Music streaming really does pay, you just aren’t doing the math right. [Anthony Manker]
UPDATED: “The ‘streaming is evil’ narrative is doing more harm than good, particularly for independent artists,” writes Anthony Manker
By Anthony Manker of Group Projects
I’m constantly amazed by the persistence of the narrative that “music streaming doesn’t pay” — because it’s not simply true.
Articles like this one from New York Times entitled “Streaming Saved Music. Artists Hate It.”, which claims that “The losers are the 99 percent of artists who aren’t at Beyoncé’s level of fame.” This is a vast oversimplification.
Or this one from Rolling Stone that claims that streaming has widened the income disparity between smaller and bigger artists. This one does contain some nuance, but mostly misses the point. It regurgitates commonly held harmful beliefs about music streaming (“Streaming services don’t share what percentage of streams come from editorial playlists, but our guess is somewhere around… a lot.”).
This week, the headlines of Neil Young removing his catalog from Spotify in protest of Joe Rogan has reignited the social media outcry against Spotify. Many are joking that Neil Young is forgoing pennies of revenue with his decision. Some are calling for boycotts. Most are posting inaccurate or misleading information entirely
For the record, Neil Young’s catalog earns about 13M streams per month on Spotify alone, which is a little under $45,000 per month. When you take this into account, his stance against Spotify actually becomes quite admirable. Of course, the irony is that far too many people don’t understand how music streaming economics work to actually appreciate his point.
Obviously, Neil Young made his move out of principle, not economics, but the headlines have yet again stirred up the “streaming doesn’t pay” myth.
I can admit that the details of how artists get paid from music streaming is convoluted. However, the oversimplification of streaming economics has done more harm than good. It isn’t simply a problem of misunderstanding either; the perpetuation of the narrative leads many artists to agree to unattractive deals with labels, distributors, and other parties that understand the true value of music streaming.
The economics of music streaming
Let’s look at the mathematics of music streaming across the different levels of the distribution chain.
First, streaming services: In 2020, Spotify paid out 74.42% of its revenue to all rightsholders, which includes record labels, artists, publishers, and songwriters. The fact that Spotify is paying out 74% of its revenue is a hindrance to its scalability; in other words, because their content costs are so large and directly tied to their revenue, there is a greater difficulty for them to achieve economies of scale. This hardly qualifies as greedy.
Let me be more clear on this point: Spotify is paying out almost 75% of its revenue to rightsholders and has never been profitable. How does that possibly qualify as reprehensible for so many people? Perhaps all that money is ending up in the pockets of intermediaries who are not the creators of the music.
Another important note: streaming services do not pay a set “per stream rate” despite how it tends to be reported in the media. It is a calculation based on a percentage of revenue. In practice, this means that the movement to boycott Spotify and others essentially shrinks the pot and hurts everyone, including artists.
~64% of Spotify’s revenue is paid to master rightsholders (record labels, distributors, and artists), and amounts to a de facto per-stream rate of $0.0034. That number fluctuates based on Spotify’s revenue, but generally hovers around that number.
Side note: The remaining ~10% is paid to composition rightsholders (publishers and songwriters) through a variety of intermediary channels. Publishing royalties are a complicated matter that are beyond the scope of this piece and probably deserves their own write-up. Nonetheless, royalties paid to composition rightsholders roughly equate to another $0.0005-$0.0010 on top of the $0.0034 that is paid to master rightsholders.
Moving down the chain from the streaming services to master rightsholders: Labels, distributors, and eventually the artists themselves.
In the case of major record companies: Under the typical record deal, labels collect 75-85% of this $0.0034/stream rate. Artists are paid a 15-25% royalty after massive costs and deductions are recouped. Many of the complaints from media outlets and the Twitter mob have arisen from these deals, in large part because people don’t understand them. There are many examples of artists with hit records that streamed hundreds of millions of times who never saw a dime from streaming royalties. On the surface, I can understand why that feels unfair. But that doesn’t automatically mean that music streaming itself is to blame. People often fail to mention the sometimes 6- and 7-figure advances those artists were paid when they signed their deals, in exchange for handing over their masters and enormous percentages. Complaining about payouts without considering the details of these agreements is neglecting a crucial aspect of the situation and contributes to a false narrative.
