From CDs to Spotify: How the music industry has started making money again

The music industry hit rock bottom in 2014, unable to transition to the digital era, but 11 years later it has returned to record revenues. The model has shifted from physical sales — CDs, vinyl, cassettes — to platform-based streaming, a new playing field that has rewritten the rules of how to make money.

Shortly after reaching its revenue peak in 2001, record labels launched a crusade against piracy and illegal downloads without offering consumers legal alternatives. Companies clinging to a business model from another era struggled to survive. The consolidation was brutal, shrinking from six major players to three — Universal, Sony, and Warner — which in turn swallowed dozens of smaller labels. This trio, known as the majors, now generates nearly two-thirds of global recorded music revenue.

The arrival of Spotify was the spark that pushed the industry into the digital age. The Swedish company built a model that made listening to music online accessible and legal through licensing agreements with record labels, which take a percentage of advertising revenue.

In 2011, streaming generated $400 million; by 2024, it had surpassed $20.4 billion, according to IFPI, the global recording industry trade group.

“Spotify democratized music,” acknowledges a senior international executive at one of the three majors. But, the source adds, it also made it harder to make a living from recorded music. “Now people have more chances of getting their songs heard, but also of ending up delivering pizzas the next day,” says Spanish singer Víctor Manuel, a fierce critic of the industry.

More money, spread among far more artists

Spotify defended itself in its 2024 Loud and Clear annual report, pointing to a record €10 billion ($11.7 billion) paid to the industry. “Ten years ago, the top artist on Spotify generated just over $5 million. Today, there are over 200 artists who have passed that threshold,” says the report. Some 12 million artists have uploaded their music to Spotify, compared with the tens of thousands who once managed to get a CD onto store shelves.

Another source from the recording side, this time in Spain, outlines how the streaming revenue is split: the platform keeps 25%–30%, the songwriter gets 15%, and after VAT, the record label takes between 50% and 55%. The analog model, the source notes, offered a wider margin for labels.

Before streaming, one out of every 10 releases became a hit and covered the losses of the other nine. Now, the difficulty of monetizing a single release has narrowed the risk tolerance of record companies, which tend to invest less in developing and nurturing new artists.

The payment system varies across the more than 300 streaming platforms online. On Spotify, the dominant player, remuneration depends on the type of membership. “Revenue from the free model can be as little as one-tenth of what the same number of paid streams generates,” says an executive at one of the majors. Being a mid-level star in a premium market like the U.K. is more profitable than being a famous artist in Mexico, where most streams come from YouTube’s free model, which pays less.

Label executives criticize that the focus has been on growing user sign-ups — a figure that boosts stock prices — rather than the quality of memberships, which directly impacts artists’ earnings. The Financial Times reported in August that Spotify plans to raise prices in some markets.

Five years ago, the Swedish platform launched “discovery mode,” which, through royalty discounts, gives artists more love from the algorithm. The feature has been compared to the bribes labels once paid to radio DJs. Bloomberg reports that managers now advise artists to sign only with labels willing to pay for discovery mode.

The three majors have created their own distributors to upload music to platforms. Many artists have chosen to bypass traditional labels and work with these subsidiaries under short licensing agreements. Distributors typically take around 15% of earnings, but compared to DIY platforms with flat-rate fees, they wield greater negotiating power for better deals (such as access to discovery mode) and stronger placement of songs.

“Before, labels called the shots — now it’s the consumer,” says a third executive at one of these major-affiliated distributors. “Some people blame the algorithm to excuse their lack of success. But never before have there been so much data and so many tools for an artist to find their fans and focus on them.”

Old rockers never die

The catalogs of past hit musicians — known in the industry as legacy acts — have become a stable, recurring, and abundant source of income for the majors. In the case of Sony and Universal, some sources estimate legacy catalogs account for as much as 70% of their streaming revenue. These catalogs rack up millions of plays worldwide across all membership tiers, and they require no maintenance or fresh investment from the labels.

That’s why catalog sales have become the star deals in the business, often involving astronomical figures. Investors such as Blackstone have bought up entire repertoires. Lior Tibon, founder and CEO of Duetti, an investment firm specializing in indie music, explains that data access has opened the doors of music to financial investment. Forecasts stretching nearly a decade allow future earnings from a catalog or track to be calculated. A past hit is the kind of asset conservative investors want — like owning a toll road with guaranteed recurring revenue. The expected return sits about 200 basis points above the yield on U.S. Treasury bonds, translating into an average profit of around 7%.

Carlos Galán, founder of the legendary indie label Subterfuge, was offered $1 million for El fin del mundo, a song by La La Love You. At first the idea was tempting, but he ultimately declined. “It would mean dismantling our catalog, letting go of assets we don’t need to,” he explains.

Labels themselves have opted to reinvest in catalogs, which provide stability and a cushion to take risks and keep the business moving. Sony recently paid a record $1.27 billion for the rights to Queen’s catalog. And last week Morrissey, the former frontman of The Smiths, announced the sale of his share of the band’s rights. While he cited personal reasons, the deal comes amid a frenzy for these classic assets that will turn even heartbreak into profit.

Most catalog sales remain confidential, and none have been disclosed in Spain. Tibon attributes this partly to the low number of premium subscriptions there, which makes such investments less attractive. But the La La Love You case shows that investors are combing the market for future legacy hits still available at good prices.

Young artists such as Taylor Swift, with long careers ahead, have little incentive to sell their catalogs. That’s in contrast with figures like Bruce Springsteen or Bob Dylan, who are nearing retirement and brought future income into the present by selling their repertoires.

Sometimes, though, luck intervenes. Kate Bush released Hounds of Love in 1985, with Running Up That Hill tucked away on the B-side. The song exploded into the global charts 37 years later thanks to Stranger Things. Because Bush owned the rights, she pocketed millions in an instant.

A safe bet

Uncertainty means catalog sales are likely to keep rising, as music investment is decoupled from the ups and downs of the wider economy. In a recent report, Goldman Sachs forecast that the global music market will reach $200 billion by 2035, fueled by emerging markets and the industry’s push to find new ways to monetize.

Beyond recorded music, labels have diversified into management and even live concert promotion — an area they largely avoided in the 20th century because of its risks. According to Goldman Sachs, this is now one of the fastest-growing segments with the brightest outlook, and it’s what allows many artists to make a living.

Physical sales also continue to bring in revenue. In Japan and South Korea, albums remain a major income source, pushing global physical music sales past $5 billion in 2023. Merchandising has also gained traction, says Manuel López of the consultancy Sympathy for the Lawyer, especially for high-profile artists like Aitana and Nathy Peluso, who collaborate with fashion brands.

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