How The Top Streaming Platforms Pay Royalties To Music Artists
The music industry has been in a constant state of flux since the introduction of streaming. Back in the day, it would be normal practice to release songs online for them to be downloaded (legally or illegally) so that artists could build a fanbase and later make money selling tickets to a show. But music streaming services like Apple Music changed things.
Streaming services made it possible for artists to monetize their music without them having to be standing on a stage. Mind you, of course, they keep making money from concerts, but streaming platforms provided them with a new optimized and fully revamped revenue stream. This changed the music industry forever. But the question is: How do streaming platforms like Apple Music pay royalties to artists, musicians, music producers, and songwriters?
Music streaming services such as Spotify, Apple Music, YouTube Music Amazon Music, SoundCloud, and TIDAL, just to mention a few, have all revolutionized how we listen to and consume music. And that’s not it, they also revolutionized the music business and how artists are compensated.
So how do streaming platforms pay royalties? How much are artists making per stream on these platforms and how do their payout models work? In this article, we'll take a look at some numbers behind how musicians are compensated for their work on the various major streaming services!
What Are Royalties And How Do They Work?
Royalties are payments made to artists, music producers, or songwriters when their work is used in any way. So, when a music streaming service like Apple Music uses your content for business purposes, they are responsible for paying you for the right to use your work. Royalties are paid by the party who licenses your music, and they can be one of your biggest sources of income as a musician because, in today's music industry, they are paid on a per-stream basis.
Types Of Royalties
Good news! You won't just be making money from music streaming services! There are three different types of royalties: mechanical royalties, performance royalties, and synchronization (or sync) licenses. Mechanical royalties are generated by a type of license that allows purchasers to reproduce and distribute copyrighted musical compositions in any format, such as CDs or streaming platforms. Every time a song is purchased by others a royalty amount is generated.
Another royalty type is known as a performance license. These are generated paid each time your music is played on the radio, TV, or live at concerts. Usually to be able to collect these you'd have to sign up to a royalty collection agency. They'll take a cut, of course.
Next up are sync licenses, which work similarly to mechanicals but they're for when you want your songs used within a film, television show, or commercial. Sync payments vary depending on whether the use of your recording was synchronous (i.e., playing behind an image such as in a commercial) or non-synchronous (e.g., background music). Many artists complain that their record label takes more than half their sync income so make sure you read your contract carefully!
And finally, there are streaming royalties, which are the ones generated whenever your work is used by a music streaming service. Streaming royalties, aside from a few exceptions, are paid on a per-stream basis. Streaming services pay a significant amount of their total revenue out to artists. In fact, up until recently, Spotify pays well over 60% of their total revenue! Other music streaming services like Apple Music also pay a large portion of their total revenue.
Streaming Platform #1: Spotify
This is one of the most popular streaming services. Musicians make money on Spotify in a few ways. They can opt to set up their account with their label and receive royalties when people stream their music. Or, they can take the independent route and upload songs directly. Average earnings per stream range between $0.006-$0.0084 depending on how popular your music is.
These numbers vary based on the artist's popularity and how many plays each track has received. The more popular a musician, the higher royalties they're able to receive from Spotify because their fans will stream their music much more frequently. However, these top earners include household names like Drake and Ed Sheeran. For the rest of us who are getting started or aren’t producing mainstream genres, you’re likely to fall into the range mentioned above in terms of royalties.
Streaming Platform #2: Apple Music
Apple Music is different from other streaming services. Musicians can make a lot of money there, given that they have a good-sized audience, of course. You would think that Apple music paid out the least but it pays more than Spotify. On average, musicians receive about $0.01 per stream on Apple Music (and these numbers are expected to rise over time)!
Apple claims they believe in the value of music and paying creators fairly for their work. And that ever since they launched the iTunes store back in the day, they’ve helped millions of artists make a living. So, therefore, as the conversation regarding royalty compensation continues, they vow to honor their values by paying every creator the same rate. Pretty good, isn’t it?
Also, another cool thing is that every penny you make from Apple Music goes directly into your pocket because no middle man is taking a cut as is the case with other streaming platforms. This, of course, also depends on which distro company or record label you're using! They may be taking a cut, just beware.
Streaming Platform #3: YouTube Red
YouTube Red is one of the biggest streaming services and it lets you play YouTube videos without ads. The service costs $11.99 per month, but if you're also an Apple Music subscriber, it's discounted to just $79 for the whole year. So, how exactly does this affect musicians? Well, let me break it down in layman terms.
