How Much Royalties Do Music Streaming Services Pay? | Fundamentals of Music Publishing (2023)

Music Royalties in 2023 (Summary)

All major streaming services pay royalties based on an artist’s share of overall streams across the platform. Although none of the platforms share their exact formula for their pay per stream, there are estimates available. Below are approximate figures reported by Ditto in 2020 for US-based streams:

In general, there are four major factors that are used to calculate the payout for each stream:

• The listener’s country and location
• Whether the listener has a paid subscription or free account
• The specific artist’s royalty rate (depending on their contract)
• The pricing & currency conversion between regions

While we may not be able to predict the exact payout from every stream, there are calculators that help provide estimation on how much you will earn from various streaming platforms. To get an estimate for your 2023 royalties, check out this calculator from Ditto Music.

Further Context

Music streaming services have become a dominant mode of music consumption in recent years, providing access to vast catalogs of music at the fingertips of millions of listeners worldwide. With the rise of streaming, the question of how much royalties music streaming services pay to music creators has become a topic of widespread discussion and debate in the music industry. In this article, we will explore the complex world of music streaming royalties, including how they are calculated, the challenges and criticisms surrounding streaming royalty rates, and the efforts being made to ensure fair compensation for music creators.

Music streaming services generate revenue through subscription fees paid by users or through advertising revenue from free-tier or ad-supported services. These services then pay royalties to music creators based on various factors, including the number of streams, the type of subscription or service, the territory, and the rates agreed upon in licensing agreements or determined by industry practices. However, the calculation of streaming royalties is often considered opaque and complex, with different services and territories having their own unique formulas and practices.

One of the key factors in determining streaming royalties is the “per-stream” rate, which refers to the amount paid to music creators for each individual stream of a song. Per-stream rates can vary widely depending on the streaming service, the subscription tier, and the geographic location. For example, premium subscription tiers, which generally offer higher sound quality and more features, tend to have higher per-stream rates compared to free-tier or ad-supported services. Additionally, per-stream rates can also vary depending on the popularity of the artist or the genre of music, with higher rates often paid for more popular or mainstream content.

However, determining the actual per-stream rate can be challenging, as streaming services often do not disclose their exact royalty rates publicly. This lack of transparency has led to criticism and concern among music creators, who argue that they do not have enough visibility into how their music is being valued and compensated on streaming platforms. In response, some music creators have called for greater transparency and standardized royalty rates across the industry to ensure fair compensation for their creative works.

Another factor in streaming royalty calculation is the revenue share model, which determines how the revenue generated from subscriptions or advertising is divided between the streaming service and the music creators. Revenue share models can vary depending on the streaming service, but typically involve a percentage split between the service and the music creators. For example, a streaming service may allocate 70% of its revenue to royalties, with the remaining 30% retained as operating costs and profit. However, the actual percentage allocated to royalties can vary and may be negotiated in licensing agreements or determined by industry practices.

Territory also plays a role in streaming royalty calculation, as royalty rates can vary depending on the country or region where the music is streamed. This is due to different licensing agreements, legal requirements, and economic factors in different territories. For example, streaming services may have different royalty rates for the United States compared to Europe or Asia, based on factors such as market size, consumer spending habits, and local regulations.

It’s important to note that streaming royalties are not the only source of revenue for music creators. In addition to streaming, music creators may also earn royalties from other sources, such as performance royalties, mechanical royalties, synchronization royalties, and print royalties, as discussed in the previous sections of this article. However, the rise of streaming has led to increased reliance on streaming royalties for many music creators, especially independent artists who may not have access to other revenue streams.

Despite the growing popularity of streaming, there have been widespread concerns and criticisms about the perceived low royalty rates paid to music creators.

Some music creators argue that the current royalty rates are not sufficient to sustain a viable income for artists, especially for those who are not household names or who do not have significant bargaining power in licensing negotiations. Critics argue that the disparity between the revenue generated by streaming services and the royalties paid to music creators is unfair and unsustainable, particularly considering the enormous profits generated by some of the major streaming platforms.

One of the main criticisms of streaming royalty rates is that they are often perceived to be too low, especially for independent or lesser-known artists. Many music creators argue that the per-stream rates and revenue share models offered by streaming services are inadequate to compensate them for their creative work, and that they struggle to earn a fair income from streaming royalties alone. This is especially true for artists who may not have a large fan base or who may not generate millions of streams, as the per-stream rates can be extremely low, sometimes amounting to just fractions of a cent per stream.

Some music creators also argue that the revenue share models used by streaming services are not transparent and may not be equitable. While streaming services typically allocate a percentage of their revenue to royalties, the actual percentage allocated can vary, and may not always be disclosed to music creators. This lack of transparency can make it difficult for music creators to understand how their music is being valued and compensated, and whether they are receiving a fair share of the revenue generated by streaming platforms.

