The Truth Behind Streaming – Numbers Don’t Lie

tidal spotify apple music pandora bandcamp soundcloud amazon prime music bandcamp
3 of the Largest Streaming Services

The entire world was set in shock on April 21st when legendary artist Prince passed away from developing circumstances. Aside from the invaluable influence of his music, Prince’s prominent stance within the music industry is held among the likes of other powerful artists who refuse to stream their work on the internet like Adele, Tool, and Neil Young. In the internet age, there are endless mediums and services that a consumer can use to support a musician. As consumers it’s important to ask ourselves: how have these mediums affected artists and their royalties over the past decade?

According to HowStuffWorks, artists are typically paid royalties between 8% and 25% of the suggested retail price of a physical release (tape, CD, vinyl). The exact percentage depends on the contract as well as the popularity of the artist. This means that an emerging artist will likely receive less royalties than a mainstream artist. To make matters worse, promos, reserves, packaging costs, and distribution issues subtract even more from that percentage. Provided that this is all before the artist has paid their management fees, record label advances, producer costs, songwriter fees (if necessary), and distribution of revenue between band members. Artists walk away from a release with next to nothing.

Recording, producing, and distributing music was a bit more difficult in the physical music era. An average teenager with a MacBook couldn’t always create and distribute music from the comfort of his or her parents’ house. On one side, creating a physical product was more costly, typically affecting the artist the most. On the other, distribution has now become significantly easier. Although most services still require a third party distributor (God knows why), the transaction between artist and consumer is as direct as it has ever been. Changes in royalty policies have accompanied this shift towards more direct distribution, complicating the process of supporting an artist. Luckily, various streaming services have publicized their policies so consumers have an idea of where their money goes.

Spotify

According to Spotify, their services use an algorithm that depends on many variables to determine an artist’s royalties. Some are listed here:

  • In which country people are streaming an artist’s music
  • Spotify’s number of paid users as a percentage of total users; higher percentage paid users = higher “per stream” rate
  • Relative premium pricing and currency value in different countries
  • An artist’s royalty rate

These variables have led to an average per stream” payout of between $0.006 and $0.0084. Spotify keeps 30%, pays about 10% of its revenue to songwriters, and about 60% to the artists and their respective label. It should be noted that Spotify has over 30 million paying subscribers and over 85 million active users total (free + premium). Thus, their service currently has the largest premium subscriber base of any streaming service. Spotify offers a “freemium” service with ads and a $9.99/month premium and $4.99/month student premium service.


Spotify Artist Royalty Equation

Spotify Artist Royalty Equation


Tidal

Tidal claims that they pay artists more than their competitors. The service has incorporated this claim into its marketing scheme in an attempt to reach consumers concerned about artist royalties. According to Tidal, their average payout per stream is around $.012 and Tidal appears to earn an average of $0.014 per stream before the artist and label take their cut.

Jay-Z’s claim that Tidal pays 75% to artists actually amounts to around 12.5% to artists and 62.5% to the label/songwriter. Tidal does not provide a free service. It is $10/month for a regular subscription and $20/month for premium. It has around 3 million subscribers at this moment, 1.35 million premium, and 1.65 million regular. This smaller subscriber base means less streams and less revenue than one of their competitors, Spotify. Additionally, Tidal currently has 20 artist-owners, boasting an artist-oriented service with significant figureheads at the forefront of its industry shake-up. Tidal also features exclusive releases from these artist-owners that leverage the service at a comparative advantage to other streaming services.

Apple Music

Apple Music elected to keep 28.5% of the revenue and give 71.5% to artists (which is further divided among the record label and, when applicable, songwriter). With an average of 73% payout outside of the U.S., Apple’s payouts are a few percentage points higher than the industry standard of 70%, including partial accounts for the lengthy free trial period of three months. Apple argued that a higher percentage paid justifies not paying the artists for the first three months, but pop sensation Taylor Swift disagreed. Less than a day after Taylor Swift publicly attacked Apple’s “disappointing” policy, Apple responded by retracting it. It’s debateable why America’s country-pop-emo-breakup-sweetheart-sensation stood up for the smaller artists that would be hurt most by this policy, but no artist can disagree with the outcome. The American Association of Independent Music, Merlin Network, and the Beggars Record Label expressed similar sentiments about the Apple Music royalty scam.