First of all, even though people are using YouTube less and less to listen to music (rarely do they watch entire songs anymore), there is still money being made through advertisement revenue on YouTube views. If someone watches your video enough times or clicks an ad before watching your video, then Google makes money off of these views (you don't see any direct profits from this).
Now, YouTube Red is still one of the only music streaming platforms that don't pay royalties on a per-stream basis (even though there are no ads). They pay on an ad basis even though the vast majority of people who opt for the paid subscription do it to get rid of advertisements when watching videos on their phones or computers.
However, if you're a musician with your channel and upload full songs that can be downloaded (or you've got music available through Spotify), then subscribers will also need to pay $11.99 per month. So imagine someone subscribes at work during lunch break one day—they'll watch all your videos without ads, but they won't receive any money from Google until the next billing cycle even starts after 30 days! On top of that, some of the most popular videos on YouTube are music and so musicians stand to earn a lot of money from subscribers who watch their full songs over and over again.
So how much do they make? This is where it gets tricky because there's no way for us to calculate exactly what you'll get from this streaming service, but we can give an estimate based on average viewership. If your channel has 50k views per month (which isn't difficult), then that means at least 600 people would need to be subscribed for you to start making any money from YouTube Red subscribers alone. Though, with advertising revenue included, this number goes up quite a bit more.
Streaming Platform #4: Pandora
Pandora is a streaming music service that has over 75 million users, which makes it one of the largest music services in America, and has always had a free version. It offers all kinds of different ways for musicians to make money.
The most common way artists can make money on Pandora is by being played in regular rotation during the “thumbs up” or "thumbs down" era - this isn't too dissimilar from digital radio stations like iHeartRadio where listeners are deciding what gets played next based off previous songs they liked or didn't like. A musician who has 100 plays might receive $100 in royalties, which is much less than the $300 to $400 they would receive for 100 plays on XM or Sirius Satellite Radio.
Streaming Platform#5: SoundCloud Pro
SoundCloud Pro is the paid version of the streaming service, SoundCloud. Members make money by earning revenue from ads, subscriptions, and merchandise sales. According to a blog post on the Soundcloud website, "The average weekly earnings across all subscribed creator accounts is roughly $160." SoundCloud users can either choose to monetize their content or allow for it to be used commercially without any compensation, which can be beneficial if you’re aiming to grow your audience faster.
There are also two different types of account plans: the free version and the premium version. The main difference between the two is that with a paid plan no advertisements are playing before your music plays as people listen. In addition, creators earn more revenue when someone subscribes through an external link rather than being redirected through the platform itself. There's also a discount rate available if a user pays the fee for a year upfront.
Streaming Platform #6: Tidal Premium
Tidal pays out a percentage of its revenue every month to musicians on a per-stream basis. But how much does each musician make? And how much do they make in total? We crunched some numbers and found that an artist makes about $0.0016 of streaming royalties per stream if their song is streamed by non-paying users or subscribers. It’s not as much as other services but it is indeed a significant amount of the company’s total revenue, which still makes it fair from our viewpoint.
If we assume at least 60 million people around the world use Tidal (15M paying users + 45M trial members), artists would potentially receive $21 million from those streams. How many plays will someone need to generate for them to start seeing any real cash flow?
Well, let’s do a little math. Let’s assume it costs $120,000 to record an album and that is the only cash spent on making music and marketing. If you sold 20k copies of your album at $12 using a company like CD Baby as a distributor (which they pay out about 58% after fees), you would make around $100,000 pre-tax.
The Bottom Line
Music streaming services will be around for a very long time. Apple Music, Spotify, and any other digital music streaming service will continue to get stronger. Why? Because we're in a highly digitized world that makes streaming music very easy and the per-stream payment model is working so well for music artists and record labels that they too will not look to go anywhere.
So, our point here is that you better get comfortable understanding the way music streaming services pay out royalties because if you're an independent artist with limited resources you're going to want to know ballpark how much your music is generating so that you can reinvest your profits into more studio time or music promotion.
So there you have it, that’s how much music streaming services pay artists for their content and a brief explanation of how their per-stream revenue share models work. If this article has inspired your curiosity about any of these topics or if you have some questions that we didn’t cover in enough detail, drop them in the comments below and we’ll help you out! And as always, thanks for reading!