This is How Streaming Artists Get Paid

Music streaming has forever changed our relationship to music. Whereas in the past we had to visit a record store, go to a live concert, or turn on the radio to listen to our favorite tunes, now most of the world’s music is available everywhere, all the time.

This music revolution, however, has not only impacted consumers (who are now paying only a small fraction of what music used to cost in the pre-streaming era), but also the artists who are at the heart of the songs we love.

How are artists and songwriters paid by the major streaming companies? Are they being paid fairly? These are some of the questions tackled in a recent article published by ConsumersAdvocate.org, and that should concern every music fan who cares about the people behind the music.

In short, there are two main formulas for calculating royalty payments for streaming artists: “pro-rata” and “user-centric”.

In the pro-rata system (also called service-centric), the monthly royalty payment to each individual artist is calculated by taking a streaming company’s overall revenue for a given month, dividing this amount by the overall number of streams by all artists on the platform for that month, and then multiplying the resulting number by the specific artist’s total streams for that month. For example, if there were a total 1,000 streams in Spotify for January, and artist ‘Y’ had 100 streams in that same month, then ‘Y’ will be paid 10% of the company’s overall streaming revenue.

This is the payment system currently used by most streaming companies around the world.

The problem with this approach to royalty payments is that less popular artists (the majority) get a smaller piece of the pie, while only a small handful of artists get close to 90% of overall royalties.

On the other hand, there’s the user-centric system, where royalty payments are paid on a basis of each individual listener’s consumption in a given month. For example, if I only listen to artist ‘Y’ in January, then 100% of my subscription fee for that month will go to artist ‘Y’ and will not be shared with other artists on the streaming platform.

According to many industry insiders, this latter system is fairer to artists, as it resembles the royalty payments of the pre-streaming era, where the money you paid for an artist’s CD went ONLY to that artist. However, only a handful of streaming companies use this approach.

Last but not least, there’s the actual amount that artists get paid per stream. As we can see in the chart below, hundreds of thousands (and, in some cases, millions) of monthly streams are required for artists to make, at least, the US minimum wage of $1,256.67 per month.

As music streaming takes over the world and displaces traditional music mediums, it’s essential that we are mindful of how our favorite artists are treated by the companies benefiting from the music they make. For detailed information on this subject, as well as a thorough review of the best music streaming services, check out this amazing article by the folks at ConsumersAdvocate.org.