How Does Streaming Work — Really?
At this point, you don’t even think about it. When you’re on your way to work, or looking for something to play in the background while you cook dinner, or are gearing up for a run on the treadmill, your fingers are ready to make some familiar taps. Navigating to Spotify, Apple Music, Amazon Music, or Youtube Music, you find a song, album, or playlist that fits the mood just right.
If you had been in the same situation 15 years ago, you might’ve had to thumb through your CD booklet to find that album you’ve had on repeat for the past month. Flash back 30 years and you’d have to poke through cassette tapes to find the one you wanted most, buckling down to listen to the whole thing. 50 years ago, a vinyl record would’ve been your only option.
In the modern age, music streaming — led by Spotify and Apple Music — is the de-facto method of music consumption in the United States and worldwide. Though innovations in how music is bought, sold, and shared are not new — note references to CDs, cassettes, and vinyl records from earlier — streaming has completely revolutionized the industry it supports, impacting how artists make, market and earn money from their music.
But how do the chips fall in this business? Where does all the money in streaming come from and go to, especially for the creators behind the business?
For artists, making money in this business is a bit tricky. For one, physical album sales are down significantly due to how much streaming has taken over the market (Figure 1). Royalties, which artists receive as a percentage of the sale from an album or single, were anywhere between 6 and 10%.
Now, the royalty structure looks a bit different. Because most listeners on platforms like Spotify are not purchasing an album or song, but rather a subscription to a library of “free” music, artists are not getting direct cuts every time their music is played. Instead, these platforms are divvying up the change on a per-stream basis, which often ends up as fractions of cents per stream.
According to The Union of Musicians and Allied Workers, artists’ pay from streaming services has declined significantly in recent years, going from “an average of $0.00540 per stream (just over half a cent), which went down to $0.00370 in 2019, then to $0.00307 (under a third of a cent) in 2020, a decline of 43% over two years.”
Artists make a majority of their money in streaming from being added to popular playlists, a structure that may get them exposure from a single song rather than an entire album or body of work. For example, Spotify’s Fresh Finds playlist, boasting more than 1 million likes, spotlights up-and-coming independent artists, putting them on a world stage.
Artists make a majority of their money from live shows and touring, with two extraordinary examples — Beyonce’s “Renaissance” World Tour and Taylor Swift’s “Eras” World Tour — generating hundreds of millions of dollars for those two individuals, their teams, and the local economies they toured.
For record labels and the streaming services themselves, coming by the coins are a bit easier. Through a combination of revenue agreements, licensing and recoupment, subscription fees and ad sales, their money is a bit more guaranteed than the artists’.
As we continue leaning into this business model, it is important to keep the creative at the forefront — they are the ones behind it all, in the end.
