Streaming Payment Models
Under the current “pro rata” model held true in Spotify and Apple, money from your dedicated fans goes into a giant pool that’s paid out to artists based on their share of total streams. This mostly benefits mega stars.
Spotify figures out how many streams came from a given country and then calculates the portion of those streams that went to specific artists. This causes smaller artists who might not have such a massive reach, but have a dedicated loyal audience, not getting much money because they share a smaller portion of the overall streams.
Effectively, if The Weeknd or Harry Styles gets 5% of all streams on Spotify in any given period they and their labels will get 10% of your monthly subscription fee, even if you never listened to any of their songs.
Rolling Stone reported in 2020, that the top 1 percent of streaming artists end up getting 90 percent of the revenue.
If you were to take the more than 1.6 million artists who released music to streaming services in the past year and a half and ranked them by their total streams, you’d find that the top 16,000 of those artists pulled in 90 percent of the streams. And it doesn’t take more than a basic grasp of math to realize that this leaves 1.6 million artists with just 10 percent of the streams.
FYI the current number of artists on Spotify has now grown to about 9 million, this means more share less.
This “pro rata” model typically benefits the major labels and the most popular artists. When you listen to music on the streaming services what do you hear on these platform generated playlists, radio stations and suggestions: More of the same top artists represented by the biggest labels. This has changed very little if at all over the last 3 years.
Obviously this is not acceptable. Not only from the view of the music creator, independent label and self-publisher but also from the fan’s’ point of view. It too sucks knowing that these superstars are taking money away from your choice artists.
Yet, I cannot feel too bad about using streaming services. The subscription fee is for using the service. No longer do I need to carry around all my CDs or be limited to the storage capacity in my device. And new releases are automatically available. But there must be a better way to focus user and fan activity and payments in a more meaningful way.
Lets see how the biggest record labels will get their fingers into the new payment models. We’ll take a look at the most recent deal with Universal and Deezer, as well as the first change in the “pro rata” model founded by Soundcloud and Warner.
Micropayments and Tips: A Better Way to Pay Your Artists
If only there was a way for a fan to pay directly to the artist. Wait, hold up there is. Though Netease and Tencent in China use the “pro rata” model, they calculate the accumulated streams of a given artist and pay out according to the type of user: free, subscribing, or VIP. So the pay per stream varies from user to user. Already there is a distinction between users. But even, is the possibility for the listeners and fans to give gifts directly to their artists.
Yet another advance in China that the western services are lacking and struggling to “catch up to”, if that is even a tangible consideration for the streaming services to implement?
Micropayments and digital tips are common in China. There are apps that allow people to tip or give monetary gifts. However, many platforms have this function built into their system as they do in the music platforms in China like QQ and Netease as well as Douyin and others. And you can always use a 3rd party app to send a gift to the ones you choose. How awesome would it be to go to Spotify or Deezer or Apple and leave your thoughts and show your love as comments to your artist as you listen to their music, as they do on Netease and QQ. And also showing your support by giving them a tip or virtual gift.
Moving Beyond Pro Rata
Universal has struck a deal with Deezer or is it vice versa? Deezer CEO Jeronimo Folgueira says that the deal is the “most ambitious change” to the economies of music streaming since it first started.
Focusing on artists who have a minimum of 1,000 streams per month with a minimum of 500 unique listeners will get a “double boost.” Is that 2x per stream?
They will get another “double boost” if the song was actively searched for by the user rather than suggested by the system or on a playlist. Is that 4x times per stream?
This Artist Centric streaming model is definitely a move forward. It seems though that the ones it benefits the most are the artists who are already taking the majority of the royalties. So any artist who has more than 1000 monthly streams and 500 different listeners will now be taking double of what they are already taking. Where is this coming from?
Denis Ladegaillerie of Believe, expressed his concerns that this 1000 streams/500 listener threshold will increase over time. Essentially squeezing out any upcoming artist with fewer than the threshold.
Jeronimo Folgueira of Deezer has addressed a very sore point in the streaming world, “There is no other industry where all content is valued the same, and it should be obvious to everyone that the sound of rain or a washing machine is not as valuable as a song from your favorite artist streamed in HiFi.”
Deezer is planning to replace non-artist noise content with its own content as functional music which won’t be included in the royalty pool. And of course tackling fraud by driving a better new and improved fraud detection system, making it less attractive to fraudsters and protecting the royalties.
So at least we can count on 2 things: Artists will receive a smaller payout if their songs play as part of an algorithmic playlist and will not need to compete with background noise tracks. Please remember this is only on Deezer. And how about all artists that are not part of Universal Music Group do they share pro rata of whatever is left over?
As of now Spotify is not on board, “We are willing to make the switch to a user-centric model if that’s what artists, songwriters, and rights holders want to do. However, Spotify cannot make this decision on its own; it requires broad industry alignment to implement this change. The research we’ve seen to date suggests that a shift to user-centric payments would not benefit artists as much as many may have originally hoped.”
Another possibility implemented by Tidal is their Direct-to-Artists payment model established in 2022. As a listener and subscriber your monthly fee will be allotted to a pool of royalties based on your subscription tier. As a premium HiFi plus subscriber it is estimated that 10% of your fee will go directly to your artists you listen to.
At the forefront we have Soundcloud and their Fan-powered royalty model since 2021. This is only available to independent artists who monetize directly with SoundCloud. The more time your dedicated fans listen to your music, the more you get paid. So a user paying $10 a month only listens to five artists, those five artists will get a split of that $10, after SoundCloud takes its cut, no matter how many times the user listens to each of them.
This model that seems to benefit independent artists is a collaboration with Warner Music Group, having cut a licensing deal with SoundCloud to adopt the streamer’s Fan-Powered Royalties system. WMG is the first major label to adopt the system, and its embrace of the model could signal a larger shift for the industry. Warner and independent artists are like oil and water, could there still be a light at the end of the tunnel for independent artists?
Conclusion
The structure of payments between streaming services and labels or independent artists are in need of change.
There is an inability to distinguish premium content, any stream over 30 seconds in length counts the same. This means that the music that has a higher value is not recognized.
An alternative is a more flexible artist-centric model that seeks to distribute payouts based on the value an artist creates and provides for the platform.
Fan-powered royalties means a subscriber’s subscription fee or advertising revenue will be shared among the artists they actually listen to, rather than going to a big pot and being split up among the platform’s most popular artists.
Streaming platforms have more pricing power than they have demonstrated in prior years as several major music streaming platforms have increased their prices on their standard services; however, the average revenue per user on paid streaming music services has fallen by 40% since 2016.
Apple Music and Spotify have essentially lowered the value of their catalogues by introducing family plans and smaller prices for bundled users, but maybe they are preparing for the next generation of users.