Moreover, there have been concerns about the market dominance of a few major streaming platforms, which can result in an imbalance of bargaining power between these platforms and individual music creators. Some argue that major streaming platforms may have significant leverage in licensing negotiations, which can result in unfavorable royalty rates for music creators, particularly independent artists who may have limited negotiating power. This has led to calls for more equitable and standardized royalty rates across the industry, as well as greater transparency in the negotiation and determination of royalty rates.

In response to these concerns, there have been efforts to advocate for fairer royalty rates and greater transparency in the music streaming industry. For example, some music industry organizations, advocacy groups, and artists have called for increased transparency in the calculation of royalties, including the disclosure of per-stream rates and revenue share models used by streaming services. They argue that greater transparency would allow music creators to better understand how their music is being compensated and whether they are receiving a fair share of the revenue generated by streaming platforms.

There have also been efforts to standardize royalty rates across the industry. For example, some organizations have proposed the adoption of a “user-centric” or “follower-centric” royalty distribution model, where royalties would be paid based on the actual listening habits of individual users, rather than a pro-rata model where royalties are distributed based on overall market share or popularity. Proponents of a user-centric model argue that it would result in a more equitable distribution of royalties, particularly for niche or independent artists whose music may not generate millions of streams but may have a dedicated fan base.

In addition, there have been calls for increased regulation and government intervention to ensure fair compensation for music creators in the streaming era. Some countries have already taken steps to implement legislation or regulations aimed at addressing the issue of streaming royalties. For example, in 2020, the French government passed a law that requires streaming services to disclose their royalty rates and revenue share models to music creators, and to negotiate royalty rates in good faith. Other countries, such as the United States and the United Kingdom, are also considering or have proposed similar legislation to address the concerns of music creators regarding streaming royalties.

However, there are also challenges and complexities in implementing standardized royalty rates or increased regulation in the music streaming industry. Some argue that determining standardized royalty rates could be difficult, as different services, territories, and business models may require different approaches. For example, premium subscription tiers that offer higher sound quality and more features may require higher royalty rates compared to free-tier or ad-supported services. Moreover, major streaming platforms may have different operating costs and profit margins, which could impact the percentage of revenue allocated to royalties.

Another challenge is the potential impact of standardized royalty rates or increased regulation on the business models of streaming services. Some argue that imposing higher royalty rates could lead to increased subscription costs for consumers, which may affect the affordability and accessibility of streaming services, particularly for price-sensitive markets. This could potentially result in a decline in overall streaming revenue and impact the viability of the streaming business model.

Furthermore, there are also differing perspectives among music creators themselves on what constitutes fair royalty rates and how they should be determined. While some advocate for higher per-stream rates or a user-centric model, others argue that the current revenue share models and pro-rata distribution based on overall market share are fair and should not be changed. Finding a consensus among music creators and other stakeholders on what constitutes fair compensation for music in the streaming era can be challenging.

In addition, there are concerns about the potential unintended consequences of increased regulation or standardized royalty rates. For example, some worry that increased regulation may stifle innovation and competition in the music streaming industry, as it may limit the flexibility of streaming services to adapt their business models and pricing strategies. There are also concerns about the potential for increased administrative burdens and costs associated with implementing and enforcing regulations related to streaming royalties.

Despite the challenges, there is a growing awareness and recognition of the need for fair compensation for music creators in the streaming era. Many stakeholders, including music creators, streaming services, industry organizations, and policymakers, are actively engaging in discussions and negotiations to address the issue of streaming royalties. Solutions may involve a combination of increased transparency, standardized royalty rates, and regulatory interventions that balance the interests of music creators, streaming services, and consumers.

Conclusion

The issue of streaming royalties and fair compensation for music creators is complex and multifaceted. While streaming has revolutionized the way music is consumed and has generated significant revenue for the industry, concerns about the fairness and sustainability of current royalty rates persist.

Efforts are being made to advocate for increased transparency, standardized royalty rates, and regulatory interventions, but finding a balance among the interests of various stakeholders remains a challenge. As the music streaming landscape continues to evolve, it will be important for all parties to engage in constructive dialogue and work towards solutions that ensure fair compensation for music creators in the digital age.

Additional Reading

Note that your digital music distributor probably doesn’t collect your full royalties from streaming services. You’ll also want to register your music with Songtrust & SoundExchange to get more of the royalties that your streams create. Read our article to learn more about the difference between the two.

Do you use plugins like IzoTope and FabFilter? Read our article to see a comparison between the two.

The music distributor RouteNote and the site Musician Wave both have excellent articles that also discuss streaming royalties.

Interested in finding a solid midi controller for music production? Read our article about the 6 of the best midi controllers. Also, here are 9 of the best microphones for musicians and 9 great headphones for music production

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