Next, there is a mezzanine level of independent labels, as well as distributors that offer “label services”:
These include deals that are more favorable to the artist, including 50/50 “net profits” agreements in which the record label splits streaming royalties with the artist evenly after costs are recouped by the label. Usually, these deals are licenses for a period of time, meaning that the artist still retains ownership of their master recordings and eventually returns to earning 100% of their royalties.
There are also “distribution deals” in which an artist signs over a small percentage of their master royalties (usually 10-20%) in exchange for services and in some cases, small amounts of funding.
Again, the structures and details of these agreements are usually omitted when media outlets and celebrities write about music streaming economics. Instead, it’s easier to cast the blame on the music streaming services themselves, rather than give proper analysis to the nuances of the music distribution chain.
The growing class of purely independent artists
A growing number of artists rely on no label or distributor and simply upload their music directly to streaming services with the help of a “DIY” distributor, such as DistroKid or Tunecore. These distributors take 0% of the streaming revenue and the artists retain 100% of the earnings from their music.
By streaming 1M-2M streams per month at the $0.0034/stream rate, an independent artist can generate several thousand dollars per month. In the world of streaming, this isn’t an unrealistic number to achieve. At this level of catalog activity, an independent artist can earn $3000-$6000 per month. There are various strategies to reach this level, but the typical 100% independent artist has learned to tap into the powerful recommendation algorithms of streaming services by releasing music frequently and consistently.
Sometimes it can take years to get to this level of streaming, but it is possible. However, too often artists get inpatient and sign away their rights and royalties before they ever get to the level where those decisions are substantially impacting their bottom line.
Much more interestingly, there is a growing number of artists that are earning significantly more than a livable wage. Many artists who own 100% of their catalogs are earning 5-figures monthly. It’s not as uncommon as you might think.
In fact, the number of artists whose catalogs are earning $50K+ per year has been consistently going up over the last several years.
There has never been a greater opportunity in the music business for an artist to release their own music and earn a livable income directly from it. Which is why it’s so hard for me to understand why so many continue to push the opposite narrative.
A note on “gatekeepers” and editorial playlists
Human-curated editorial playlists are sometimes used to support the assertion that music streaming services are just new forms of the age-old problem with music industry gatekeepers. They are portrayed as the new power brokers that contribute to disparity in the music marketplace.
The influence of these playlists is greatly overestimated, which has caused a general obsession within the industry with getting music placed on them. It is true that some playlists do have massive audiences and can generate significant amounts of streaming activity. However, most of the streaming activity in healthy artist profiles tends to come from algorithmic recommendations and engaged fanbases, not decisions made by human curators. A “healthy” artist profile is one that is not over-leveraged by editorial playlists, i.e., it does not overly rely on editorial playlists for streaming activity. Anything above 25% of streams from editorial playlists starts to become questionable and unsustainable.
Music streaming – and more importantly its algorithms – have largely removed many of the gatekeepers of the old music business that historically have stood in the way of artists getting their music in front of audiences — record labels that controlled the distribution networks and funding to create physical product, radio program directors that controlled the airwaves, etc. In today’s music streaming environment, an artist can upload their music to streaming services and benefit from the sophisticated recommendation algorithms that are agnostic to which label released the music or which tastemaker programmed it.
In my experience, the false belief that editorial playlists are necessary for a successful streaming career almost single-handedly contributes to artists signing over their rights and royalties to various distributors, labels and other third parties. These playlists have been deemed so important by the industry that artists regularly justified their decisions to hand over percentages or to pay absurd amounts to third parties promising to “pitch” their music to editorial playlists.
Finding a signal through the noise
There is still a vast number of artists that don’t see much streaming activity – the Rolling Stone article I mentioned above points out that about 1% of all artists account for about 99.4% of the streams. That is still a vast improvement from the days of radio and physical albums sales that required a chain of gatekeepers and vast financing to surface music to audiences.
