Last updated on 7/26/20

The music industry can be overwhelming. Just like running your own business (because that’s what it is!), there are a lot of things to think when it comes to managing your enterprise. When you’re working solo and can’t afford to build a team yet, it helps to have a solid overview or plan on how you should go about making a living from your music.

As an independent artist, you have 4 general business models you can adopt to mold and build your music career around. These aren’t “official” models, but it should provide some clarity about which approach is best for you.

Although I will talk about them distinctly in their purest form, their characteristics aren’t mutually exclusive. This means you can technically incorporate different aspects of all four models at once. Certain characteristics will overlap so there’s not a black and white distinction between each model. In time, more business models for music will certainly emerge as the industry and technology are constantly evolving.

Also, this is not a discussion about musician income streams, but more of a big picture view of how to manage and grow your business.

Please Note: This blog was written more for singer-songwriters, rappers and performing artist types in mind, but it can still be applicable to producers, DJs, beatmakers, music composers or even music teachers.
 

What are the types of business models in music?

 
The distinguishing factors between these models are how you:

  • Approach monetization for your music
  • Get discovered (growing your audience)
  • Manage and distribute content

Here’s a brief overview of each model with a focus on how content is managed and distributed first. This will be followed by a breakdown of how the models approach monetization and discoverability.

Streaming / Accessibility Model

 
The music streaming model is the most popular business model we see out there for music. You can look at it as an evolved version of the old school major label model, so it could also be dubbed the “new” mainstream model. This is generally what more established artists do and what most emerging artists strive towards.

In this model, you favor making your music as accessible and available as possible on all digital and streaming platforms to remove any barriers for music discovery. A big component to get exposure for songs are playlists and leveraging social media platforms to push out free content (music, videos). Fan bases are built around social media platforms and email marketing lists, which are used to engage fans.

This model is a response to the fact that buying physical music has been on the decline over the past decade, so other income streams have become more of a priority for musicians such as live performances, merch sales and brand deals. For artists still trying to make a name for themselves, a standard day job is often needed to fund their music side hustle.

The drawback of this model is that you are in direct competition with a majority of musicians, including major label stars, on social media platforms. This highly saturated and competitive climate makes it harder for you to garner attention and build momentum.

Sales-Driven / Direct-to-Fan Model

 
In this approach, the main income stream is through direct-to-fan music and merchandise sales by limiting or restricting your music distribution to maximize the income potential. This could be done either by windowing it, making it only available through direct purchase from the artist (digital and physical).

This can be done using a platform like Bandcamp where the number of times you can stream a song can be limited so people can get a sample of the music. You can make songs or albums accessible on more streaming platforms at a later time. Or, you can decide to not make it available on any streaming platforms.

A sales-driven approach is more closed off where accessibility of your music is a threat to your ability to maximize profit. However, some musicians feel they don’t have a choice because of the unethical practices and unfair pay outs of major streaming services (like Spotify).

Online music marketing expert John Oszajca from Music Marketing Manifesto is a big advocate for this model. The intention is for artists to make a living relatively quicker, at least in theory. However, it is much more dependent on a planned out online marketing strategy and training/expertise to execute.

Part of the allure of this model is there’s less dependence on performing live in front of a physical audience, but you can still do it if you’re able to.

John is someone who falls deeper on this model, where you’re still able to raise awareness and create interest through social media ads. But you’re theoretically maximizing the ability to profit at the expense of discoverability.

Membership / Subscription Model

 
Another variation of the direct-to-fan model are membership platforms, like Patreon, where fans can become members of your private community, get more access to you as an artist and subscribe to get your exclusive content. Fans can directly support you financially by pledging a certain amount on a monthly basis, often with different pricing and tiered rewards.

Although Patreon has been around since 2013, it is a model that has not been largely adopted by musicians for a number of reasons, which I will get into later. It is the most popular membership platform, but it also encompasses a wide range of categories where music ranks as the 4th most popular category with over 14,000 music-related creators.

Even before Patreon, the idea of memberships for music has existed in the form of fan clubs that started offline. For example, Pearl Jam’s Ten Club started in 1990 and is still going strong. They offer an analog and digital version of their annual membership for their fans. Many of the rewards and perks of becoming a member are similar to what you would see in Patreon.

