In this piece we look at the details of streaming music royalties, how they're determined, and why the initial parameters which we once used even as recently as in the time of downloading, no longer apply in the streaming era.
Guest Post by Bobby Owsinski of Music 3.0
In Part 3 on my series on streaming music royalties, we try to make sense of streaming income as we look at why it varies so much and why the sales parameters we set in the days of vinyl and CDs no longer apply in the digital age. Once again, this is an excerpt from the latest version of Music 4.1: A Survival Guide For Making Music In The Internet Age book.
“By now, we’ve all read the horror stories of the artist or songwriter making what seems to be an incredibly small amount of money after millions of streaming plays. What’s more, it seems even more outrageous when you see that the amounts paid look random, with not many of the tiny payments at the same rate.
Hopefully, here’s a way to make sense of those payments based on what was just presented in the previous two sections.
A Million Isn’t What It Used to Be
Back in the days of vinyl, cassettes, CDs, and even downloads, a million was a substantial number that amounted to a lot of money in sales. Today, a million doesn’t mean what it used to, especially when it comes to streaming. In fact, a million streams barely registers on the industry’s radar these days; they begin to take notice at 10 million, and 50 million is considered a minor hit. Major hit records routinely rack up hundreds of millions of streams and views.
That’s why it’s important to keep the “million” figure in perspective when discussing streaming. It’s a good starting place, but not as impressive a number as it once was.
The Sound Recording Royalty
As stated earlier in the chapter, every time a song streams, a royalty is generated for the owner of the sound recording. This is usually the record label, but it can also be a DIY artist without a label.
Sound Recording Rate Variables
Before the royalty is even paid to the artist or label, the royalty rate has lots of variables, some of which we’ve covered already:
- The type of service (on-demand or webcast)
- The type of tier (free or paid)
- US or foreign (where the listener is accessing the song from)
- Calculation variables
Each country may have the same tiers, but each may pay at much different royalty rates. This is because many services charge the consumer different rates to subscribe in different countries (usually lower than the United States) because that’s all the market will bear. For instance, an Apple Music subscription costs $9.99 per month in the United States but only $2 (120 rupees) per month in India and $3 (169 rubles) per month in Russia. The royalty rate paid on the sound recording will reflect these lower amounts for streams in those countries.
This is one reason why a million streams for one artist may generate more or less money than another. If most of your streams come from outside the country, chances are your royalty check is a lot lower than an artist with streams mostly from inside the United States.
Another unmentioned variable is that some services calculate their royalties on more than streams. Take Spotify, for example. One of the little known facts about the service is that the artist’s market share is also taken into account when determining the monthly royalty. As a result, an artist with a huge hit effectively gets paid a bonus for her increased market share that month.
The Middleman Factor
It’s been stated before but again frequently overlooked: there’s almost always a middleman between the streaming network and the artist. Most of the time, it’s a record label that’s collecting the revenue and then paying the artist at the royalty rate set forth in their label agreement. For digital royalties, this usually ranges anywhere from 15 to about 22 percent, but you can see how the majority of the income that was generated doesn’t make it to the artist in this case.
This is the same to a lesser degree for the DIY artist. Most services will accept song submissions only from major record labels or large indie labels. As a result, most DIY artists are forced to use an aggregator like TuneCore, CD Baby, or DistroKid.
Some of these aggregators charge a flat fee per song or album for uploading to the various digital services, some charge a yearly fee, and some charge a percentage of the streaming royalty that’s earned. This can be another finger in the pie that the DIY artist isn’t prepared for.
An aggregator provides the convenience of not only distributing your music to multiple services at once but also collecting the money for you as well, but that service does come at a price. If you’re really in a DIY state of mind, consider forming your own label and affiliating with the Merlin Network indie label association (merlinnetwork.org) as a way of submitting to each service separately.”
For more on streaming income, check out Part 1 and Part 2 of this series.
You can read more from Music 4.1: A Survival Guide For Making Music In The Internet Age and my other books on the excerpt section of bobbyowsinski.com.