Streaming royalty payments: where does the money go?

  • Deep Throat: Follow the money.
    Bob Woodward: What do you mean? Where?
    Deep Throat: Oh, I can’t tell you that.
    Bob Woodward: But you could tell me that.
    Deep Throat: No, I have to do this my way. You tell me what you know, and I’ll confirm. I’ll keep you in the right direction if I can, but that’s all. Just… follow the money.

    Rethink Music, an initiative of BerkleeICE (Institute for Creative Entrepreneurship), recently published a report entitled ‘Fair Music: Transparency and Payment Flows In the Music Industry’. It featured this tabulated summary of how much money each streaming service pays per stream:

    Source: Rethink Music: Transparency and money flows in the music industry.

    You might ask to whom do they pay this money? Digital Music News turned the data in a column graph. Click the link and tell me what’s wrong with their post. That’s right: the graph itself is fine, it’s the title that’s the issue. “What YouTube, Apple, Spotify, Deezer, and TIDAL Are Paying Artists…”, specifically one word. And that word is artists – it’s grossly misleading, especially in the context of Rethink Music’s report which attempts to bring some clarity to the method through which artists get paid by streaming services.

    “Streaming services short-change artists”. Say it often enough and it becomes accepted wisdom. The Rethink reports digs deeper, revealing that it isn’t the streaming services themselves that are guilty of information superhighway robbery but the (major) record labels.

    How does this happen? According to Rethink, not only do labels demand upfront payments to license their catalogues to Spotify, Deezer Tidal et al but they also demand ongoing maintenance payments as well as equity stakes in the those very same streaming companies, sometimes in exchange for lower ‘per stream’ pricing. And that’s before we consider how ‘per stream’ payments are divvied up. Someone, somewhere needs to send the lawyers in.

    Quoting again from the report: “Streaming services are paying roughly the same percentage of their revenue (70 percent) to rights holders as iTunes has paid on download sales for the past 12 years.” Interesting, no? How many artists did we see complain about that?

    One of the first to highlight the artist’s plight in a streaming world was Galaxie 500’s Damon Krukowski. In his 2012 Pitchfork article “Making Cents” Krukowski brushes past the fundamental issue: that artists often have no control over what percentage they receive from labels for streaming media. “We didn’t negotiate this, exactly; for a band-owned label like ours, it’s take it or leave it,” laments Krukowski. Blink and you’d miss it.

    In the main, streaming services don’t pay artists directly. They pay rights holders – whoever owns the recording, often a record label, rarely the artist.

    From the report: “Once labels receive their monies from streaming services, they then pay artists based on recording contracts that usually have low royalty rates (designed for physical product) and multiple deductions, followed by recoupment of costs, resulting in little or no royalties landing in the artist’s hands. Despite the recent press about this, the issue hasn’t changed much over the decades—artists in the 1980s and 1990s regularly sold hundreds of thousands of albums and never saw any royalties beyond the initial advance.”

    “As a result, it is unfortunately unclear how, and more importantly, on what terms, record labels are entitled to hold such disproportionately high amounts of streaming revenue and why there’s such a discrepancy between the artists’ and record labels’ revenue.”

    The Rethink report features several graphics that show what many commentators have long since suspected: labels are taking a HEFTY slice of each streaming payment before passing on the remainder to the artist. The percentage received by the artist depends on the nature of their label contract.

    This graphic lifted directly from the report shows us that the ‘per stream’ commission goes first to the label who take anything between 50% and 90% before they pass the remainder to the artist.

    Source: Rethink Music: Transparency and money flows in the music industry.

    The picture is a little rosier for the smaller, ‘indie’ labels represented by a digital aggregator or distributor who takes 15% before passing it onto the label who takes a further 50%. The artist receives 45% of each ‘per stream’ payout.

    Source: Rethink Music: Transparency and money flows in the music industry.

    For the lucky few artists who own the rights to their work, the picture is rosier still. With no label taking a cut, they see between 90% and 100% from their aggregator – nice.

    Source: Rethink Music: Transparency and money flows in the music industry.

    Rethink Music refocuses our attention on label contracts and their associated T&Cs – more than likely the real reason behind Taylor Swift’s streaming remuneration complaints. Ditto Thom Yorke and Robert Fripp.

    In short, it’s not so much streaming services that aren’t paying artists properly but the labels.

    Per Music Ally, David Byrne, a long time critic of streaming services is seriously impressed by the Rethink report. “A thing of beauty… and much needed,” he said. “The picture the study paints is spot on and fairly devastating – as it should be. It’s essential reading – and given the lack of vested interests at work it should be explosive and wide ranging in its impact.”

    There’s a great deal more to the report than covered here. I urge you to take some time to read it in its entirety. Click the link below.

    Time to correct those who would regurgitate the received wisdom that streaming services are ripping off artists. That’s an over-simplification of an an issue that Rethink Music’s report shows us to be much deeper than a fantastical headline. Not to absolve streaming services of their responsibility to pay fair but it’s high time we shine a fresh spotlight on label contracts and the commissions they pay artists. And to do that we must follow the money.

    Further information: Rethink Music: Transparency and money flows in the music industry

    John H. Darko

    Written by John H. Darko

    John is the editor of Darko.Audio, from whose ad revenues he derives an income. He is an occasional contributor to 6moons but has previously written pieces for TONEAudio, AudioStream and Stereophile.

