iTunes (and aggregators) generally frame their terms and conditions such that the artist or content developer sells (actually licences) their content directly to the end user and the stores merely facilitate the sale. Thus, the price the end user pays is the gross income of the artist and the fees charged by iTunes and aggregators are tax deductible costs for the artist. This is different from the wholesale/distributor example where the artist sells a physical product to a distributor who in turn sells it in his own name to an end user. Therefore, Levi's approach to tax returns is probably correct if CDBaby operates in the same manner as described here.

I think it would be as Brian et al. describe if the artist was signed to a label. In that case the label would sell the content (e.g. via iTunes) to the end user and pay a royalty to the artist. Thus, the artist would only need to account for the royalties he received.

Of course, anyone unsure of their particular situation should check with his or her accountant or other tax advisor.

October 30 | Unregistered CommenterRob

It must be nice making money off your music. I've been trying to sell my music for around 13 years and have just made peanuts. They sure like to download it for free though, but won't even donate a dime for the music! I write in the Rock genre and Jazz genre.I don't play live, but that shouldn't matter that much. Like I said, they are more than willing to grab it for free! I have my music on Bandcamp, but haven't made a dime as of yet, but they sent out an email to all artists that they have made $50 million dollars from indie artists sales!! From reading your article, it's sounds like the same crap that the record labels pull on there artists! You have to also remember that a lot of those music sites run ads and make thousands of dollars from that each month. A guy that use to work for one the music sites put out an article some time ago, and he mentioned that the site he worked for, took in $20 Thousand dollars per month off ads. The idea is to get indie artists to upload there music to there site for free and then when music searchers come to there site, it ads up as a unique visitors, which is a must in order to get ad revenue from companies.If they sell music on the site, that is extra income and they still will want a 30% percent cut of artists sales + deductions...In my opinion, it's almost impossible to sell music on a personal web site! I don't think people feel secure buying music that way.

November 14 | Unregistered Commentermusic Guy

It all depends on how good ur music or song is ; a hit song can be sold by iit self a rip off song need ads nd video clip to promote!

March 11 | Unregistered CommenterTtup

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