What do Music Streaming Services Pay Per Stream (And Why It Actually Doesn’t Matter)
Originally published at https://soundcharts.com on June 26, 2019.
Music streaming is now at the very center of the recording industry. The chances are that the artist will make most of the recording 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 Boddie 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 DPSs pay the artists? Those questions are on the mind 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 we think.
Before we get into, a quick side note. For every stream (or almost every stream) streaming services make three different payments to right-holders. The first two are mechanical and performance royalties, both paid to songwriters through publishers — which is the point of Spotify’s clash with publishers in the light of the latest CRB’s decision. The third and the most substantial cut of the streaming royalties is owed to artists through distributors and record labels (in most cases). Once again, check out Mechanics of Streaming if you want to know more — the point is that this article will concentrate only on payouts to the sound recording owners, leaving the royalty rates of the music publishing segment out of scope.
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, over a billion streams.
What do major streaming services pay the artists?
To give a TL;DR summary: on average, across the data gathered, Spotify paid the artists $0,0032 per stream, while Apple Music got the rate of $0,0056, landing extremely close to Google Play Music with its $0,0055 payout. Deezer fell slightly lower at $0.00436. The complete table can be found below.
Source: Digital Music News, The Trichordist, Soundcharts
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 is a multi-sided platform in terms of payout. There are at least three separate payouts under the brands’ umbrella: per YouTube Red/YouTube Music stream ($0.008), per video-stream on the official artist’s channels ($0.00164) and videos monetized through Content ID ($0.00087).
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.
Here’s the complete table of payout rates we’ve observed:
Source: Digital Music News, The Trichordist, Soundcharts
With that out of the way, let’s get real. The fact is that you shouldn’t care about the per-stream payout rate.
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 Deezer use what is referred to “per 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, representing a vast portion 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 pretty much every single 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 — the revenue pool split between all the artists on the platform. To divvy up that pie between them, the DSP will calculate the share of content as the number of the artist streams divided by all streams on the platform.
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 = 57). Your songwriter (if there’s one) 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 money that you get from any streaming service (except for YouTube video-streaming) 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
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 the figures.
Source: Digital Music News, The Trichordist, Soundcharts
1. Apple Music vs Spotify: Freemium and subscription-only
So, the average observed per-stream payout on Apple Music is $0.00551 vs. $0.00318 for Spotify. Does that mean that Apple Music is paying artists better than Spotify? Well, maybe. However, the average payout rate alone is not enough to make this conclusion.
According to the latest reports, Apple Music has 56 million subscribers worldwide. Spotify claims 96 million paying users as of December 2018. However, that’s just a part of the company’s total 207 million monthly active user-base, as the remaining 111 million are the users of Spotify’s ad-supported version.
At the same time, if Spotify has an ARPU of $4,81 for its premium users, it’s ad-supported version brings just 10,6% of that sum, with an ARPU of $0,51. Ad-supported users create a separate revenue/content pool and, while the streams counts should be comparable to the premium one, the total ad-supported revenue is nowhere near the premium figures. At the same time, as you remember, the service’s income is the first step of the payout calculation.
So, the free user’s streams dilute the premium plays, and the average payout goes down. Which shouldn’t really bother you as much: the premium audiences of Spotify still bring in the same value through their isolated cashflow. It’s just that you have a much more shallow, ad-supported pool sitting on top of it. Of course, you could argue that the presence of an ad-supported version itself diminishes the overall artist revenue since those free users would have to pay for subscriptions — but that is a topic for a separate debate.
The payout dilution is not just about Apple Music and Spotify. In fact, all 6 top platforms in terms of per-stream payouts don’t have a free, ad-supported version. However, it’s not only about who listens to your music — but also where people listen to it. The second big differentiator of the value of the stream is the market where it has originated.
2. Local Spotify, Apple Music and YouTube Music Payouts
As of late, most of the prominent global streaming brands, from Spotify and Amazon to YouTube Music and Deezer have entered a number developing streaming markets. The global expansion of the market is one of the main trends in the streaming business — and that alone is bound to bring down the all-around global per-stream payout.
Take an example of Spotify. The Swedish streaming giant has recently entered the Indian market. However, if in the U.S. Spotify Premium is priced at $9,99 a month, in India Spotify had to bring the prices down to compete with the local offers of JioSaavn and alike. In fact, in India, Spotify put the lowest-ever price tag on its premium service, at just $1,7/month. That approach is not new: streaming services prices vary all across the world.
Source: Music Business Worldwide
Such spread is not only a Spotify thing: Apple Music, YouTube Music, you name it — essentially every global streaming service has to keep the local prices flexible to stay competitive across the globe. That has a massive impact on the value of the streams that are coming from those regions.
