Musicians have been relying on cross-subsides for a long time now (cross-subsidies: not making much money from album sales, but depending on complimentary sources of income in order to earn money and build a reputation).

A NPR interview with The Dresden Dolls from 2007 exemplifies the importance of cross-subsidies for musicians. Singer Amanda Palmer explains that the bulk of their income is from merchandise sales, “We make almost no money off our recordings.” She goes on to explain the value of other profitable measures such as music licensing and how they earned $40,000 by allowing their song “Coin-Operated Boy” to be in a TV ad in Austria.

Although the retail price of an album typically fluctuates around the $15.00 mark, most musicians never see more than 6% ($1.00) from each album sale. Over the last few decades, 94% of album-generated revenue has been procured by record labels in order to recoup distribution and manufacturing costs.

The argument raised at this point may claim that one dollar of profit multiplied (by even a relatively low) 100,000 units sold is $100,000—a decent sum. However, the fact is that such profits are quickly sliced by standard distribution agreement contingencies.

For the most part, artists that sign to a major label enter a standard distribution agreement that grants them a royalty percentage on album sales. Initially, the label awards the musician a large advance to cover recording and living expenses. However, the musician will only begin to earn a profit after all these costs are repaid to the label. The largest percent of royalties goes to overhead and marketing.

In the end, the debt is so high that most musicians (over 85%) never pay it off [1]. For example, a band would need to sell over 250,000 albums (earning $1.00 in royalties from each album) just to pay off a typical $250,000 advancement [2]. It’s for this reason that musicians rarely make a living on album sales alone, relying instead on a large fan base to boost ticket sales, merchandising, and licensing opportunities.

Traditionally, musicians earn very little from CD sales, thereby making it reasonable for them to sacrifice these miniscule royalties for a larger audience, which will in turn generate more income through cross subsidies, or external sources of income—often concert ticket, merchandise, and licensing profits.

The value of cross-subsidizing is already well-known and accounted for in the music industry. Through the typical standard distribution deal agreed on between most musicians and labels, the musician agrees to a smaller amount of profit from album sales in exchange for a higher return in cross subsidies. In economics, cross-subsidizing means earning less on ‘Product A’ in order to promote ‘Product B’, where in the end overall earnings exceed the cost. Wal-Mart does this by offering DVDs below cost in order to lure you into their store (Anderson). They assume people will buy other products while in the store, thereby eclipsing the loss taken from the under-priced DVDs.

To draw a parallel, musicians can under-price their album— or give it away for free, as I’m arguing—and assume people will buy other products.

A great overview of Creative Commons:

When I was in music school the “poor man’s copyright” was often recommend as a way of legally protecting my music. The basic concept is that you mail a copy of your music to yourself, after the package arrives you leave it unopened, and then use the post office’s date stamp to prove ownership.

I never actually tried using the poor man’s copyright (and I’m not sure if my friends did either). The idea seemed too easy for someone to fake, and I didn’t actually believe it would hold up in court. It turns out I was correct - for the most part.

The U.S. Copyright Office’s website remarks, “it is not a substitute for registration.” The UK’s Copyright site goes a step further and insults the poor man: “It is so easy to cast doubt on such evidence, we believe it is next to worthless.”

This would make you think that registration is the only option for obtaining a copyright, but the opposite is true: copyright is automatic. An original work is legally under copyright the moment it is created in a tangible form, and does not require the signing of official documents from the government.

If it is automatic then why pay the $45 fee to register?

According to the U.S. Copyright Office’s website:

“Many choose to register their works because they wish to have the facts of their copyright on the public record and have a certificate of registration. Registered works may be eligible for statutory damages and attorney’s fees in successful litigation. Finally, if registration occurs within 5 years of publication, it is considered prima facie (ie. by first instance) evidence in a court of law.”

What I take from all this: registering will hold up better in court. Next time I’ll look at why traditional copyright may be harmful for musicians.