It’s tempting to think that the music industry is simple. They make music, we listen, people are paid, full stop. Plus, with on-demand streaming services like Spotify on the scene, all the music is piled into a nice, organized collection. Surely that makes dishing out the cash easy, right?
Not exactly.
Take a look at how $100 from (roughly) 10,000 streams is divided:
Performance channel
▪️ Digital distributor gets $49 and keeps 10% – passes rest to Master Owner/Record Label
▪️ Master Right Owner/Record Label gets $44.1 and keeps $39.69 – passes what’s left to the artist
▪️ Artist earns $4.41
Composition channel
▪️ Spotify gets $51 and keeps $40
▪️ Performance Right Organization (PRO) receives $11 and keeps $1
▪️ $10 is divided between Songwriters ($7) and Publishers ($3)
So, a little more complicated than expected. If you’re wondering how everyone has their finger in the Spotify revenue pie, it’s worth taking a look at copyrights. That’s when “performance” and “composition” will make sense. But first, let’s talk about royalties.
How does Spotify pay out? Royalties.
Royalties are what anyone who had any say in the creative process of making a song are paid. Be it the artist, the songwriter, publisher, or record label – if the song is played, they get money. So, every time someone clicks on your track, money is set aside for you and your production team. The amount is usually relatively small but adds up over time for more popular music. As of January 2019, Spotify claims it pays out between $0.00331 and $0.0043 to right holders for every stream. However, this number is known to fluctuate over time, day to day even.
Where does this money come from?
Spotify gathers its revenue from a number of lucrative pools. Ad-revenue being one. When you think of ad-revenue, you probably think of non-paying users who are subjected to intervals of loud ads between their music. You probably believe this is where most of their money comes from. That’s not the case.
Surprisingly, Spotify makes most of their big bucks from subscriptions, 80%, to be more exact. So, though a loyal subscriber may not know it, their well-spent $10 monthly subscription is keeping a whole line of people paid!
How’s that? Streams from premium users are simply worth more. A lot more. With free user’s streams estimated worth standing at $0.0015 while premium user’s lies around $0.005. That’s a considerable difference when you take into account that some songs are streamed millions of times a day. In fact, 40,000 new tracks are added to Spotify’s massive 5 million track collection every day. It’s also estimated that 750,000 songs are streamed on Spotify every minute. Yes, that’s right, every single round of the clock! Insane!
So, Spotify has a lot of money to manage and a lot of payouts to make. And seeing how Spotify makes its money, it’s probably time to delve further down these payout channels.
Composition copyright vs Master copyright?
You’ve probably heard the buzz around Master Copyrights lately, and if you haven’t yet, you should. They’re a hotbed for arguments between record labels and artists, with record labels often using them as leverage over their most lucrative artists (*cough cough* Taylor Swift)
There’s a reason why they’re so important, and it’s because it’s essentially what it says on the tin. If you have the master copyright, you are the Master of that song. You own the finished product, and you decide what to do with it. Of course, you also bring in all the sweet royalties and divvy them up as you wish – desirable.
That’s why every artist should get a hold of their masters and hold on to them with all their might!
But wait, that doesn’t explain what a composition copyright its. In short, if the master copy is the meal, the composition copyright is the recipe. The composition copyright covers the lyrics, notes, remixing, editing, and any other creative processes that went into creating the blueprint of the song. Though the performing/recording and production of a song usually go hand in hand, they’re separate in the eyes of the law.
Which leads us to why they’re also paid separately. (hence the two channels listed above!)
Publishing royalties and recording royalties
To begin with, publishing royalties are given to the owners of the composition copyright, and recording royalties are given to the owners of the master copyright. Whoever these owners are depends on how a record deal was written up and signed or on how an indie artist created their music.
This means that recording royalties are concerned with recording, singing, editing, and remixing the track. So, this is the artists and record label’s domain. If the artist owns their Master’s, they can completely skip the need for a record label and receive the full share of recording royalties. Alongside anyone who helped to produce the final product, of course.
On the flips side, publishing royalties are assigned to the songwriters and publishers. The people who actually put pen to paper, create lyrics and cultivate a melody. And like with a book, this written piece needs to be published before it can be bought and used. So, the publisher also gets their fair share of the handout.
We don’t tend to think of the behind-the-scenes workers when it comes to royalties, but their payout can often be larger than that of the artist themselves!
How is the money split?
And where are the royalties coming from? Recording royalties come from and sales or streams of a song/album. Their value is calculated by Spotify, depending on how much interaction an artist’s song has had. Then, once a total figure is added up from all sales, add-revenue, and streams – it’s handed over to the master copyright owner. Naturally, if this is the record label, they’re going to keep a share for themselves before the artist even sees any money.
In fact, if the record label has an advance on the artist, they may simply withhold their share of royalties and count it as payment of their recoubables. Not fair? That’s up for you to decide!
Things are a little less personal when it comes to publishing royalties. Generally, the streaming platform will keep the lion’s share of these royalties while the rest is handed over to a Performance Right Organization (PRO.) A PRO is mainly required by large production teams to keep track of their business. While the writers and publishers get to work creating a lyrical masterpiece, the PRO takes care of the nitty-gritty side of finances and dealing with streaming platforms. So, naturally, the PRO gets a share of composition royalties for their valuable work, albeit generally a small one. What’s left goes into the many writers and publisher’s pockets.
All streams are equal, but some streams are more equal than others..
As mentioned before, Spotify make most of their money from premium users. Sure, every user adds something to the revenue pot, but those who pay monthly keep income high. The thing is, divvying up this money isn’t easy. And it’s not exactly fair in many people’s estimations either.
Think of it this way, if Drake brought in 2% of streams for a year, he (and everyone who made the song) would get 2% of the total income. That includes general streams and premium user subscriptions. But what if one artist brought in more premium subscribers than general users? Shouldn’t they get a larger share of the pie? Not on Spotify.
Variation by region
Plus, depending on where a song is streamed most globally, it can bring in more or less money. This deviation is down to more lucrative and prominent advertising opportunities in richer areas/countries. They’re simply more likely to invest money in advertising opportunities on Spotify. Not to mention that Spotify’s regular users tend to be concentrated in certain regions of the world, such as the USA and Europe. So, artists recording out of these area tend to have a higher chance of better earnings.
Variation by time
And as mentioned before, per-stream payout amounts can fluctuate from day to day. This deviation is down to the aforementioned “money pool” structure that Spotify adheres to. It doesn’t matter if an artist has brought in more money for Spotify in their own right; if Spotify’s overall income is lower or higher, their payouts will follow suit.
Is it worth it?
In short, an artist is not guaranteed consistent income by streaming their music on Spotify. If a track is streamed often or makes regular sales, then the changing figures won’t matter. However, for smaller artists, especially from countries where Spotify doesn’t have a dominant foothold, streaming their music can earn them little to no money.
So, Spotify’s business model isn’t for everyone. It’s fair in that it ensures everyone along the production like is paid. However, many argue that the delegated amounts often don’t match the relative workloads. With many holding firm on their belief that artist deserve a larger cut of the share than they’re currently receiving.
Whatever way you look at it, it’s working for now. Streaming platforms are booming, and Spotify is at the forefront of this exponential growth. Though their payout formula might not yet be optimized, it’s currently sustainable. Will it change in the future? That’s up for artists to decide!
And finally, to answer the title question – there is no way of knowing for sure, only estimations. But if you’re looking for the artist’s answer: $3,222.