DistroKid, Tunecore, and CD Baby – which together are the three main independent distributors – have a combined 1.9M artists. If only 1% of those 1.9M artists account for 99% of the streams, that’s still a promising 19,000 independent artists that are reaping the rewards of streaming’s reality.
That same Rolling Stone article points out that there is more music being released now than ever – about 40,000 tracks are released to Spotify every day. And granted, the 1.9M artists that I just mentioned is quite a large number. However, to argue that every one of these tracks and artists deserves an equivalent number of streams and equal treatment simply ignores common sense. The reality is that some music is simply better quality (and a lot of it is pure garbage). Some music is recommended to more people by the streaming services’ algorithms because it’s earned positive engagement from listeners. And there’s inherently more noise in the market because it’s the easiest and cheapest it has ever been for artists to distribute their music.
The proliferation of more music in the marketplace does not support an idea that music streaming is somehow creating an income gap in the industry. Rather, it is evidence of many of the old barriers to entry being broken down by digital music streaming and the distribution methods.
The next generation of artists
I don’t disagree that there is a serious problem with major record companies and other intermediaries remaining the main profiteers of music streaming, considering what is possible independently.
However, many articles and social media posts I’ve seen over the last few years in our industry obscure the reality that exists for independent artists. They unfairly cast blame on the music streaming services, particularly Spotify, and neglect to address any of the distribution chain. They downplay the tremendous success that thousands of independent artists are experiencing from music streaming.
The artist Russ has notably been a vocal advocate for the independent approach, and frequently posts screenshots from his TuneCore account to help artists understand the reality. He may be an extreme example financially, but the possibilities for truly independent artists are real and attainable.
More journalists and others with influence in our industry should make more of an effort to factor in the nuance of the economics and shed more light on the independent approach. This would encourage and embolden more artists. I’d love to see more young artists inspired to release more music and realize that a path towards a livable income is not as uncommon as the media and the Twitter mob might want them to think.
You state: “The fact that Spotify is paying out 74% of its revenue is a hindrance to its scalability; in other words, because their content costs are so large and directly tied to their revenue, there is a greater difficulty for them to achieve economies of scale. This hardly qualifies as greedy.”
This is an empirically false statement.
First, Spotify deducts from the artists, songwriters, record labels and music publishers up to 30% of third party advertising agency costs. This means the creators are eating Spotify’s expenses. Next, Spotify deducts up to 3% of credit card transaction fees from the creators labels etc. So again, the creators etc are paying some portion of Spotify’s costs (NOTE: Spotify is paying 0% of the creator’s overhead costs).
Therefore to claim Spotify is paying out 75% of its costs is false.
Now, add to this, Spotify pays no royalties at all for a trial subscriber. But, Spotify reports the trial subscriber in its public filings thereby increasing its share price by giving away the music for free and reaping the benefit on an increase in stock price predicated on the number of subscribers.
Further, Spotify’s value is not predicated on profit, its based on market share. Spotify loses hundreds of millions every single year and. yet has a market cap in the public stock market north of $30 billion dollars. Spotify does not need to make money off the music to make money, it needs market share to make money.
Now add to this the per stream rate for Spotify for its ad supported service in the US is $0.0002 per stream. Barely something you can call money. If you got 1,000,000 streams on Spotify via its ad supported service from lets say 20,000 people, thats 20,000 user Spotify gets to report in its filings popping its stock price. And yet the songwriter(s) only makes $200 for one million streams that delivered 20,000 users.
The problem is that the interests and goals of Spotify are not aligned with the artist and labels. Spotify makes money off market share whereas the artists and labels make money off the sale or license of their music,
The royalty rates from Spotify are crap. The songwriter cannot negotiate their own rate due to the US compulsory license and statutory rate. The product Spotify is offering is underpriced but if they raise the price they lose market share which then lowers their stock price.
You are also dead wrong about the assumption that most artists have a cut taken prior to be paid by the distributor. Over 95% of the 1,4 million tracks distributed to Spotify each month come from the DIY constituency via TuneCore and DistroKid. Those two entities take no percentage of the money being passed through to the artists. They artists get 100% of the meager paltry fractions of fractions of pennies with no middle man touching it.
