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Streaming Royalties Explained
WRITTEN BY; Sir Heist on Aug 31, 2018
Thanks to the internet, streaming has become one of the primary ways people listen to music, whether on their smartphones, at home, on their computers, or elsewhere – but that doesn't mean it's been easy for songwriters to sort out the process of getting paid for all that exposure. Royalty rates are set at a variety of different percentages, usually based on the digital service’s gross revenue for a period of time, and even industry pros and publishing execs who have been in the industry for decades can find themselves confused.
Looking At The Rates
Some companies won't release exact numbers, but it's unlikely anyone but songwriters with major hits (and more than one) are making a lot of money from streaming due to the low payout scale. For an artist to make the minimum wage from, for example YouTube, he or she would have to rack up 2.1 million plays. For Spotify, the number is lower, but still sizable at 366,000 plays to make minimum wage money.
To sort out what you can expect from streaming revenue, it's important to know that there are two kinds of streams - non-interactive or webcast (Pandora is one example) and interactive or on-demand (i.e Spotify). On-demand generates more money, and thus pays more. There are also two tiers for each stream - premium or paid subscribers and freemium or ad-supported subscribers. The paid level usually generates more money than ad-supported streams.
While there's a sound recording royalty that takes up the larger share of each dollar earned through streaming, that usually goes to record labels or film studios and investors (though it can also go to independent artists - whoever owns the sound recording). Songwriters can look forward to receiving the performance and mechanical royalties allocated to the composition.
Mechanicals, or mechanical royalties, are usually collected by publishers via a mechanical licensing administrator, such as the Harry Fox Agency (HFA). What publishers keep as a fee before paying songwriters varies. Performance income usually goes to a performing rights organization (PRO). ASCAP and BMI deduct operating expenses (approximately 10-18 percent of royalties) before paying writers and publishers - and that 10-18 percent is an estimate for the U.S. only – SESAC, GMR and other international organizations may have different rates. Is your head spinning yet?
To further complicate matters, there are different breakdowns for artists signed with indie labels, self-releasing artists, and artists affiliated with a major label. Also, each streaming service offers artists a different percentage of royalties.
Even the breakdown of the highest-paying streaming services can be a head-scratcher. While Napster pays artists the highest percentage of royalties at $0.0167 per play, the company only has 1.75 percent of the market. You may get a higher percentage for each play, in other words, but the number of plays may be vastly overshadowed by, say, Spotify or Apple Music. Reaching the number of plays you need to make the minimum wage is hampered by the low number of subscribers.
Another relatively high-paying service, Jay Z and Beyonce's Tidal, pays $0.0110 per play, but has a very small percentage of the streaming market, with just 1.76 percent market share.
The Breakdown By Subscription
Spotify has the highest number of paid subscriptions with well over 60 million, but even as top executives at the company earn seven-figure salaries, artists and songwriters aren't seeing a comparable cut of the earnings. Still, the percentage per play has gone up over the last year. The service paid $0.00397 per stream this year, and $0.0038 last year. Given there are 60 million subscriptions on Spotify, a songwriter may benefit from a larger audience translating into more plays, despite the low rate per stream.
Unlike Spotify, Apple Music doesn't have a free subscription, which accounts for its higher per-play rate. Also Apple voluntarily offers an elevated payout for mechanical publishing, which is good news for songwriters. Apple has also increased its payout per stream from last year, when it paid $0.0064. In 2018, Apple is paying $0.00783 per stream.
Information is Beautiful released estimated payout rates per stream for eight of the most-used streaming companies in music. Though the numbers are a best estimate from several sources, they give a good idea of how much (or how little) songwriters can expect from streaming. The estimated payouts include:
Napster - $0.0167
Tidal - $0.0110
Apple Music - $0.0064
Google Play - $0.0059
Deezer - $0.0056
Spotify - $0.0038
Pandora - $0.0011
YouTube - $0.0006
Keep Your Head Up
It's complicated and can sometimes seem bleak, but the reality is that the more the music community pushes for rate reform, the more changes we'll see. Keep putting your music out there and collecting the royalties you earn from each platform you distribute on. Make sure you have your publishing in order and stay up-to-date with what you're earning. Sign up for Songtrust to make sure you're collecting all your global performance and mechanical royalties, and use our streaming royalty estimator (the button below) to see what your top performing streams could be worth.