    Darko.Audio is a member of EISA.

    Follow John on YouTube or Twitter


    1. I’ve read similar elsewhere; essentially it’s the music “business” and publishers who get the lion’s share of the money from streaming services. Some artists, such as T-Swift, who have more pull can negotiate better deals but this always comes at the expense of lesser artists, the very people whom her public persona would have you believe she is fighting for.

      Artists know that it is the music business more than the streaming business that is ripping them off, but I can only assume they direct their invective at Spotify et al as it’s less a case of biting the hand that feeds. It can be argued, quite successfully, that the music business is no longer than hand that feeds rather that which robs, which let’s face it has always been the case to a degree.

      Artists with pull who are on the record as hating streaming services for devaluing their product should do something about it. Radiohead, who are selectively opposed to streaming, could use some of their influence to help shape a new paradigm and create a label/publisher that artists could flock to and which serves their interests. Something similar to the original United Artists back in the day for example.

      I am a Spotify Premium user and have been since it launched in Australia and I love and would recommend it to anyone with even a passing interest in music. I just hope the vampire squid that is the music business get their own. But until the musicians start PUBLICLY attacking and shaming the music business instead of the streaming services this won’t change. With Apple looking for a monopoly it could in fact get worse.

      • That’s right: the naming and shaming needs to be redirected at labels and contracts.

    2. We finally have the technology that will allow an artist to make a go of it without labels entirely. The problems cited in the Berklee study are very temporary, because labels are going to go the way of the dodo very shortly. Very soon, touring will be the only part of the music business that still has a ton of upfront costs. Recording? Got a computer? Studio time? Got a computer? Very shortly (already for bigger and/or savvier artists) it will be the best time in history to be a musical artist. In fact, I think streaming is what is going to have to change its business model, because the artists won’t need them, and the labels won’t exist.

    3. As a muso, this has been my main beef with the big services like Itunes and Spotify – they have helped maintain the status quo. With the decline of physical sales it is the big online services that have kept the labels in the game, not destroy them as some would claim. Go onto Itunes or the main streaming services and front and centre are the artists promoted by the big labels, just like shopping at a brick and mortar record store 20 years ago. Was not the beauty of the internet that the artist could communicate directly with their audience and not have to go through the gatekeepers, encouraging a more level playing field? Sure there are other music sites that allow for this but they are fringe players. I can’t help but think that during that vacuum between Napster and Itunes we missed an opportunity for something better.

    4. I can’t say I completely agree. Sure, labels are run by greedy asshats – that’s set in stone, no argument from me.

      But I follow (and personally know, in some cases) a few self-published producers and all of them make less than a bag of cashews worth from Spotify. If those revenue numbers you posted are indeed correct, even the amount of times I alone have streamed their tunes over two months (that was how long I was a Premium subscriber before I dumped the Spotify) would add up to more than what they got from paid for the whole of last year. I can pretty much guarantee that I could listen to this one guy from the list solely for the entire month and he still wouldn’t even get a tenth of what a monthly subscription costs me – which is still not technically wrong since I’d have to stream his stuff a whole damn lot to even make him earn a dollar, but then where’s my money truly going? The Spotify CEO? Servers infrastructure? Some saccharine MTV artist whom I’m not even listening to, or worse, his/her label?! Neil Young?

      To be fair, it doesn’t bother them – the self-published producers I mentioned – as much as it does me, since they earn most of their money from live sets/gigs and actual record sales (Bandcamp, Hardwax, Juno, etc), but as a consumer I’d still like to know where my subscription money truly going.

      • Gan Solo – you’re zooming in too close here. Received wisdom is fundamental to the problem here: that “streaming services rip off artists”. That’s an over-simplification and only a fraction of the complete picture. With headlines like that, the truth gets swept under the rug. Rethink have just lifted that rug. Their report details what many of us have suspected for a long while: that record labels are applying downwards foot pressure to streaming service company necks. ‘Per stream’ percentages are lower than they should be…but ask yourself WHY: could it be anything to do with major labels taking equity stakes in Spotify or that those same labels demand slabs of cash upfront and then ongoing ‘maintenance payments’? We should all be outraged.

    5. Basically, we have another addition to the loathing list: politicians, lawyers, doctors, telecom corporations, and now record industry. You can sort them out in your order of choice. 🙂

      I am joking, of course. Anybody who has followed the inner workings of record industry for any period of time, knows that they belonged on that list for decades…

    6. Some important insight into what’s going on behind the scenes but I still think a spotlight should continue to be pointed on some of the streaming services. Specifically Youtube, Spotify and probably Apple, which will likely become a very large player in due course. Tidal and Deezer pay royalties at a rate that is at least seven times higher than the largest of the streaming companies. That is a huge discrepancy and while I agree the major labels are clearly at fault, the freemium streamers play their own part in this.

      • That’s right: Spotify might possibly have given labels equity stakes in their company in exchange for lower streaming rates.

        On a personal note, I am SO not down with free streaming. I hope to Santa Claus that it goes away eventually.

    7. Amen to that! Music content shouldn’t be free. It’s a product someone made and hopes to live off. Nobody should be expected to work for nothing. It’s weird that it takes a Taylor Swift to say the obvious -:)

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