How Music Streaming Services Actually Work
Welcome to the Ongoing Blog post #5! This post is brought to you by ConsumersAdvocate.org. If you release music through a distribution platform like Tunecore, Distrokid, or CD Baby and you want to know more about how payment from streaming services really works, you’re in the right place!
Written by: Joan Pabón
Link to Full Article: https://www.consumersadvocate.org/music-streaming-services
Most of us use music streaming services like Pandora and Spotify on a daily basis, whether during our morning or evening commute or throughout our work shift, but few really understand how these services function with regard to royalties. How much money musicians earn from music streaming services could seem like an irrelevant detail, after all, they seem to be doing better than the rest of us, right? Well, turns out that not all streaming services are fair to artists, and if we want to support our favorite bands and musicians, royalty payments are something we shouldn't ignore.
How music streaming royalties are paid out can be unclear even for those who understand the industry's inner workings. Turns out, payments are based on formulas that vary from one company to another, but most services generally follow a pro-rata or service-centric approach. Under this model, royalties are paid monthly and calculated based on the music streaming service's total revenue, that number is then divided by the overall number of streams for all artists and multiplied by a specific artist's number of monthly streams. That means that if your favorite artist is an obscure band that hardly anyone listens to, they'll get a much smaller royalty payment from your sponsorship than a popular teen heartthrob you've never heard of before.
Needless to say, there are those who claim this payment scheme favors only the most popular artists as opposed to upcoming or independent ones. A fairer model would be "user-centric," where an artist would get compensated for each listener's consumption of their music on a monthly basis. That would mean that if you pay $10 a month for a music streaming service and only listened to your favorite obscure band, 100% of the royalties that stem from your subscription will go to that band.
Those in favor of the pro-rata system (music streaming services) are invested in saving on the cost of administrating royalties following a more user-centric approach. While it's hard to find a service that treats artists fairly in this regard, we can, however, opt for music streaming services that pay them enough. Review site ConsumersAdvocate.org recently published a comprehensive guide to music streaming services that lists how much each streaming company pays its artists per stream. According to their research, to earn minimum wage under Tidal, an artist's music would have to be streamed 120,000 times. Conversely, their music would have to be streamed 2.1 million times to earn the same through YouTube. The guide also includes a royalty calculator so you can check different services and compare how many times an artist would have to be streamed to get to a given royalty amount.
Again, while royalties aren't something we typically consider when subscribing to an online music streaming service, the numbers are so impressive that they're worth looking into. There are other aspects of the music industry that are equally questionable but out of our hands yet choosing a service that's pro-artist or user-centric is something we can do that has the potential to make a difference.
Thank you for reading!