Let’s look at per-stream payouts once again, but focus on the lower end of the distribution. Russian UMA and Yandex have rates of $0.001 and $0.0005. JioSaavn, the most popular streaming service in India, pays just $0.00126 per stream. So, if the local installments of Spotify, Apple Music and YouTube Music have to match the price of JioSaavn’s offer — well, you can expect that the regional per-stream payout will be comparable.
So, the Spotify’s per-stream payout is a metric that summarises payouts over at least 12 different local premium pricing tiers, from $13,12 in the UK to $1,7 in India. Furthermore, on all of those markets, there’s also a great deal of ad-supported streams. The average payout summarizes the payouts across at least 24 different revenue/content pools, and there’s no way to tell how the streams behind the numbers are distributed across all those local markets and pricing tiers. So, instead of looking for universal, international payout rate, we might be better of asking ourselves: where the streams come from?
The two factors mentioned above, the fragmentation of the user-base based on subscription tier and market are affecting the first section of the payout formula — the DSP’s revenue pool. To be precise, they split the overall revenue pool into dozens of smaller ones. That means that streams don’t bring the same value — undermining the very idea of the average per-stream payout metric. However, that is just the first part of the problem.
3. Napster: Content Pool and User Engagement
Let’s get a bit mathematical for a moment. To calculate the Total Payout of the DSP across the entire revenue/content pool, we need to calculate the total revenue in that pool (Number of Users * Average Revenue Per User) and multiply it by the negotiated global payout rate:
The Per-Stream Payout, in its turn, is the Total Payout, divided by the Number of Streams in the corresponding content pool, or:
However, if we simplify the formula, and express the (Number of Streams/Number of Users) ratio as the Average Streams Per User, it turns out that the Per-Stream Payout is a function of just three figures:
- Average revenue per user (within a specific revenue/content pool)
- The global payout rate
- The average streams per user (within a specific revenue/content pool)
As we’ve argued, the global payout rate should be pretty much the same across the different DSPs. The minor fluctuations are possible but not to the extent that can explain the overall spread. Instead, the problem lies in the third part of the calculation — the average streams per users.
The formula above means one simple thing. For premium subscriptions with a stable ARPU, the per-stream rate goes up as the user’s engagement with the platform, expressed as the average streams per user, goes down. Imagine that every customer would stream just one song per month. In that case, the per-stream payout would skyrocket to $5 — but no one would really win. It doesn’t matter if you get 5000 streams worth $0.001 or a single stream worth $5 — the artists would still get the same money. The only change is that their music would be played less.
In that sense, when Spotify releases a new retention feature, which raises the listening on the platform — introducing autoplay or enhancing its playlist experience — it inevitably brings down the per-stream payout rate. However, since there are more total streams to go around now the total payout stays the same.
If, on the contrary, a streaming service does a poor job when it comes to keeping its customers engaged, the per-stream payout grows. The high payout rate is a sign of low usage-rate on the platform, more so than it is a sign of the service’s fairness to the artist.
And now, the final nail in the per-stream payout’s coffin: there’s no statistically relevant quote for the per-stream payout anyway.
4. Deezer: the case of sample bias
Given the complex revenue pool structure, virtually every sample — even The Trichordist’s streaming bible’s “Billion of streams over 250+ albums” — will be tilted and thus will fail to reflect the actual average rate. To showcase, let’s review the quotes we’ve got from all the sources for Deezer:
Source: Digital Music News, The Trichordist, Soundcharts
As you can see, the quoted rates differ a lot, from $0.00262 to almost three times that, at $0,0064 per-stream. But which one is closer to the truth, then? Let’s check out the sample. While Digital Music News don’t disclose the details, The Trichordist’s datasheet states that Deezer accounted for just 0,91% of the billion-stream sample or 9,100,000 streams.
As for the Soundcharts’ data, both of the artists mentioned are based in France, Deezer’s domestic market — and so the streams on the platform took a much larger share of the sample. In the end, Soundcharts’ platform-specific sample for Deezer was about 4-times the size of The Trichordist’s one.
Our guess is that at this scale, the “freemium effect” kicked in and the per-stream payouts went down, as described in the section above. There might be other, unforeseen reasons, but the real outtake is that with the number of factors involved, it’s nearly impossible to put together a representative sample to assess the average payouts across all platforms.
In the end, the per-stream payout rate is a metric that tries to summarize dozens of cash flows based on a biased sample. Then it’s used to compare the services’ pay the artists — and it might be adequate when estimating the payouts of local streaming services. However, when it comes to comparison of global services of Spotify Apple Music and alike, we might be better off without such insights. Misleading data is worse than no data at all.