And then there is the point that the songwriters are not even getting paid the pittance of the royalty they earn. There is over $150,000,000 in reported earned but unpaid royalties from streams on Spotify for the songwriters. It does them no good to earn money if Spotify cant be bothered to even invest or build the systems to pay it. And now with the passage of the Music Modernization Act, the burden to license and pay has been taken from Spotify and handed to the Mechanical Licensing Collective which also has no requirement to pay anything songwriter anything. And when it does not pay the money, it can now be taken and re-distributed and handed to (I kid you not) the former and current partial owners of Spotify; Universal, Sony and Warner…
Jeff Price
Founder/Former CEO TuneCore
Founder/Former CEO Audiam
Founder/CEO Word Collections
Hi Jeff –
Thanks for your reply.
First of all, it seems you are misconstruing the distinction between master side royalties and publishing. My article specifically deals with master royalties, a fact that I point out in the article. I am currently working on my next piece, which will directly addresses publishing streaming economics. Many of the points you made I actually agree with on that front.
Second, the 74% of revenue figure — I sourced that number directly from Spotify’s annual 10-K report that they file with the SEC and other publicly available information. I also can simply look at my artist’s royalty statements and can with certainly tell you that the “per stream” rate comes out to somewhere in the ballpark of $0.0030-$0.0038, which of course equates to $3000-$3800 per 1,000,000 streams. Again, this is specifically speaking about the master side, which the subject of my article entirely.
Happy to chat further if you want to email me at anthony@thegroupprojects.co
Thanks,
Anthony Manker
Jeff,
I appreciate your response, but this article is not focused on songwriter royalties.
The central narrative in the media is “streaming doesn’t pay”. The narrative leads to young artists making terrible business decisions because they, for some shocking reason, believe their masters will never make them any money from streaming.
This is amplified by many legacy media publications that are writing about this topic without any nuance. They are falling into the easy narrative of “Spotify is the bad guy” because it fits a storyline that gets retweets and applause from individuals who think they are sticking up for artists.
Again, I recognize the songwriter royalties are not where they should be in the streaming world but that doesn’t mean we should allow one-half of the conversation to overshadow the reality that there are many independent artists that are millionaires from Spotify. It’s not every artist who uploads music, but there are not many industries where we expect 100% of the stakeholders/creators to become millionaires.
Perhaps the low publishing royalties will encourage a world where more songwriters release their own music. Or perhaps a world where artists give masterpoints to their favorite collaborators. Both of those things will never happen if people like you keep exclusively shitting on streaming and promoting the one-sided storyline that it will never make anyone any money.
Alejandro
A person writing a response to the founder/former ceo of TuneCore, Audian, and World Collections.
I just disagree with your statement that for a sound recording $0.003 per stream and for a mechanical royalty $0.0002 per stream is a commensurate royalty. It’s not. For a sound recording, assume 30,000 streams at $0.003 per stream. That’s $90 for 30,000 streams. At 30,000 streams thats thousands of “users” streaming the recording. Those thousands of uses = market share for Spotify and those thousands of users are worth a hell of a lot more than $90 to Spotify. Not to mention $90 for 30,000 streams is just a crap royalty. As the former owner of a record label and CEO of TuneCore I watched a middle class come into existence with iTunes, EMusic and downloads then watched it disappear as the streaming world came into existence to replace them. Until Spotify – and others – are valued on profitability instead of market share, and interests are aligned between the artists, distributor label and streaming service, the artist will continue to be exploited in a non-equal relationship with Spotify reaping the benefit at the detriment of the artist.
Simply said, there has never been more money made off of music with less of it going back to the creators of it than at this point in history.
As far as the 10K filing. Yes, it has information that follows GAP standards that allows Spotify to obfuscate the fact that it is not paying over 70% of its monthly revenue out as evidenced by Spotify deducting its overhead coasts from the artists, labels and music publishers. In addition, if you read the leaked Spotify / Sony agreement you will note that Spotify can make money off of selling the data and keep 100% of that revenue.
Spotify is the bad guy. It exploits the creators and artists to its singular benefit. It pays shit royalties (when it bothers to pay them at all). The major record labels that set the benchmarks for the sound recording royalties owed over 17% of Spotify which then cashed in for billions when Spotify went public.