The service amounts to $10/month or $14.99/month for a family sharing service (up to 6 people) but does not include a free service beyond its 3 month free trial. Apple’s pitch to the music industry is that its 71.5% will be worth much more to artists than Spotify’s 70% in the long run. Apple currently has over 800 million iTunes accounts and over 11 million subscribers. It has grown substantially since its creation last year but still has significant ground to cover if Apple wishes to catch up to Spotify.

Soundcloud

Soundcloud is an upload service where artists typically use to get discovered rather than to get paid. The streaming service currently boasts a userbase of over 175 million users and around 12 million content “creators.”  The strength of their service relies on its content, organic user base, and user-sharing capabilities. Most importantly, this service allows anyone to upload with no barriers to entry.

Soundcloud recently introduced SoundCloud Go, a premium $9.99/month service that serves the same purpose as the aforementioned services. Artists can either upload content for free with ads or post a 30-second preview enticing consumers to go premium in order to listen to the full track. While SoundCloud currently invites artists to become premium creators, the company hopes to give all artists the opportunity in the future.. As of now, these creators can capitalize on royalty rates which remain unpublished. Thus, this premium service only benefits large record labels and megastar artists that were previously missing out on royalty rates from unofficial uploads of their tracks on SoundCloud. This recent business stategy implementation represents a capitalistic movement towards favoring large corporations and their represented artists over independent artists.


SoundCloud

SoundCloud


On the other end, once a consumer pays for the premium service, they can listen to and download songs off of Soundcloud (depending on the artist’s preference). These offline tracks can be played without internet and still boost the artist’s statistics and royalties. Currently, this service is only available in the United States, UK, and Ireland, but SoundCloud intends to expand it later this year. This giant leap by SoundCloud moves the service away from its original barrier-free media sharing service, into a more commercialized service fighting for its piece of the streaming industry.

YouTube/Google Play

Google pays artists a minimal amount from advertisements, but the artist must have a sturdy fan base and a significant amount of views to become a premium partner and capitalize on this revenue. Typically, artists use YouTube as a channel through which they can publish music videos and visuals for promoting their work.

YouTube Red is a $9.99/month premium service that completely removes most ads from any YouTube video including music, and music videos. YouTube Red has two other main benefits that affect how you watch videos: offline viewing and listening to videos with the screen off.

A YouTube Red subscription also includes a Google Play subscription and vice versa. As of now, Google Play doesn’t publish subscription statistics, but the service contains around 35 million total songs. They offer the $14.99 family sharing plan, similar to that of Apple Music.

Amazon Prime Music

Amazon Prime Music comes with an annual subscription to Amazon Prime at $99 for the entire year and $49 for students. That amounts to $8.25/month and $4.08/month respectively. According to Review Journal, nearly half of U.S. households already have Amazon Prime, meaning these subscribers having access to their streaming service by default. This has significant implications for their user base which technically began when Prime Music launched in 2014.

Despite this absurd advantage, Prime Music currently only has around 1 million songs to stream on demand, falling substantially short of the 35+ million songs on the services that we’ve mentioned above. The service is otherwise identical to the others in that it offers offline downloads, the ability to make playlists, and also offers multiple device synchronization.

As for royalties, Prime skimps on its artists, labels, and publishers because, simply put, the service does not bring in money. Therefore, they offer small labels “one-year licensing agreements of a $5 million royalty pool, to be divided by a market-share formula of Amazon’s choosing.” They offer the larger labels a pool at around $25 million to use their songs. A released contract from Amazon cites that the publishers, on the other hand, were forced to choose between accepting a 21% mechanical royalty rate from Amazon or a 11% performance royalty rate via a performance rights organization (e.g. ASCAP, BMI, SESAC). Essentially, any of the music on this service is a hedge bet from the music’s respective owners; they are accepting a flat rate and hoping that the service does not become widespread. If that were the case, Amazon could capitalize on significant business growth without paying per stream.

