As fans, we want to do everything possible to support our favorite musicians. And since it is not always possible to buy physical albums or merchandise, a lot of us show our support by streaming those artists’ music on a number of platforms.
Unfortunately, many music platforms do not clearly state how – or how much – they pay the artists. In this blog, we will discuss the main ways in which music discovery and streaming platforms like Spotify compensate musicians.
How do Music Discovery Platforms Pay Artists?
1) Mechanical Royalties
A mechanical royalty is generated every time a piece of music is digitally or physically reproduced.
In an interactive streaming platform (one where users get to choose the songs they want to play) a digital reproduction happens each time a user hits ‘Play’. As far as non-interactive platforms like FM/AM radio go, royalties are categorized as ‘public performance’ royalties.
2) Public Performance Royalties
Speaking of public performance royalties, this is a fee that publishers and artists receive every time their music is played publicly or broadcast (such as in supermarkets, restaurants, jukeboxes, or on the radio).
This type of royalty is handled by PROs (Public Rights Organizations). These organizations collect licensing fees from parties that make use of the music, and use these fees to compensate publishers and songwriters in the form of public performance royalties.
Public performance royalties are generally decided by the PRO and streaming platform. A typical public performance royalty is around 5-7% of the streaming platform’s overall revenue extracted from the All-In Royalty Pool.
3) Payouts to Recording Owners
When asking about how much money music artists make through streaming platforms, you are essentially wondering about the amount paid out to recording owners.
Payout to recording owners is the entire amount of money (including the various types of royalties attached to the music) that will be distributed to all involved parties (such as the musicians, songwriters, producers, and non-featured singers).
As per SoundExchange, this is how payable streaming amount is distributed:
- 50% to the legal owner of the music
- 45% to featured artists
- 5% to non-featured artists
Depending upon the deal they sign with the streaming platform, an artist can receive anywhere from 45% to 100% of the total payout.
The below example will help drive this point home:
Dean Lewis’ song, Waves, was written by Lewis himself, along with Edd Holloway and Nick Atkinson. It was released by Island Records Australia record label.
Ever since its release in late 2016, the song has been streamed approximately 45 million times (let us assume exactly 45 million, for the sake of simplicity). Assuming a stream loyalty of $0.091 per stream, the song should have generated around $4,095,000.
The streaming platforms will pay this amount to Island Records Australia who, in turn, will distribute this money to the involved artists based on their roles.
This is probably an oversimplified explanation of how royalties are distributed, but it does cover the gist of it.
Wrapping Up
Music artists earn royalty payouts from streaming services, just like they do from physical copy sales.
In exchange for letting streaming platforms serve their music on their libraries, artists get a certain payout percentage every time a user plays their songs.
Eric Dalius is The Executive Chairman of MuzicSwipe, a music and content discovery platform designed to maximize artist discovery and optimize fan relationships. Along with his work at MuzicSwipe, he also interviews groundbreaking entrepreneurs on his weekly podcast, “FULLSPEED.” Eric also founded the “Eric Dalius Foundation” to support US students with four scholarships. Follow his journey on Twitter, Facebook,YouTube, LinkedIn, Instagram, and Entrepreneur.com.
