When you purchase a song on iTunes, have you ever wondered where that money goes? Who gets a cut and how much? Buying music may seem simple—you find a track you like, pay $0.99 or $1.29, download it, and enjoy. But behind that simple transaction lies a complex system of rights management and royalty payments that compensate the various parties involved in recording and distributing the song.
In this article, we’ll break down exactly what happens to the money when you buy music on iTunes or other digital music stores. We’ll look at how much record labels, artists, songwriters, Apple, and others get paid. Understanding the economics behind digital music sales provides insight into how the music industry functions in the internet age.
The Cost Breakdown of a Song
Let’s start with the basics: what does it actually cost to buy a song on iTunes? Apple charges either $0.99 or $1.29 per track, depending on popularity and licensing agreements. The typical breakdown looks like this:
| Player | Cut |
|---|---|
| Record label | $0.70 |
| Artist | $0.09 |
| Songwriter | $0.09 |
| Apple | $0.30 |
So for a typical $0.99 song, the record label receives approximately 70 cents, the artist gets 9 cents, the songwriter gets 9 cents, and Apple keeps 30 cents. This breakdown can vary based on the terms negotiated with each party, but it gives you a general sense of where the money from your iTunes purchase goes.
Where Do Apple’s 30 Cents Go?
Apple takes around a 30% commission on every song sold through iTunes. This cut covers the cost of operating the iTunes store and allows Apple to make a profit.
The 30 cents from each 99 cent song sale is used to:
– Cover transaction fees and payment processing
– Maintain servers and data centers
– Pay royalties for any Apple intellectual property used
– Fund research and development
– Pay salaries of iTunes store employees
– Generate profits for Apple
Apple doesn’t break out specifics on how much goes toward each line item. But they do incur costs to deliver music digitally through the iTunes store, and 30% helps support those expenses while also turning a profit.
Apple is able to negotiate taking such a large percentage because of the huge audience that iTunes provides. Apple has leverage with record labels since being on iTunes gives musicians a massive platform for music distribution.
Where Do the Record Label’s 70 Cents Go?
The lion’s share of revenue from each music purchase, around 70%, goes to the record label that owns the rights to the song. The record label has many stakeholders to compensate from that 70 cent cut:
– Recoup costs of advance payments and recording expenses
– Pay royalties to producers involved in the track
– Cover overhead like office costs and salaries
– Profit for the record label
Often times, the record label won’t see the full 70 cents from each sale. Many recording contracts have so-called “recoupment” clauses which deduct recording costs, advances, and other expenses from the artist’s royalties. So the record label may use some of that 70 cents to pay themselves back for fronting those costs.
Labels also have to pay a percentage of sales revenue to producers as royalties, typically around 3-5%. And overhead like company offices and personnel need to be covered as well.
Whatever remains after those costs contributes to the record company’s profit. The percentage of profit varies widely, but approximately 11-15% of the 70 cents might end up as net income for the label.
Where Do the Artist’s 9 Cents Go?
The artist who performs the song is allocated around 9 cents from each 99 cent iTunes purchase. But similar to the record label, they likely won’t see all of that money in their pocket. Where do those 9 cents go?
– Pay back advances from the record label
– Cover recording costs
– Pay the artist’s management team
– Go to the artist profits
That 9 cent cut has to be used to recoup any advance payments and recording costs fronted by the label as laid out in the recording contract. Deductions are taken out for those expenses first.
The artist also has to pay a percentage of their royalties to their talent manager, typically around 10-20%. That comes out of the 9 cents as well.
Whatever remains after those costs is profit for the artist. If advances and costs are high, the artist may not actually make any profit at all off the 9 cents. Newer artists are unlikely to see significant income from their 9 cent iTunes revenue share.
However, as with the record label, bigger artists with some leverage may be able to negotiate a higher percentage. Some top acts may be able to earn 15 cents or more per download. But 9 cents is fairly typical for most musicians.
Where Do the Songwriter’s 9 Cents Go?
The third piece of the iTunes sales pie goes to the songwriter, who also gets around 9 cents per track. This compensates the person or team that wrote the song itself, as opposed to the recording artist who may just be performing the song.
Songwriter royalties tend to be paid through Performing Rights Organizations (PROs) like ASCAP, BMI, and SESAC. The PRO collects and distributes performance royalties to songwriters/publishers based on usage reports and predefined formulas.
The 9 cents for the songwriter gets split roughly 50/50 between the publisher and songwriter. So of the 9 cent share:
– 4-5 cents goes to the publisher
– 4-5 cents goes to the songwriter
The publisher will then take out some percentage of their share to cover costs incurred editing and promoting the song.
The songwriter receives their portion, though they often have a contract to share a percentage with co-writers if applicable. There are some cases where the songwriter is also the artist recording the song. Then they would receive both the artist’s 9 cent cut and the songwriter’s 9 cent cut.
Does the Money Go to Different Places with Streaming?
The breakdown we’ve discussed applies specifically to purchasing and downloading music on iTunes or similar stores. What about when you stream a song through a subscription service like Spotify or Apple Music? Where does the money go in that case?
The underlying structure is similar, but the percentages are different. Here’s an approximate streaming royalty breakdown:
| Player | Percentage |
|---|---|
| Record label | 55% |
| Artist | 12% |
| Songwriter | 16% |
| Streaming service | 30% |
Rather than fixed cents per song, streaming services pay out a percentage of their total subscription and ad revenue. The percentages are guidelines and actual deals vary.
You’ll notice the streaming services take roughly the same 30% cut as iTunes does for music purchases. The main difference is that songwriters earn a higher share from streaming than downloads.
When your favorite new song comes on, you may not think about the complex money splits happening behind the scenes. But the economics of the modern music industry depend on these intricate calculations to divvy up digital revenues. Now you understand exactly where your money goes when you buy music online or through streaming.
Conclusion
Purchasing a song on iTunes or subscribing to a streaming service sets off a cascade of royalty payments to the record label, artist, songwriter, and platform. Though the consumer pays a simple $0.99 or $9.99 monthly fee, divvying up that money involves complex analytics and negotiations.
Record labels use their approximately 70% cut from each song sale to recoup expenses, pay producers, cover overhead costs, and turn a profit. Artists can receive around 9% but this also goes towards paying back advances and recording costs before turning into actual earnings. Songwriters also get a 9% rate which gets split with publishers and possibly co-writers.
The streaming era has disrupted the music industry, but the underlying structure remains in paying creators for their work. Next time you buy a song on iTunes or stream one on Spotify, you’ll know exactly where your money goes within the complex economics of the digital music landscape.