Pandora

Pandora is free for both consumers and artists, but Pandora One is $4.99/month for an ad-free consumer service. According to a recent CRB ruling in December 2015, Pandora currently pays $0.0014 per stream on its free, ad-supported service and $0.0023 for songs streamed to paying premium users. That money is then divided into performing and publishing royalties. Performing royalties go to the label, artist, producer, or any combination of the three depending on prior agreements. The publisher royalties go to either a music publisher or the artist, depending on who officially published the written track. The divisions between the label, songwriters, and performers makes for a very small sum of money awarded to each musician.

Despite smaller royalties, Pandora provides a better medium for the artist than AM/FM radio because it plays a larger, more diverse selection of songs and promotes artist discovery. As of February 2016, Pandora has about 250 million registered users and 81.1 million monthly users, which provides a large platform for artists. Unlike streaming, though, one cannot choose the exact song that comes up. Regardless, Pandora may win artists new fans by exposing their music to those who like similar music.

Bandcamp

Of all the streaming services we’ve covered, Bandcamp is the simplest. Users upload music that they intend to sell and can also sell merchandise. Bandcamp takes a 15% cut for music and 10% for merchandise sold. After $5,000 total profit is made by an artist through their platform, Bandcamp takes 10% for music going forward. Since it is more of a music marketplace than a streaming service, Bandcamp unfortunately does not pay per stream and an artist can only give away so many free downloads until they must pay. Bandcamp’s fanreach is measured by transactions made and how much money has gone to artists; respectively 21 million and $152 million total. Their service attracts independent artists and labels that seek to sell their music to consumers as directly as possible, bypassing larger marketplaces such as iTunes or Amazon.

Other

The IFPI 2016 Global Report provides the following statistics about the recent year in music:

IFPI Global Music Report 2016

IFPI Global Music Report 2016

With decreasing physical sales and download revenues, streaming has become the staple medium in the music business, accounting for 45.2% of total industry revenues and 43% of digital commerce. These statistics further prove that consumers must be aware of how their streaming affects artists. This doesn’t mean one should cease streaming; it’s an amazing tool. In addition to streaming, consider supporting artists in a way that helps them out more.

So Which Platform Should I Choose?

Today’s consumers can get their music from numerous sources.. Loyally supporting an artist is complicated due to factors such as record label contracts, management fees, and their fan-base reach. Some channels, though, help artists more than others. Buying music supports the artist significantly more than streaming. The more direct the purchase is from an artist, the more the artist receives. Thus, platforms such as Bandcamp and an artist’s website give them optimal support.

Streaming is useful for listening to music of all varieties without committing to buying an album. While it still is fairly difficult to determine which streaming service pays best, either Apple Music or Tidal seem to be the best bets. Arguably, the best streaming service for an artist right now is Tidal because they pay the most, but that could change if Apple Music builds up their subscription base and fixes their flawed user interface. With these improvements, Apple Music could eventually become a juggernaut in the music streaming industry due to its extensive resource pool as a half a trillion dollar company.

Of course, a whole other argument is evaluating the service itself. Various factors among these streaming services including the usability, convenience, amount of music, and personal preference, affecting what’s best for each individual consumer. The fact that Spotify currently has the most subscribers of all streaming services suggests that its business model is working. Spotify’s success could be attributed to the fact that it was the first large scale popular streaming service or that it profits from paying the artists less and can subsequently grow quicker. Thus, streaming via Spotify is the best choice for consumers currently due to its large music library, huge fan base, and free service. Amazon Prime Music is another attractive streaming option as it offers an astonishingly low price for its streaming services. In addition to its exceptionally valued (non-streaming) Prime services, it is the best option for consumers with mainstream musical preferences. At any rate, there are numerous possibilities depending on specific tastes and objectives.

The streaming industry has grown exponentially in the past decade. Although some services benefit artists more than others, contemporary artists have no choice but to allocate their music through as many mediums as possible to maximize their reach. It’s not surprising to see an artist’s work on every possible website or streaming service. While some forms of support are better for artists than others, artists appreciate all their fans who support them, whether it be streams, album sales, follows, or shares.

While streaming has made accessing music unbelievably more convenient for consumers, it has diluted artists’ royalties. So if you stream music and enjoy it, truly support the artist and buy it! Plus, owning music is better than renting it, right?

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