Perhaps this explains why the percentage royalty rate for sound recordings went down instead of up. It was originally at 55% of monthly Gross revenue (with subscriber minimums) and is now at 51% (or so). By lowering the royalty rate the partial owners of Spotify could increase its value. While at the same time they took non-returnable advances from Spotify for the sound recording royalties. These advances, if un-recouped, did not have to be paid back. Instead the partial owners of Spotify – the three majors – pocketed the “breakage” and paid no royalties on them. When the Term of the licensing agreement was up, the majors simply re-negotiate another advance and the lower the royalty rate is the better it is for the labels as the recoup less and get to pocket the un-recouped.
I just disagree with you. The royalty rates for recordings are abysmal. The royalty rates for the musical compositions are barely money. Spotify is attempting to have the CRB lower rates for songwriters further as its market cap increases based on market share. They were sued multiple times for willful infringement. Its like Mad Max. At the end of the story they can look back and see a decimated industry littered with the corpses they created with their $30 + billon mark cap in the stock market.
I am not second guessing your sincerity or intent, but your article has incorrect statements (albeit unknowingly to you) that propagates a dangerous false narrative.
Music has value. If another entity wants to use it, its fine. Get a license, agree to a commensurate royalty and the entity/person that earned the royalties should be paid the royalties. And thats simply not happening now, no matter how loudly you suggest $0.003 per stream is a “fair” royalty.
Jeff
Let me tell you about Acid Flashback Radio, started in 2012.
We are commercial free, so we had less than $500 in donations in 2021.
SoundExchange charges a MINIMUM of $1000 a year, regardless of how many or how few listeners you have. And that cost just doubled from 2020’s annual rate of $500.
I have about 6000 listeners a month. I hope that doesn’t sound like a lot, because big commercial radio stations like WDRV, the classic rocker here in Chicago, have over 800,000 listeners EVERY WEEK!
Those large, mostly corporate owned stations are not in the music business. They are actually in the business of selling advertising. They just use music as the hook.
I’ll never forget the classic scene, in the movie “FM”, during the Jimmy Buffet concert.
Sales manger: I’m gonna make you (the station) the first five million dollar grosser on the west coast. Every account in the country. Wall to wall commercials!
Program director:(jokingly) Too bad we can’t get rid of the music all together.
Sales manger: Yea!
On the other hand, I started my station to be the polar opposite of what today’s radio has become. More music, better music, less chatter, and no commercials.
I did such a good job, that people listen all the time. I started getting monthly reports saying we have over $300 in royalty costs.
That’s because SoundExchange calculates the royalty based on “performances.”
So even if somebody listens to a song for thirty seconds, I pay the same per song cost as someone who listens to a five minute song in it’s entirely. So we found ourselves with the insane dilemma of having to kick people off our servers. Where in business school do they tell you to jetison your customers out the door because the like your product too much?
If I listened to my own station for six hours a day Monday-Friday, and six hours on the weekend, it would cost me more than $6 a month. To listen to my own station. Really?
So it only takes FOUTREEN listeners to spend the same amount of time as I do propel my costs above that $1000 a year. Heck, I might as well go down to the local brew pub and buy everyone a beer, and hijack the bar’s turntable.
But that’s not why I got into radio. I did it because what I present is so much better than the recycled rock drivel that those terrestrial stations are serving up to the 800,000 people every week. All we want is a fair chance. That would mean that SoundExchange would have to 1) created a tiered rate structure based on audience size and annual revenue and 2) switch the metric to TLH (total listening hours ) which more accurately measure of true online listening, where people tend to jump around a lot among stations..
Right on this site. David Macias of Thirty Tigers gives us a comprehensive, clear headed analysis as to why market economics dictate Spotify’s payout. I don’t know…seems like a guy who is passionate about artistry and music…and lets artists retain 100% ownership is someone who would know the facts…and btw if you think Spotify is stealing your lunch, wait till you find out what the NMPA/NSAI did re #FrozenMechanicals. 🙂 https://www.hypebot.com/hypebot/2022/02/thirty-tigers-dave-macias-offers-a-more-nuanced-look-at-spotify-streaming-royalties.html
There are 2 large distinct problems in the music streaming system:
1. Split of the Streaming Revenue Pie. This is the often discussed problem that is related to the decrepit record label/artist model which grants a majority portion of the revenue pie to the record labels, primarily because of ownership of master recordings, and secondarily because of publishing.
