How streaming services ACTUALLY pay music artists

Recently, Apple Music raised [music] prices and a lot of people were complaining online because they didn't want to pay more to have to listen to music than they were already paying, which is fair enough, but I posted online on threads in particular, as I do, uh, saying that at least musicians are going to get paid more, right? Because when streaming services collect more money, artists make more money, right? And a lot of people were very mad at me for [music] this. Uh, and when I say very bad, I mean I was I was getting called names. There were people arguing with me. And there were even people claiming that music streaming services pay a fixed amount. So therefore, raising the streaming subscription isn't going to give any more money to artists. And so what I realized from this is artists have no idea how streaming services actually pay artists. >> So in this video, I'm going to try my best to help you understand how music streaming platforms actually pay artists. And unfortunately, the whole music revenue royalty system is enormously complicated, right? There's people who have lived their whole careers in the music industry who don't really understand how it works. But the biggest thing that we have to dispel right off the bat is there isn't a single music streaming service that I know of like Spotify, Apple Music, YouTube Music, Title, Amazon, Dieser, none of them pay a fixed rate per stream. And that's a very common myth. A lot of people think that you get paid X percentage of a of a dollar per stream. For example, a third of a penny is roughly what you get on Spotify. But one thing you have to keep in mind is every month the average payment per stream changes and it's different per country and it's different per plan. So Spotify free in the US pays differently than Spotify Premium in the US, which pays different than Spotify Premium in Canada, which pays different than Spotify Premium in the UK. And that all changes next month and the next month after that. And the reason is there is no fixed payment per stream. There never has been and there probably never will be. Um, but how do they actually calculate this, right? every month they calculate how you actually get paid per stream. And they do this with something called Stream Share, which people I think think that they understand, but they don't. So, what I did on my website, and I'll link to this tool down below so you can play with it. I made this little nifty calculator that you can use to try to play around with understanding how music streaming services pay. And I'm going to walk you through it here because it's kind of cool. At least I think it's cool, but I'm also a massive nerd. So [laughter] what I did is that the defaults on all these numbers are roughly what the real numbers are for for something like Spotify. Uh it's not exact. We don't know the inner workings of it. I have heard teasers of the inner workings of it to people who have seen the actual contracts directly with DSPs, but those actual contracts are under lock and key and people sign NDAs before they're allowed to read them and they can't talk about them. So, um I may know something about it, but I can't get into details about it and I can't reveal my sources on that. But, um this is essentially how it works. And I'm using public numbers here um that that are all like on Spotify's website that are on on like earnings numbers and stuff like that. So, let's let's walk through this so I don't make sense. So, from top to bottom, let me let me zoom in here so you can see this. What we're starting with is $15 billion. This is streaming revenue, right? So, we're ignoring like free plans versus paid plans. This is just like there's $15 billion that came into the system. And if you look up spot how much money Spotify brings in um depending on the year, it it's going to be somewhere around this. And and just like the reason why I picked this number is because um if you go down to the bottom, you're going to see the average payment per stream is about a third of a penny. So I like again all these numbers are rounded and stuff and I'm taking stuff from public sources but these numbers make sense right this ends up being the real number and it starts off with roughly the real number which I did intentionally so we could then play with it and you you kind of see how the whole system works. So if we start off with $15 billion the first thing that happens right is is the streaming platform just takes 30% cut and this this is normal. This isn't like some secret thing. This is the public number. Um, every platform says something slightly different. Some platforms don't say it at all. Some platforms, you only know this because of the leaks of their contracts. But, um, if you look on Spotify's website, they say something along the lines that um, they pay about twothirds of all money to rights holders. What is a rights holder? Well, that's you. Maybe uh, that could also be your record label or that could be your your investor, right? It's whoever actually owns the rights to the music. If you're a solo artist releasing yourself, then you are the rights holder. Congratulations. You're going to get about 70% of the royalties that streaming platforms collect. Um Spotify says about 2/3. I've seen others that say 70%. Um and and you know, whatever. It's about 70%. You can adjust things accordingly. I just made this fixed here because I didn't want people to start messing crazy numbers. It's about 3070 split. So, um, and let's let's actually just make these numbers simpler. I'm going to bring this down to a billion, right? So, 1 billion total revenue. And now we can see pretty clearly the 7030 split. So, Spotify takes 300 million and the rights holder pool is 700 million. When Spotify does something like gives Joe Rogan a bunch of money to be exclusive to their platform, it doesn't come out of this. It comes out of this. Uh meaning when people say things like they can afford to pay artists more because they, you know, they they they're they're taking money from artists to pay Joe Rogan or whatever. They're they're not. The money that they used from that was always going to be their money to do what they wanted to do with it. So this covers like the CEO's pay this. Well, I mean, CEOs get paid in stock and blah blah blah, but essentially like the executive team and all the employees are covered by this and the marketing is covered by this and bribing