It is commonly understood that artists make money when their music is played on streaming platforms like Spotify, Apple Music, Deezer, Pandora, Tidal, YouTube Music, and Amazon Music. But the mechanics of how those payments actually work is unknown to most of us, which may sometimes lead to some misconceptions. For example, artists do not get a fixed rate for every stream, e.g. $0.00026 per stream, or $0.0037 per stream.
Not all artists will necessarily receive the same payment for the same number of streams either.
Let’s dive in and break down some fundamental principles that dictate how artists get paid from music streaming.
Artist and Intermediaries
Let’s start by examining who are the players involved in getting the artist’s music online and making sure they receive the money they are due.
For every track on a streaming platform, a number of parties may be due a payment, such as the artist, composer, lyricist, publisher, record label etc. In order to keep things simple, this article focuses only on the recording royalties due to the primary/featuring artist(s).
First things first: before any music can be played on streaming platforms it has to get from the artist to the internet.
Artists do not deal with streaming platforms directly. Instead, they use a distributor who will then take care of getting their music to the platforms. In some cases, the record label is also the distributor.
When music is streamed, royalties will be due to the “right holders” i.e. whoever owns the rights to the recording. For example it can be the artist themselves if they are independent, or the record label if the artist is signed to one.
The distributor and/or label will then collect the corresponding royalties from the streaming platforms and pay those who are due to receive them (or a share thereof), such as the artist.
Where does the money come from?
You may be wondering: Where does the royalties money come from in the first place? Essentially, the streaming platforms devote a share of their revenue to the payment of royalties.
There exists two main mechanisms for streaming platforms to generate revenue:
- Subscriptions: Users of the platform pay a monthly subscription to gain access to the music on the platform. This is also known as a Premium model.
- Ads: Users do not pay any money but instead listen to and/or see ads while they use the platform. The advertisers pay the streaming platform for the exposure to their customers. This is also known as a Freemium model.
Some platforms like Spotify or Deezer offer both Freemium and Premium plans while some others like Apple Music or Tidal only offer Premium options.
Spotify reports that premium and (active) freemium users represent about 42% and 58% of total users, respectively.
But premium and freemium subscribers don’t generate revenue at the same pace. Subscriptions generate around 9 times more revenue than freemium users, or about 90% of the total revenue vs. 10% for ads.
Numbers may vary on other platforms, but it is fair to expect that the general trend of premium users generating a lot more revenue than freemium would hold.
Artist Royalties Calculations
At this point we know that DSPs redistribute some of their revenue to the artists in the form of royalties and we know how…
Read More: How Artists Get Paid From Streaming