Music streaming is now at the very center of the recording industry. The chances are that the recording artist will make most of the money on streaming, whether it’s an up-and-coming local act or an international superstar — although the second will make about a million times more. As A Boogie Wit Da Hoodie puts it: “we ain’t even got no CDs out”.
At the same time, the music streaming market is becoming exponentially more and more complex. As of 2018, there were over 200 DSPs with streaming capabilities, from regional players and niche services to international giants of Apple, Spotify and alike. We’ve laid out a complete classification of all streaming services over in our article on the Mechanics of Streaming, so check it out if you want to know more.
So, how do you navigate this complex landscape of the streaming market and maximize your streaming revenue? The music industry is full of opportunities, but what are the platforms you should focus on? How much do different DSPs pay the artists? Those questions are on the minds of artists of all scope — after all, it’s their primary revenue source on the recording side. It seems like the first metric to evaluate the platform’s return — and the most obvious one — is the per-stream payout rate. However, if you look into it, it turns out that it’s not really reliable. So, here’s our take on it: in this article, you will find out what are the streaming rates, and why they might not be as important as you think.
3 Types of Streaming Payouts
Before we get into it, a quick side note. For every stream (or almost every stream), DSPs make three different payments to right-holders:
1. Mechanical Royalties
Mechanical royalties are paid to songwriters and their publishers (the owners of composition) for the right to reproduce the composition. Back in the day, that mechanical royalties were due whenever someone wanted to mechanically produce the physical medium carrying the composition — hence the name — but in the word of streaming, they are generated whenever the user chooses to play a song. You might remember the recent story on Spotify’s clash with publishers in the light of CRB’s decision. Well, that was all about mechanical royalties.
2. Public Performance Royalties
Performance royalties paid to songwriters and their publishers for the right to publicly perform their music. Since none of the music is technically owned by the user, every stream is considered a public performance — even if it is enjoyed in the privacy of one’s headphones.
3. Payout to Recording Owners
The third, and the most substantial part of the overall payout is owed to the owners of the copyright on the recording side through labels and distributors. If someone asks “how much does Spotify pay artists?”, 99% of the time it will be the payout to recording owners that they’re looking for.
While the mechanical and public performance royalties are a subject of a local legislation and can differ from country to country, almost all of the streaming services use pretty much the same set of rules for calculating this last part of the payout. Check out our Mechanics of Streaming if you want to know more about the overall costs of streaming — the point is that in this article we will focus exclusively on payouts to the sound recording owners, leaving the publishing royalties out of scope.
What Do Major Streaming Services Pay the Artists?
So, what are the payout rates across the streaming services? There are two sources behind the most quotes you will see on the web: Digital Music News’ article on payout rates and The Trichordist’s 2018 Streaming Price Bible, which calculates the payout rate based on the sales data of a mid-scale indie label, that add up to over a billion streams. We’ve decided to follow in The Trichordist’s steps and got data from our friendly label, covering two artists: the prominent international electronic act and mid-scale hip-hop band. In total, those artists have generated over 500 million streams throughout 2018.
Streaming Payouts on Spotify, Apple Music, Google Play and Deezer
We’ve calculated the weighted average payout rate, taking into account the proprietary sample as well as the quotes provided by Digital Music News and The Trichordist. The complete table can be found below, but here’s a TL;DR summary for what we’ve got:
- Spotify paid the artists $0,0032 per stream
- Apple Music got the average rate of $0,0056
- Google Play Music landed a $0,0055 payout rate
- Deezer fell slightly lower at $0.00436
Amazon, Napster, and Tidal: the Top-3
In full detail: Amazon Music Unlimited, Napster and Tidal got the top-3 rates at $0,0119, $0.0106 and $0.0099 respectively. However, don’t get too excited about Amazon’s numbers. The lion’s share of the tech giants subscribers are in fact over at Amazon Prime bundled streaming service — and for Amazon Prime, the average rate came to just 28% of the Unlimited’s payout, or $0,0034.
YouTube’s Multi-Channel Payout System
Youtube is a multi-sided platform in terms of payout. There are at least three separate payouts under the brands’ umbrella: per YouTube Premium/YouTube Music stream ($0.008), per video-stream on the official artist’s channels ($0.00164) and videos monetized through Content ID ($0.00087).
Local Services of JioSaavn, Yandex and Tencent Take the Lower End
As expected, the lower end of the payout breakdown is occupied by the local digital services on the developing streaming markets: Indian JioSaavn ($0.0013), Russian UMA and Yandex ($0,00102 and $0.0005, respectively) and Tencent’s QQ — with the lowest observed rate at $0.0004 per stream.
How You Should Actually Think About Streaming Payouts
So, let’s take a step back and look at how the digital services actually calculate the artist’s total payout. Most of the streaming services, from Spotify and Apple to Google Play and Napster use what is referred to as “pro-rata” or “platform-centric” payout distribution model. Here’s how it works:
On the DSP side, services negotiate global payout rates with the content owners (mainly the major labels and Merlin, which represents a vast share of independent catalog). As we’ve argued in the Mechanics of Streaming, this rate is likely to fall in the range from 60% to 70% for every streaming service out there, but let’s use the 70% for the sake of simplicity. The negotiated rate is applied to all service’s revenues, and the result is the total sum that the DSP will pay out to right holders. It’s a revenue pool that will be split between all artists on the platform. To divvy up that pie between the artists, DSP will calculate a “share of content” — the number of the artist streams divided by all streams on the platform.
How are Streaming Payouts Actually Calculated?
Let’s use an example. Imagine a streaming service X has made $1000 in revenues in one month, with a 70% payout rate. Out of that 70%, 57% is the cut of the recording owners, and publishers claim the remaining 13% in performance and mechanical royalties.
Now, if there were a total of 1 million streams on the platforms over the period, and your music generated 100,000 streams out of that million, your total payout would make $57 = (1000 * 57% * 100,000/1,000,000). Your songwriter would get another $13.
This model is not without its flaws, and some professionals in the music business are calling for a shift to user-centric payouts — which is a topic we might explore in the future. For now, however, the payout that you get from any streaming service (except for YouTube video-streaming, and, as of late, Deezer’s user-centric payout) is a function of:
- Total DSP’s revenue pool
- Negotiated global payout as a percentage of that revenue
- Total number of streams on the platform
- The number of your streams on the platform
Not All Streams are Created Equal
However — and here is where things get interesting — there is no such thing as a global, all-in revenue/content pool. Instead, there are dozens of separate buckets: for every subscription tier, every local market and so on. All the different types of streams create distinct content pools, and that means one simple thing. Not all streams are equally valuable. You wouldn’t try to cross a river because it is 4 feet deep on average. Accordingly, you shouldn’t judge the artist’s earnings on the platform based on the average per-stream payout.
For any artist out there, the per-stream rate will be in constant flux — simply because there are hundreds of factors affecting the overall revenue. The payout rate depends on who, where and how much streams your music — which is precisely the reason for inconsistency between the quotes you can find around the web. With that in mind, let’s look at the data once again, and put some real-world context behind it.