2. Aggregation of Streaming Revenue. This is the problem referenced when we talk about “artist-centric” allocation and it has to do with how revenue distributions are made relative to actual streams.
Keep in mind that when customers subscribe to Spotify etc, they don’t pay for music – they pay for a utility service (like water or electricity except unlimited for a single price) that gives them unlimited access to almost all recorded music in history, for a small fee of $10/month. Because of this model, the value of a single stream to the rights holders is a fraction of a penny – it varies, but is estimated to average around $0.003 per stream. It’s a race to the bottom because consumption vastly outpaces incoming revenue. All the subscription revenue and the advertising revenue comes into Spotify (let’s call it the “meta-pie”), and ~70% of that is then paid out to all rights holders as previously mentioned.
The aggregation problem however, is best illustrated through an example.
Suppose I subscribe to Spotify, paying $10/month (note that all this likewise applies if I’m a free listener being subsidized by ad revenue.) Hypothetically, let’s say I have a favorite artist and I stream only that artist for the entire month. In an artist-centric model, $7 of my $10 would be paid to rights holders of that artist (note that this doesn’t solve the pie problem – Problem 1 above – it only addresses the aggregation problem.)
In the current Spotify model however, my $10 goes into the meta-pie which is distributed across ALL the billions of streams on Spotify for the month. So let’s say I streamed 500 track plays (16 tunes every single day) of only my artist during that month, my artist’s rights holders would only be paid 500 x $0.003 or only $1.50. (And then looking at that $1.50, we get back to Problem 1, which means the artist only earns a fraction of that.)
There are some streaming platforms like Tidal that are switching to the artist-centric model, but it’s not that simple for the big players. Spotify has a 60-person economic analyst team who works only on these issues & questions and they’ve published numerous studies on how the various models play out, and of course they contend that their model is best for artists and show the numbers to prove it.
It’s kind of beside the point though – at the end of the day artists don’t make money from the growing streaming pie because no matter how large the pie grows, streaming volume grows with it thus suppressing the value of a single stream.
Our model allocates streaming revenue according to the artist-centric model, but we also offer the artist numerous additional ways in which their fans can actually pay them for their work.
Another hypothetical to demonstrate the value of a Spotify stream and how it degrades with consumption volume: if I listen to Spotify 24 hours a day, 7 days a week for an entire month, and each track listening time averages 3.5 minutes, that would be 12,515 streams, making each stream worth $0.0008 if I’m paying $10/month. 70% of that, paid to artist’s rights holders, is $0.00056 per stream.
If it were only one artist getting all my 24/7 listening for a month, and the artist earned 10% of that ‘artist’s rights holders’ payout, the artist would earn $0.000056 per stream. At this rate, the artist would make $1 after 17,857 streams, but my 12,515 streams earn the artist less than $1. To make $50,000, an artist would need to generate 892,857,142 streams. It would take 71,342 customers streaming an artist 24/7 for that artist to earn $50,000. It would take 1,712,208 customers streaming the artist for a full hour every day for the artist to make $50,000. So sure, a handful of artists like Dua Lipa can make some $ from Spotify.
This is unrealistic of course because it’s modeling 1 artist-1 customer and a 24/7 consumption scenario, but believe it or not, because of the streaming volume that splits up the meta-pie, it’s actually not that far off from the real numbers that artists report earning from Spotify.
When people paid for music (bought CDs) the unit value was significantly higher – 1 million album sales generated $12M in revenue and even the marginalized artist earning 5% from 1 million sales would earn $600k. That’s just physical sales – does not include radio play revenues which were very different from streaming revenues.
Streaming did solve the problem of piracy and illegal downloads, but it created a new problem by making music into a flowing utility like water or electricity, albeit unmetered.