If you’re interested in learning more about Patreon, I wrote a Patreon for Musicians eBook where I share everything I know and learned from using Patreon since 2017.

For simplicity, I grouped membership and subscription together. You often see them paired with each other, but there are differences between the models. One is based more around community while the other is more of a transactional relationship. For example, Spotify and Netflix is a subscription-based service that gives access to content for a recurring payment.

Patreon is community-driven, but you can set up your membership to have a transactional component where a fan/member pays a set amount each month to receive new content. This is not to be confused with crowdfunding campaigns like Kickstarter or IndieGoGo, although they are similar in some ways.

For those who use WordPress as their website platform, you also have the option of using Memberful to host your membership / subscription feature on your very own website. Patreon and Memberful (owned by Patreon) basically do the same thing, except Patreon is kept separate from your website and lives on Patreon.com. You can read more about the two here.

For example, Carrie Underwood hosts her online fan club membership on her website through Sparkart.

In response to the shortcomings of Patreon, new music-centric platforms that can host a membership / subscription model have popped up. They are still in the earlier stages, but you can check them out:

Another platform a membership model can be hosted on is Facebook Groups. I’ve never seen a musician use it to host a membership with it, but it’s possible. You can learn more about it here.

Lastly, you have Bandcamp that offers a subscription function as a way of getting monetarily compensated for the release of consistent content. A subscription based model can be viewed as an extension of a sales-driven / direct-to-fan model.
 

Live Streaming / Subscription Model

 
This is a newer model for musicians that is still evolving. A live streaming model is where an artist uses a broadcast platform as the foundation of how content is distributed and monetized. With your own broadcast channel, you’re in control over the content and programming you want to share with fans.

The defining characteristic of this model is that fan engagement primarily happens on live stream, which influences other aspects of a music career. What helps with audience growth is the fact that the model is largely community-driven.

Live streaming capabilities on social media platforms have been around for years like Instagram Live, Facebook Live, YouTube Live and Periscope (Twitter), but the lack of monetization sources early on made it challenging to make a sustainable business model. I have heard of musicians making a living off donations and tips from Facebook Live, but it’s rare.

As a result, live streaming is treated more like a side hustle or marketing tool.

In 2015, a broadcasting platform called YouNow popped up to allow live streamers to earn money. Musicians like Emma McGann were able to thrive there.

However, things have changed in the past few years. Making a living off live streaming has become more feasible because of the monetization opportunities available. Platforms like Twitch have led the way to make this model more sustainable for creators. Raquel Lily and JVNA, musicians on Twitch that I follow, are good examples of this.

Even though a live streaming model is more common for video game streamers, I feel there’s a lot of opportunities for musicians to build here. Twitch is associated more with video games, but their music community continues to grow and provides an opportunity for independent artists.

Twitch is the most popular live streaming platform, but other major platforms are catching on and implementing similar monetization features to stay competitive.

For example, YouTube also can support a live streaming model as they have introduced membership / subscription features similar to Twitch like custom emojis (emotes as they’re called on Twitch). They also have their version of Twitch’s virtual currency ‘bits’ and cheers called Superchat and Super Stickers. YouTube’s Channel Membership now feels like a cross between Twitch and Patreon.

Facebook looks like they are slowly rolling out with more monetization options for live streamers and video creators with fan subscriptions and stars.

In order to qualify for these exclusive live streaming revenue sources, there are certain requirements you must meet on Twitch, YouTube and Facebook.

Even TikTok has the ability to go live and creators can earn donations (called coins).

I will focus on Twitch when discussing this live streaming model because it’s currently the standard that other platforms are imitating.
 

Monetization

 
As mentioned earlier, what differentiates these music business models is what you’re focusing on or building upon to make money.

Before jumping in, I want to touch on a commonality all these models have. It is less about profiting off the music itself and more about monetizing the brand.

Many of us are so used to the concept of music being the product that it may be hard to let go. Although you can get paid from your songs (i.e. licensing), it’s role and utility has evolved in today’s society.