podcasters to be exclusive to the platform is covered by this. It doesn't come from the royalty pool because this is contractually obligated to be a certain percentage. Um, and and different labels negotiate different adjustments to that percentage. And that's why the exact percentage is never listed like in black and white on their website. They'll say it'll always say about 2/3, right? Is because the exact number changes. And when you hear about things like major labels having better deals, it's not it's not like they're getting double the pay. It's usually like a couple percentage points. And the reason why that matters is those couple percentage points when you're talking about billions of dollars is a lot of money, right? getting 1% more money off of a billion dollars is a lot of freaking money. So, it adds up. Um, and then the other thing that they do instead of adjusting this like percentage, it doesn't like double or half it or whatever, it it's they give like extra perks like, oh, you can run showcase or marquee ads for free or we're going to give you this extra you can run ads on Spotify's thing for free or Apple Music. we'll give you extra access to us to help you like do these extra cool features or stuff like it comes in the these like little agreements. It doesn't come in the form of we're going to double your payment per stream because the platforms just simply don't have the money. So that's the first big split here. We have the total pool shave off 30% that goes to the streaming platform. The streaming platform does whatever the hell it wants with it. That's their prerogative. The rest of it goes back into the pool. Like this is the pool. From there, this pool gets split into roughly four fifths for the recording, 1/5 for the songwriting. So, if you've ever heard people say that you need to register your music for a pro and for a mechanical licensing collection society, that's the songwriting, what's very often called publishing. Um, and I know someone who is is very good at the whole publishing performance right songwriting share like he's made his living in sync and whatever. And he's always telling me don't call it publishing. It makes it confusing. It's it's like the songwriting. It's the it's the amount of money you get for the song. It's the composition versus the recording. Um, but the very often this is called like the publishing share. Um, but the reason why that's confusing is because this songwriting pool is is generally made up of different chunks, right? You have like the performance royalties, you have the mechanical royalties, you have the songwriter share, and then you have the publisher share. So, this gets further complicated. I'm not going to cover that because it just it just gets it's a rat's nest. The music industry is a nightmare. Um, but generally one of the money is for the song, the composition itself, um, whoever wrote it, right? So, if you are doing a cover song, then you don't get to collect that money. You still get paid from your distributor when you distribute the song from the recording pool. You just don't get the songwriting. So, if you've uploaded your song to like Drokid, you're only getting about four fifths of the money for your song, assuming you wrote the song. And if you did write the song, you should go register it so you can collect that that composition. Um, and if you ever seen like a a major label artist and they have like 15 songwriters in their songwriting credits, um, there's people whose their entire career is just writing songs and their entire income is just off of collecting that backend royalty. Um, and it can be it can be it can be very lucrative, right? It, you know, oneif of billions of dollars is a ton of money, right? So, um, but it is broken up like this. So, a lot of people don't even realize the split here and they're not collecting all their royalties. Let me know if you want to see more about how to collect those royalties in a future video. Um, so this is what the royalty pool gets broken into. This adds up to this, right? This is still that 700 million, but now it's split into these two camps. From there, going down, um, you have this thing called stream share. So over here I have this your streams toggle. So you know, um, this is where it gets it gets to be kind of crazy again. So, let me just bring this back up to the $15 billion number. Um, I heard numbers online that there were about three trillion streams per year on Spotify. And um, let me know if I've gotten any of the math wrong in this and I will gladly fix this tool and make it more accurate. But I heard it was about three trillion. That's also what got me to this handy dandy estimate here. So, it seems like it's probably accurate. Um, but watch what happens when we start shifting both the total streams in the system. So, this is just overall streams and and I'm saying Spotify, but you apply the same model to Apple or title or whatever. Um, if I if I go and let me make sure you can see this number here, right? About a third of a penny. If I change this to 4 trillion streams, you're now making less money. And if I change this to five trillion streams, you're now making less money. Right? the more streams in the like if your streams stay the same and everyone else's streams go up, you make less money. Now, on the flip side, if the your streams stay the same, so you're still getting 1 million streams, but the total number of streams in the system goes down to two million to one or sorry, one trillion. Uh you're now you're making more money. And and why is this, right? Um well, stream streaming platforms calculate everything by stream share. And and what that means is they look at well there were three trillion streams you got 1 million so therefore you you were owed you know 0.3% of the royalty pool um so we're going to pay you 0.3% of the 8.4 billion. So let's say I have a billion streams and let's say there's only one trillion in there. I'm getting 0.1% right? So you can see if I have 8.4 4 billion coming in the royalty pool and you're owed you're getting.1% of the stream share you're going to get.1% of the money. You can see that you know if you divide this by a th00and 8.4 billion divided by th000 is 8.4 4 million, right? And um that get gets you your uh your your share there, right? So, and now this stream share thing is actually the the combination of your recording revenue and your songwriting revenue. So, keep that keep that in mind. I didn't