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.