Your art is a marketing tool to build brand loyalty so you can push other brand-centric products like tickets to live performances, merch, live stream subscriptions and sponsorships. The idea is to drive brand awareness and fandom through your content to the point where people are devoted and willing to financially support artists in more profitable ways than music streaming.

Your objective is to get people to invest in who you are as an artist and not just in your music alone.

In its purest form, a sales-driven model treats the music more like a product, but you are leveraging branding to build that relationship.

Music Streaming / Accessibility Model

 
In a music streaming model, independents are often at a disadvantage when competing against bigger name artists and major-label megastars. It doesn’t help that major labels have a strong influence on what songs are included in popular, curated playlists so their artists get more exposure, and ultimately a larger share of streaming royalties. This makes it difficult for independent artists to depend on music stream royalties and payouts from streaming services.

The bigger issue is that these services don’t pay out enough per stream with the payout system they use.

Generally speaking, platforms like Spotify and Apple Music calculate payouts based on total revenue they get from monthly subscriptions divided by the total number of all streams. Depending on how many streams your songs generated, or stream shares, as Spotify calls it, you get a percentage of that total revenue after the platform takes their cut.

So let’s say Spotify brings in $1,000,000 of revenue and takes 30%. This leaves $700,000 to split for all artists on the platform. If you generated 1% of all the songs streamed, you will get roughly $7,000.

Even though one of your fans may exclusively listen to your music on Spotify, their $10 monthly payment is still split among everyone else, with big-name artists getting a larger share of the pie. Definitely not fair. This means that monetizing your music on streaming is a non-factor as a good majority of independent artists will not get anything substantial to live off of as an income source.

Of course, each streaming platform pays differently and it will fluctuate. Every 1,000 streams on Spotify could pay you roughly about $4.37. For Apple Music, it’s $7.35 for every 1,000. With over a billion users, Youtube is counted as a streaming platform for music as well. The downside is for every 1,000 streams on Youtube, you would only net $0.69.

Most artists I know would be lucky to get 10,000 streams, let alone 1,000,000.

I should note that none of these music business models have music royalties as the main focus. It serves as a nice source of passive income that can grow over time with a deeper back catalog, especially if you’re a songwriter who owns rights to all your music and sound recordings.

If a music streaming model is shown to not be financially lucrative for independents, why would anyone continue to play along? By forgoing the short term income for improved music discovery, you can set yourself for potential long term success. Music streaming is about maximizing discoverability and raising brand awareness to grow an audience. The focus isn’t on generating income initially, so it’s important to incorporate a sales-driven component as you build your brand equity.

Russ is a good example of this model, releasing all his music for free through SoundCloud. In theory, you are sacrificing short term profits by making your music easily accessible everywhere online for a potential increased long term success. The songs are used to build a fanbase while offering small invitations to your brand.

In other words, you’re not making money directly from the music because it’s being offered for free. You’re removing any barriers to music discovery to make it easier to grow your audience. The music serves as a tool to attract potential monetization opportunities in the future.

In most cases, you may still sell physical music because fans will want to support you in other ways. However, artists adopting this model make money with a day job, side hustles, doing live shows or selling merchandise, rather than making money directly from music sales or royalties.

It’s about using your music and content, whether it’s on Spotify or Instagram, as a vehicle for fans to consume your brand. Your songs are not the product. The goal isn’t to get people to make money off the music, it’s to make money off your brand. Your songs bridge that gap so fans get to know you on a deeper level, which is why understanding branding is so important.

However, not everyone wants to work a day job or is willing to play the long game, which leads to the next model.

Sales-Driven / Direct-to-Fan Model

 
As the name entails in this model, you let music sales directly drive your relationship with fans.

In a sales-driven model, you are maximizing your earning potential by limiting or restricting access to your music. After all, the logic behind it is that there’s less incentive to pay for music or support an artist if you can access it for free through streaming.

The reason why many artists and record labels have been heavily impacted by this shift towards music downloads, and now streaming, over the years is that selling physical music has a higher profit margin. In addition, music sales were driven by scarcity since tapes, CDs and vinyl records were the only way to listen and discover music outside of the radio.

