How Music Streaming Services Actually Work

February 2020

We have a guest on the blog this month – ConsumersAdvocate.org – to talk about the financial side of streaming. It’s widely known that streaming platforms pay musicians very little. How much can you expect to earn from streaming as an artist? As consumers, is there anything we can do to help artists earn more per stream? This article aims to answer these questions.

 

DISCLAIMER: The following article was written and researched by ConsumersAdvocate.org. They provided all facts and figures. Please also note in regard to facts and figures, this post was published in February 2020. I am not sponsored by ConsumersAdvocate.org. I have not been paid for this article, and will not receive a percentage of any purchases made through their website. 

 

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. This 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 would 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. 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 our 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.

 

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This article by ConsumersAdvocate discusses the pros and cons of the major streaming services. I found the royalty calculator interesting. You can use it to work out what you could earn as an artist, and which streaming services pay the highest royalties. 

 

If you’re interested in this topic, we discussed streaming in my Q&A with Lindsey Kirkendall. She spoke about why she believes paying to get playlisted is a waste of money. 

 

Which streaming platform do you use? If you’re an artist, have you noticed anything interesting regarding royalties and what you’ve been paid? Let me know. 

 

This blog is about making money in music, especially as an independent songwriter or artist. Please subscribe to be notified when new articles are posted.

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