How Music Streaming Services Pay Musicians & Artists

Music streaming has forever changed our relationship with music.

In the past, we had to visit a record store, go to a live concert, or turn on the radio to listen to our favorite tunes. Fast forward to today, most of the world’s music is available everywhere, all the time.

People these days rarely even download music. Just launch Spotify or YouTube music, on your computer or smartphone – and the next song is within seconds away from being played.

YouTube Music 

While this revolution has majorly impacted music consumers (who are now paying only a small fraction of what music used to cost in the pre-streaming era), but it has also largely affected the artists who create and produce the songs we love.

So the question is, how do artists and songwriters get paid by the major streaming companies? How much do they get paid? Is it fair?

A recent article published by ConsumersAdvocate.org aims to answer this big question. And whether you’re a music consumer or product – this is something you should care about. Let’s get to it.

How Royalty Payments Are Calculated for Streaming Artists

In short, there are two main formulas for calculating royalty payments for streaming. for streaming artists: “pro-rata” and “user-centric”.

Pro-rata System a.k.a service-centric

With this formula, the monthly royalty payment to each individual artist is calculated by taking a streaming company’s overall revenue for a given month, dividing this amount by the overall number of streams by all artists on the platform for that month, and then multiplying the resulting number by the specific artist’s total streams for that month.

For example, if there were a total of 1,000 streams in Spotify for January, and artist ‘Y’ had 100 streams in that same month, then ‘Y’ will be paid 10% of the company’s overall streaming revenue.

This is the payment system currently used by most major streaming companies around the world.

The problem with this approach to royalty payments is that less popular artists (the majority) get a smaller piece of the pie, while only a small handful of artists get close to 90% of overall royalties.

The pareto principle applies in this scenario.

User-centric

On the other hand, there’s the user-centric system, where royalty payments are paid on the basis of each individual listener’s consumption in a given month. For example, if I only listen to artist ‘Y’ in January, then 100% of my subscription fee for that month will go to artist ‘Y’ and will not be shared with other artists on the streaming platform.

According to many industry insiders, the user-centric system is fairer to artists, as it resembles the royalty payments of the pre-streaming era, where the money you paid for an artist’s CD went ONLY to that artist. However, only a handful of streaming companies, such as Deezer use this approach.

Last but not least, there’s the actual amount that artists get paid per stream. As we can see in the chart below, hundreds of thousands (and, in some cases, millions) of monthly streams are required for artists to make, at least, the US minimum wage of $1,256.67 per month.

As music streaming takes over the world and displaces traditional music mediums, it’s essential that we are aware of how royalties in music streaming are being paid – regardless of whether you are a musician, artist or music consumer.

You can read a more thorough review of the best music streaming services at ConsumrsAdvocate.org.

Let us know your thoughts in the comment section below. Which streaming services do you currently use or monetize your music from? Which one is your favourite and let us know if there are any interesting finds.