Aug 17, 2024
As streaming services like Spotify, Apple Music, and YouTube Music continue to dominate the music industry, understanding how money flows from these platforms to artists is crucial. The path from a listener pressing play to an artist getting paid involves multiple steps, parties, and types of rights. This article will break down how revenue from streaming is distributed, how different types of rights influence the share an artist receives, and provide a rough estimate of how much each revenue stream contributes to an artist’s overall income.
Subscription fees and ad revenue
Streaming services generate revenue primarily through subscription fees from premium users and ad revenue from free-tier users. All the money collected from these sources forms a central revenue pool. This pool is then divided and distributed based on a system that accounts for factors like total streams and the specific deals the service has with record labels and rights holders.
Pro rata model
Most streaming services operate on a pro-rata model, where the total revenue pool is split among rights holders based on the number of streams each song receives. The more streams a song garners, the larger the share of the revenue pool the rights holders for that song receive.
Master rights and labels
When a song is streamed, the first layer of payment is directed towards those who hold the master rights—the rights to the actual sound recording. However, this payment process often involves several steps:
Distributors: Streaming services like Spotify work with a group of preferred distributors who handle the distribution of music to these platforms. Whether the artist is signed to a major label or an independent one, the revenue from streaming services first flows through these distributors. Distributors may be part of the same company as the label or operate independently, but they are essential in managing the logistics of getting music onto streaming platforms.
Label-owned masters: If the label owns the master rights, the streaming service pays the label through the distributor. The label then allocates a portion of this payment to the artist according to the terms of their contract.
Artist-owned masters: Even if the artist retains ownership of the master rights, when working with a label for distribution and promotion, the revenue typically still flows through the label. The streaming service pays the distributor, who then passes the payment to the label. The label, in turn, distributes a share to the artist based on the agreed contract terms.
Independent releases: Artists who release music completely independently, using direct distributors like TuneCore or CD Baby, receive their share of the revenue directly from the distributor, without the involvement of a label. This direct distribution can simplify the payment process, as there are fewer intermediaries involved.
Estimated earnings contribution
Master Royalties typically make up a significant portion of streaming income, often around 60-70% of the total streaming revenue an artist earns, though this can vary based on the specific contract terms.
Performance royalties
In addition to master royalties, streaming also generates performance royalties linked to the composition—the lyrics and melody. These royalties are collected by Performance Rights Organizations (PROs) around the world, including ASCAP, BMI, and SESAC in the U.S., PRS in the UK, and Buma Stemra and Sena in the Netherlands. These organizations distribute the collected royalties to songwriters, composers, and publishers.
Songwriters and publishers: Whether you are the songwriter, the publisher, or both, performance royalties ensure you are compensated whenever your composition is streamed.
Different roles, same person: In genres like electronic music, it’s common for one individual to be the songwriter, performer, and owner of the master recording. In such cases, all these roles are held by the same person, streamlining the flow of revenue.
Mechanical royalties
Mechanical royalties are also generated from streams and relate to the reproduction of the musical composition. These royalties are collected by mechanical rights organizations like the Harry Fox Agency in the U.S., PRS for Music in the UK, and Buma Stemra in the Netherlands, and then distributed to songwriters and publishers.
Direct collection: Songwriters may collect their mechanical royalties directly or through a publisher or administrator, depending on their rights management setup.
Publishing deals: If a songwriter has a publishing deal, the publisher handles the collection and distribution of mechanical royalties, taking a percentage as agreed in the contract.
Estimated earnings contribution
Performance royalties royalties typically contribute around 15-25% of an artist’s total earnings from streaming.
Mechanical royalties are usually a smaller portion, contributing around 5-10% of the artist’s total streaming income.
Remixes and derivative works
The ability to create and monetize remixes or other derivative works from your original recordings depends heavily on the specifics of your record deal. If you retain ownership of your master rights or have negotiated favorable terms, you may have the authority to approve or deny remixes and set the terms for their release, including royalty splits and licensing agreements. If the label controls the master rights, they usually hold the decision-making power over these derivative works. Regardless of who holds the rights, remixes and other derivatives can become an additional source of income tied to your original recording.
Sublicensing
Sublicensing, where the master recording is licensed to a third party, for example for use in different markets or platforms, is another area where your contract terms come into play. If you retain master rights, you can decide when and how to sublicense your music, potentially opening up new revenue streams. If your label controls the master rights, they will handle sublicensing decisions, though you may still benefit financially from these deals depending on the terms of your agreement.
Estimated earnings contribution
Earnings from remixes and sublicensing can vary widely, typically contributing 5-10% of total streaming-related income, depending on the popularity and usage of the derivative works.
Breakdown of payments
After streaming platforms allocate revenue based on streams, the money is distributed as follows:
To master rights holders:
The DSP pays the master rights holder (either the label or the artist) directly, through the distributor. If the artist is under a label, the label takes its share based on the contract and passes the rest to the artist.
To composition rights holders:
Performance and mechanical royalties are paid to the songwriters and publishers through their respective PROs/CMOs.
Fees and commissions:
At every step—whether it’s through a label, distributor, or publisher—fees and commissions may be deducted before the artist receives their share.
Artist earnings
Finally, after all intermediaries have taken their portion, the remaining money flows to the artist. The exact amount an artist receives can vary greatly depending on the nature of their contracts, their ownership of rights, and the success of their music on streaming platforms.
The journey of money from streaming services to artists is complex, involving multiple rights, organizations, and intermediaries. Keeping track of all these revenue streams can be complicated. By understanding how these processes work, artists can better navigate their careers and make informed decisions about their music rights. Whether you’re an artist working with a label or managing your own rights, knowing how the money flows ensures you’re better equipped to maximize your earnings.