It wasn’t too long ago you could make at least $9 on each CD sold by charging $10 to $15 dollars for a CD that costs about $1 to press. If you compare, selling one $10 CD makes more money than getting one song streamed 1,000 times on Spotify or even Apple Music. It will also cost artists much more than $1 to generate over 1,000 streams to see the same type of return a CD would bring.

Of course, even with this model, it’s not all profit because you’ll most likely have expenses from making the music itself and marketing it to your fans/new customers.

In a sales-driven approach, you are leveraging Facebook Ads, landing pages (or squeeze pages) and email marketing to attract and nurture a loyal following to monetize directly. You can sell your music to fans with platforms like Squarespace, Shopify and Bandcamp to keep most of that money as profit.

The fact is there are true fans who will support you financially out there, so this approach is really about seeking out those people through various marketing strategies.

There’s less need to perform live so it’s great for people who have issues with travel restrictions. But remember, live performances are currently the most important income source for full-time musicians, barring any global pandemic like COVID-19, of course.

The obvious downside with this approach is you’re putting financial barriers on content that people in society are accustomed to getting for free. Also, this windowed approach to music releases is that it can hinder your potential to reach a larger audience because it’s more limited.

Membership / Subscription Model

 
In the membership model, fans pay you a monthly amount or pledge to become members of your community to receive various benefits. The highlight of this model is in the recurring, predictable income directly from your supporters that allows you to build a sustainable career.

The average amount fans or subscribers pay (patrons as they’re called on Patreon) is $6.70. Getting 1,000 people to pay you $5 a month should allow most artists to live comfortably from this income alone.

Just like in a sales-driven model, there may be some level of restricting accessibility to content like you would see in a subscription model. In that case, you may want to create content exclusively for Patreon like what Eligh does for his channel. The difference is you’re actually getting paid a set amount directly each month for your work.

In some cases, you will have to figure out what kind of extra value you can provide in Patreon that people can’t get anywhere else.

When it comes to direct-to-fan monetization, I feel a membership/subscription is the best case. The problem is it’s not easy to do as I will address in the next section.

Live Streaming / Subscription Model

 
When it comes to monetization, a live streaming model often incorporates income sources found in all the other models. However, there are some revenue sources that are exclusive to the live streaming platform.

There are three income sources Twitch offers their creators – ad revenue, subscriptions and bits (virtual currency).

Twitch allows anyone to tune in and watch any channel for free so there’s no paywall or barriers to access live content. But a 30-second ad will often display before you can see the steam. As a creator, you can get a piece of that ad revenue as an affiliate or partner. You can also press a button to show an ad to all your viewers, which you can get paid for as well.

Viewers of your live stream channel can pay a subscription fee each month to receive a set of benefits or perks. There are 3 subscription tiers at $4.99, $9.99 and $24.99. Twitch gets 50% of this money and you get the rest. If you’re a top tier creator, you get 70% of this revenue.

Bits is a form of virtual currency that fans can use to tip live streamers during their broadcast. The cost of bits will vary depending on how much you buy. There is a discount when you buy a larger amount. At the base level, it costs $1.40 to buy 100 bits. Streamers make about 1 cent per bit.

On top of this, live streaming can help with driving demand for music streaming, touring, merch and sponsorships.

It’s important to note that you have to meet certain requirements before you are eligible to earn live stream monetization. This does mean you have to become more invested and established on one platform to see the full benefits.

As mentioned earlier, other platforms like YouTube and Facebook are competing with Twitch in this space so you’ll see the same monetization opportunities but possibly different pay splits.

Discoverability / Growing a Fan Base

 
To have a successful music career, you will need devoted fans and paying customers. It’s important to understand how growing a fan base is approached in each model. There are various ways to get discovered and each of these models focuses on slightly different aspects.

Membership / Subscription Model

 
As amazing as it sounds, platforms like Patreon have a major drawback.

A membership model heavily depends on you having an established audience or fan base somewhere else in order to be successful. You would need to attract your fans from other platforms like Instagram or Facebook to financially support you on a regular basis.

However, this is not for everyone. Even with a large following, there’s no guarantee that you’ll be successful as it requires a different way of operating.

From my research, I discovered that if you execute a membership model properly, about 1% of your social media following will likely become paying members. This is a best-case scenario so a majority will see less than 1% convert.