mention that before. It's not just this is not just the this number down here is not just like the dro kid number that you're getting from your distributor. It's it's both of those numbers combined, but the the this number is 80% of it. So, it's like the biggest part of it by far. Um, and so if we bring this back up to three and we have 1 million here, you see it's this normal kind of number you'll see quoted online is about it's about $3,500 per million or about $3,000 per million streams and and it's a little bit higher here just because the songwriting share and everything, but this is about the real life number. And that's because you're getting this percentage of the as the royalty stream. If I drop this down to a th00and, it I should probably adjust the rounding on this, but it's it's a zero with a bunch of zeros after it and then a [laughter] a very small number, right? So, it ends up being $3.50 per per thousand streams that you actually take home. So, like the the big takeaway here that I want you to understand is it's not like there's any fixed number. Um, and and actually I want to play with this one more way, right? So, we already saw that if if we if we get a million streams, but then magically everyone else gets more streams, this number goes down. We make less money. And if there's less streams to go around, but we're getting the same amount, we make more money. Like, nothing about our situation changed. Now, similarly, this is still that third of a penny. And let me actually just um make this page taller here so we can see all of it at once. If I do the same thing to the revenue, right? If we're still getting a million streams, but we increase the royalty pool, you're now making more money, right? You're still getting a million streams, but now you're making uh like 50% more money. You're making almost five grand for that million instead of the 3500 for the million. And again, similarly, if the platform brings in less money for the same amount of streams in the whole system, um you're making less. So, it's not as simple as Spotify just needs to pay pay their executive teams, their employees less and magically that's going to fix the streaming model, right? Because even if they don't make any money and the, you know, the executive team takes no money and they don't pay anyone and they don't have any marketing, it only increases the payment per stream by 50%. It doesn't double it. It doesn't triple it, right? You can't get to a penny per stream with this system. Even if they make no money and then go bankrupt next year, we still don't hit a penny a stream. Um, what they would have to do to make a penny stream is they would have to, let's say, for example, find a way to drastically increase the amount of money coming in. Maybe even limit the amount of stream certain plans can have so they reduce total streaming. And look at that, we get a penny a stream. Um, but they don't want to limit the amount of streams people can do because the the data shows that the more people interact with music, the more they buy tickets to the shows, the more they buy merch, the more they fall in love with music and that helps artists as well. So, they don't want to like arbitrarily throttle listening. I think they should come up with multiple tiers where it's like, hey, it's unlimited if you're like paying this higher price. But like for for the average person, let's say you get a thousand streams a month and that rep that's like 90% of people listen to X amount of streams, they still get this normal kind of cheaper tier. But hey, if you need 5,000 streams a month, you pay this. If you need actual unlimited, you pay $50 a month because you're this extreme power user that's drastically if we increase the streams, everyone makes less money. So basically what we say is if you're going to be streaming a ton of music, you should pay more money. Um, and that would be one way to decrease the streaming number for those superpower users that just listen to music 247. Um, and then raise prices and then that will get us to a penny a stream. But it's not as simple as just Spotify is making too much money or or whatever. And one huge kind of caveat with this is this is assuming that the artist is actually like just the rights holder. Um, of course, if I reset all these numbers, I had this your agreements thing. So, like let's say you're signed to a label and you have a 50/50 cut. Well, that means you're getting half the money that's coming in. And that has nothing to do with the streaming economics. That's just like your individual deal with your label, right? There's a lot of people online that talk about streaming pays me nothing. I got a billion streams and I only made $1,000. And then what ends up you end up learning about is like, well, they're basically making nothing from their recording deal because they haven't recouped the label's investment. And then there's like seven songwriters on it, so they're only getting like seven%. Um, and even though they got a billion streams, you know, they um they had this teeny tiny percentage that they're actually getting like and they're not getting, you know, the millions of dollars they should have been getting. They're getting like 10,000 or something. And then they start, and I'm talking about Snoop Dogg here. Snoop Dogg said this thing that I only got paid a couple thousand dollars for a billion streams. It turns out that like it was that it wasn't like the streaming platforms. It was that all of his deals. Uh he either didn't understand how it worked or what I suspect because he I have to imagine he's a pretty smart dude just with his career and everything. Um he knew it would get a lot of attention online to say that. So anyways, this is a free tool on my site. You don't need to enter an email to use it. Although if you do want to give me your email address on here, um I have a weekly newsletter every Monday called Music Marketing Monday. You can sign up right on the site and um you'll get to learn about cool tools like this as they come out and also other awesome music marketing tidbits along the way. Uh if you want to see how you can actually market your music, let's say using ads for example, which is a tactic a lot of people watch me for, check out this playlist right here to see that entire process from start to finish. And make sure you subscribe so you don't miss another upload. Thanks for watching and I'll see you in the video. I'll see you in the next video. Bye.