How do pop stars make money?

Adele singingAdele may be world famous, but she probably makes less than 20p every time one of her albums sells.

And while singer Plan B has topped the UK charts numerous times, he only just started making money from gigs and was £40,000 in debt just two years ago.%VIRTUAL-SkimlinksPromo%

The decline of the music industry due to plummeting sales has hit performers hard. So how do musicians make their money in the world today? We investigate.

The decline of the music industry
Between 1999 and 2009, total revenue from US music sales and licensing plunged from more than $14.6 billion (£9 billion) to just $6.3 billion.

The industry's problems started when Napster, a free online file-sharing service, made its debut in 1999 and changed not only the way most people got music, but also the amount they were prepared to pay for it.

Fortunately for budding music stars, however, digital music may still be the music industry's greatest opportunity.

Despite the great decline in sales, the Internet has exposed consumers to more music than ever before.

And the music industry is finding ways to turn this to its advantage by licensing ringtones, licensing music on popular Internet radio stations such as MySpace Music and licensing music videos on YouTube.

What's more, the good news for struggling musicians with talent is that it is much easier to get noticed online than by sending demos into record companies - and there are still a number of revenue streams available to successful artists.

Songwriters, and in many cases musicians, make money from several different kinds of royalties.

Performance rights royalties come from radio play, live shows, clubs, and even songs played in stores, restaurants and lifts. Mechanical royalties, on the other hand, are paid to a songwriter whenever a copy of one of their songs is made.

The total amount does not go to the musician though, even if he or she wrote and performed the track.

Take Adele, who is signed to Sony Music. When she sells "Rolling in the Deep" for 99p, Apple, as the retailer, keeps 30% and the rest goes to Sony.

A mechanical royalty of 10% of that amount is paid to Adele and her co-writer, Paul Epworth and their respective publishing companies, while Adele as the artist receives between 12% and 20% of the remainder (assuming she has already made enough to "recoup" the expenses for her album – otherwise, it just contributes to paying off her debt to the record company).

All the rest goes to Sony to pay for marketing, publicity and videos, among other things.

Merchandise has been a staple in touring artists' revenue streams for decades and can be a major earner for icons such as Iron Maiden and Madonna.

However, these days it is especially crucial for pop groups such as OneDirection whose fans are generally so young their parents pay for everything.

They can rake in an incredible £140,000 from merchandise sales every time they perform live.

Licensing fees
Low CD sales have prevented artists from making as much money off publishing royalties as they did in the past.

However, licensing fees from movies, commercials and TV shows can be a big help, with some deals paying out up to £375,000.

About half of the payout goes to the performer, with the other half going to whoever owns the song's publishing rights.

Fashion lines
Fashion reporters have estimated that Jessica Simpson's namesake Collection has achieved sales of between $750 million and $1 billion.

The celebrity does not pocket all of that of course. But she has not done too badly out of the venture. According to Forbes, Simpson scored about $15 million in the licensing deal that gave the Camuto Group the right to market her name.

Bigger name stars including Madonna have not met with the same success for their fashion lines, however.

Releasing a perfume is another way for pop stars to increase their wealth. Justin Bieber's women's fragrance, Someday, netted $3 million in just three weeks. And he is not alone.

Beyonce, Britney Spears and Jennifer Lopez are among the other stars whose scents have raked in tens of millions in recent years.

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How do pop stars make money?

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