The key distinction is that discoverability on Patreon is non-existent. It’s entirely up to you to convert your following from other platforms into patrons. To achieve this, you have to get fans emotionally invested in you as an artist and brand first, before they are willing to consider committing to a membership.

In other words, a membership model is not suitable for new or emerging artists looking for a quick payoff. It’s not going to happen. A business model that offers a recurring monthly income is very lucrative, but it will require a long time investment to build up to that point.

A surprising statistic I learned in my research is that around 70% of musicians on Patreon have less than 10 paying members. This means that a lot of artists are launching campaigns without building a sizable following first.

One big challenge is that the concept of being a member of an artist’s community and paying a subscription to a music artist is still foreign. Because of this, it can be difficult to convert people over to a membership model no matter how well known you are.

I’ve seen a number of independent artists with a large following try Patreon, only to fail and completely abandon it months later. I was involved once with such an artist.

On the other hand, I have also seen a membership model executed successfully. I helped Eligh launch and manage his Patreon page for over 2 years now, which has been quite successful so far with over 600 patrons. He is ranked in the top 100 in the music category, but I can tell you it’s not easy to get there.

Social media ads could be used to grow subscribers. For Eligh, we use Facebook and Instagram ads every month to promote new exclusive content to bring his fans on other social media channels into his Patreon funnel.

There’s one tactic that was used for him to grow over 600 patrons. You can learn what it is and much more in my Patreon for Musicians eBook.

Live Streaming / Subscription Model

 
When talking about a live streaming model on Twitch, it will help to have some following on other platforms. Creating an account and going live isn’t going to do much for you just like starting a Patreon isn’t going to mean you’ll get members flocking to you.

The good news is, unlike Patreon, Twitch does have discoverability features built-in. These are algorithms that will recommend viewers some channels that they feel are similar to what they already watch.

Twitch users can also browse categories. As of this writing, all music is lumped into one category so it’s not organized by genre or anything. Because their music and performings arts category is still growing, there’s plenty of opportunities to build here while it’s still not heavily saturated.

Because live streaming is very community-driven, networking and building relationships with other musicians and creators on the platform can help.

At the moment, a live streaming model is best used as a side project while you use other tools and platforms to build your following. Just like with Patreon, it’s not the best idea to start live streaming on Twitch if you’re starting your career from scratch.

Sales-Driven / Direct-to-Fan Model

 
In a sales-driven model, you will be heavily dependent on using Facebook Ads, Instagram Ads and email marketing to grow a fan base. Part of this model is to enable you to make money from your music/products without having to tour and do live performances, which I like to think of as important avenues for exposure and quality face to face engagement.

In general, the way it works is you use Facebook Ads targeted towards certain types of people who are likely to enjoy your music based on certain demographics, locations and interests. The most effective media to do this is with a video and leveraging video views custom audiences for retargeting.

The goal is to get people to click on your ad so they are taken to a squeeze page where you entice them to give you their email address in exchange for content such as a free download of your music. Once you have their email, you would take them through a series of automated emails that can help to nurture your relationship with them, which eventually leads them to buy music or merch directly from you.

This model depends more on technical online skills, understanding branding and writing effective ad copy as well. Not to mention, you need consistent money for an ad budget.

Streaming / Accessibility Model

 
When it comes to discoverability in a streaming model, you’re often focusing on social media sharing (word of mouth), YouTube and playlists on streaming platforms. For example with Spotify, you want to take advantage of their playlist system and the opportunities available for discovery.

There are also automated playlists like Spotify’s Release Radar that show your new music in the playlists of those who follow you. One type of playlist that can help push your music to new potential fans is Discover Weekly, which is algorithm-based.

You can also submit a song to Spotify to be considered for one of their editorial playlists.

In my opinion, the biggest mistake that musicians make with a music streaming model is limiting themselves to only organic social media posting and playlisting.

Like with a sales-driven model, you want to utilize social media ads, email marketing and understand online marketing to get more exposure, but you would also want to do live performances as much as possible. It’s not scalable and can be slower trying to get fans one by one, but I just feel there’s nothing more authentic than recruiting fans through real life.
 

