top of page
  • Writer's picture

How are Royalties made from Streaming Music.

The Evolution of Music Streaming and Royalty Payments

Music streaming has become the dominant way people listen to music, but it hasn't always been that way. Streaming has radically changed how we consume music and how artists get paid. Let's look at the history of music streaming and how these services generate revenue to compensate artists.



In the beginning, there was radio. For decades radio was the main way people discovered and listened to new music. Artists got paid royalties when their songs were played on radio, but the payments were relatively small. As cassette tapes, CDs, and MP3s emerged, people started purchasing and owning copies of music. This gave more revenue directly to artists and record labels.

The early 2000s saw the rise of illegal peer-to-peer file sharing networks like Napster and Kazaa. Suddenly people could get digital music for free, leading to a massive disruption of the music industry.

With people downloading songs for free, revenue from music sales plunged. Artists and record labels had to adapt.




Out of this chaos, the first licensed music streaming services emerged as an alternative. Pandora launched in 2005, focusing on streaming radio stations based on songs or artists. Then Spotify arrived in 2008 as an on-demand streaming service with millions of songs available on-demand. Apple Music, YouTube Music, Amazon Music and others would soon follow.


These new music streaming services relied on subscriptions and ads rather than music sales to generate revenue. Users could listen to unlimited music either by paying a monthly fee or putting up with periodic ads. Subscription fees and ad revenue then get shared out as royalties to the artists being streamed.

For example, Spotify pays out around 70% of its total revenue in royalties. Approximately 55% of its royalty pool goes to record labels and artists, while 15% goes to songwriters. Royalty rates are based on the service's total revenue and number of streams across their platform. Typically Spotify pays between $0.003 and $0.005 per stream.


Apple Music pays around 72% of its revenue in royalties, again split between artists and songwriters. Other services have similar structures, paying out a large portion of their revenue in royalties. The exact rates vary based on individual negotiations and record label deals.


This shift to music streaming royalty payments has been controversial. On one hand, artists now receive ongoing compensation based on how often their music is streamed. This provides recurring revenue that can continue long after an album release. Streaming also generates more data on exactly which songs are most popular.




However, individual per stream rates are low, generating only fractions of a cent per play. This means artists must have their music streamed millions and millions of times to earn a meaningful amount. Lesser-known artists or niche genres struggle to rack up enough streams to provide a living wage.


Streaming services have vastly increased access to music, but shifted more power and profits to corporate tech platforms. Yet overall they have rescued the music industry from rampant piracy and generated new income for artists through scale and recurring royalty payments. There is still debate around ensuring fair artist compensation.


Music streaming has fundamentally changed how we listen to and pay for music. While the economics are still evolving, these services now comprise the majority of music industry revenue. Streaming looks to only increase as 5G and smart speakers make music even more accessible. The royalties generated by streaming still face challenges, but provide a viable path forward for compensating artists in the digital age


 

Question : Is it better to pay the music Distributor a yearly fee or just allow them to take a percentage?


Answer: There are pros and cons to both paying a distributor a yearly fee versus allowing them to take a percentage of revenue. Here is a comparison of the two models:

Paying a Yearly Fee

Pros:

  • The fee is a known upfront cost that can be budgeted for. There are no surprises or fluctuations.

  • You retain a higher percentage of royalties and revenue from your music.

  • Simple, predictable model.

Cons:

  • The set fee may be too high for less established artists who aren't earning much revenue yet.

  • No incentive for distributor to maximize revenue/royalties.

  • Less flexibility if your release schedule or needs change.

Revenue Percentage Model

Pros:

  • Only pay the distributor based on what your music actually earns. If you aren't earning much yet, your costs are low.

  • Distributor is incentivized to maximize revenue and royalties, since their compensation is tied to it.

  • Costs scale up or down naturally with your music's performance.

Cons:

  • Unpredictable and fluctuating costs each month/year.

  • Distributor earns a share of your music's earnings in perpetuity.

  • May pay more overall if your music is very successful.

Overall, the percentage of revenue model likely makes more sense for newer artists or those releasing sporadically. The set yearly fee may be better once you have an established catalog generating steady revenue. But there are good arguments on both sides, so consider your specific situation and preferences.


Question : if I upload my music through a Music Distributor do that mean that I automatically own the copyrights?


Answer:

No, just distributing your music through a distributor does not automatically grant you the copyrights. Here are some key points on music copyrights:

  • Copyright ownership is established when a work is created in fixed form - for a song, when it is recorded in some physical form like a CD or audio file.

  • The creator or creators of the work (songwriters, artists, producers etc.) initially hold the copyright automatically once the work is fixed.

  • Registering the copyright with the US Copyright Office provides additional legal benefits, but is not required to hold the copyright.

  • When releasing music through a label or distributor, artists typically grant certain licensing rights for distribution and sales, but retain full copyright ownership if they authored the work.

  • Recording contracts or distribution agreements may allow the label/distributor to administrate or "own" the copyright, but the creator still retains the underlying rights and ownership.

  • Simply having a distributor upload a work does not transfer copyright ownership rights away from the creator, unless there is a specific agreement otherwise.

Working with a music distributor does not inherently change or transfer your copyright ownership over your songs. Distributors facilitate distribution and collecting royalties, but copyright remains with the artists who authored the work, unless otherwise agreed. To retain full ownership, be sure your distribution agreements do not include outright copyright transfer. Consult an entertainment lawyer for guidance on protecting your rights.



 

Have questions about Music Distribution ? Leave them in the Comment Section Below.


Also Be sure to Check out our Distribution Service www.1515universe.com/Distribution




22 views0 comments

Comments

Rated 0 out of 5 stars.
No ratings yet

Add a rating
bottom of page