Which model is the best for me?

 
There are a number of things you will need to evaluate so you can decide which model is best for you and your goals. What works for one artist, may not work for you.

Here are some factors to consider:

What are your career goals? If you’re mainly looking to sustain financially as soon as possible without having to “blow up” or “make it big”, then a sales-driven model makes more sense. On the other hand, if you’re looking for a larger audience potential and influence, then a music streaming model should be your focus.

Where are you in your career? If you’re a relatively new artist, a membership model may not be where you want to start. This is not to say it’s impossible, but I see it more like a next step once you’ve built an audience and become more established.

Are you a solo artist or in a band? Being in a band makes it a bit challenging because you have more mouths to feed. A streaming model where you can eventually incorporate a lot of paid gigs would be ideal. Solo artists often find more success through live streaming so that’s something to consider.

What skills or talents do you have? Are you good at improvisation and talking to people? Can you do looping and make beats on the spot or do freestyle raps? Are you able to perform a lot of cover songs? If yes, then a live streaming model may work for you. Or maybe you’re an instrumentalist or beat maker who doesn’t want to put yourself in the spotlight, a music streaming and sales-driven model is for you.

What type of music do you create? Certain genres can reveal fan listening habits. If it’s Hip Hop, R&B, Latin Pop or Metal, then it may make more sense to focus on a music streaming model.

What’s the demographic of your audience? Your audience or target market may be a generation from the “old school” who still prefer physical music over downloads. If that’s the case, a music streaming, membership or live streaming model may not be ideal.

How soon do you want to make money from music? I think it’s safe to say most musicians want to make money from their music as soon as possible. Theoretically, an accessibility/streaming model would take longer for you to make a living while a sales-driven could help you get there faster. The downside is that a sales-driven model requires more specific training in online marketing and ad budget to make the most of this approach.

Do you like to perform live and interact with fans? A big source of income for an independent artist is live performance. If it’s something you’re good at, then a music streaming can eventually work out for you. However, if you can’t perform live (disability, family, living situation, etc), then a sales-driven model or live streaming model may be for you.

Are you comfortable being transparent and accessible? From a fan’s perspective, one of the major attractions of a live stream or membership site is being able to get to know an artist and interact with them. Whether sharing your music-making process or revealing details of your personal life, fans like to connect and engage with their favorite artists this way. If this is what you’re comfortable with, a live streaming and membership model is ideal.

These are some things you’ll want to think about in deciding on a business model. There is no right or wrong model, but each has its strengths and weaknesses and are suited for different types of artists. You can technically incorporate elements of 4 models at once, or some hybrid combination of a couple.
 

Conclusion

 
I know the music streaming model gets the most attention, but hopefully, this blog helps to show that there are alternatives and the different variations that can come about.

I’m not fond of a sales-driven model in its purest form. This was what initially triggered me to write about music business models in the first place. I understand there are some artists who feel music streaming isn’t right for them and there should be other options. But romanticizing music as the product and focusing on direct music sales is holding on to a reality that is slowly fading.

There’s no doubt that there’s always going to be people willing to support the musicians they like by buying their music, but the trend is showing that it’s an uphill battle.

I’ve met a couple of people who have used a sales-driven approach they learned from the Music Marketing Manifesto with some success. The big problem is that even music downloads are slowly becoming irrelevant, so it’s hard to monetize music, let alone capture someone’s email address.

However, the online marketing skills learned from a sales-driven approach is still very valuable and applicable to other models. In reality, most musicians are going to operate with some combination of elements from the different models. After all, you need to incorporate as many income streams as you possibly can to be financially successful in music as an independent.

Personally, what I use and advocate with the artists I work with is a hybrid between a music streaming and sales-driven model. My big focus is on sustainability for artists and I feel it would be best to eventually transition into something a membership/subscription model. The two platforms I’m really high on to help facilitate that are Patreon and Twitch.

Hopefully, this blog helped you figure out what’s the best route for you. At the end of the day, your number priority is producing quality content and building an audience first. The money will follow once you can show you can develop a strong brand and fanbase.

If you’re interested in learning more about specific income sources, you can check out my Income Streams for Musicians Guide.

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