Can modern-day artists make a living from streaming music? That’s a very relevant and much-heard question in the music industry. The market of music streaming depends on the masses, scalable solutions and worldwide marketing efforts. But is there a simple answer to the question ‘How much do I make per stream’? No, unfortunately not. Let’s dive in deeper and discover how DSPs like YouTube Music, Apple Music, Amazon Music and Spotify pay royalties.
First of all, a disclaimer. The chart below is a chart of 10 large names in the music streaming industry (Qobuz, Apple Music, Deezer, Amazon Music, Spotify, Tidal, YouTube Music, Amazon Prime, Tencent QQ, TikTok). These figures vary per month or time of year (due to the circumstances described below). The figures below serve as a guide and reference. Spatial audio or lossless audio can also have different music streaming rates. The Audio quality of a song matters!
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Second, the figures belong to income paid to master license holders. There are several kinds of music royalties, from mechanical royalties to public performance or master licenses. The difference between these types is described in our blog Spotify royalty calculations explained.
Third, a stream on a song counts if the track has been played for 30 seconds or more. A streaming platform reports skip rates or tracks being streamed under 30 seconds, but those are left out.
As can be seen above, there are huge differences between royalty payouts per stream per music streaming service. We’ll cover some of the most important reasons below. Note: Deezer and Universal Music Group are exploring a new model for royalty payouts.
Paid vs. free subscriptions
On Streaming platforms that have ads enabled on free streaming, the average payout is determined by the total revenue from subscriptions and ads. There is a big difference in the ARPU (average revenue per user) between paid subscribers to a music service and free users.
The ARPU for paid subscriptions often exceeds €4 whereas the ARPU for free users hardly exceeds €0.5. Subsequently, if a DSP (like Spotify) has a large number of free users, the royalty payouts are considerably lower as opposed to DSPs that do not have a free streaming tier.
On the other hand, DSPs with a free tier normally have a larger reach and many more streams, making up for the lower amount paid per stream. Some services do not offer a free tier, such as Youtube Music Premium and Amazon Music Unlimited. Apple Music is a music streaming platform that does not have a free tier.
Sound quality
Not all DSPs offer their customers the same quality. For example, Spotify offers music at 128kbps. Apple Music has a higher bitrate and also has lossless audio quality and Dolby Atmos. This is reflected in the pricing strategy. Apple (only has paid subscriptions) charges a slightly higher price and pays out a higher royalty rate for lossless streaming.
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Tidal, the DSP that pays out the highest rates on our list, has high-res audio.
Higher sound quality overall means higher royalty rates. Music listeners who value sound quality eventually turn out to generate higher income for artists.
Territory
The territory in which music is being streamed is also of influence on the payout rate. This both counts for free and paid music streaming apps.
On paid tiers, not every country charges the same monthly amount for subscriptions. Spotify or Apple Music, for example, is more expensive for North American residents than for inhabitants of India. This is related to the level of economic development of each country; USD 10 per month would be too high for developing countries as people have a lower expendable income. Music streaming services adjust their prices according to the wealth per territory. In China, this also applies to tech-giant Tencent Music.
On free tiers, this more or less applies too. Pricing for advertising space also varies per country, based on the level of development.
Free tiers are very valuable for developing countries. As Third world territories, such as North America, have a high living standard, people can afford to pay for music. Developing countries however do not have those means. A free tier contributes to lower music piracy and more music discovery. People who do not have the means to pay for music can still enjoy, whilst at the same time supporting their favourite artists. Platforms such as Music In Ayoba, in Africa, are all-encompassing. They offer a 360 environment of services, messaging, telecom, music, and payment services all in one app.
Type of reporting
As described in one of our other blogs, not every DSP has the same calculation model for royalties. There are basically two different models: the pro rata model and the user-centric model.
Pro rata model in short: income from streams is accumulated and paid out pro rata to all rights holders.
User-centric model: the royalty rate is based on the listening time of individual users; how many tracks a user streams and how many times. If, for example, a user would only listen to 1 track, his or her whole monthly fee would be paid out to that one rightsholder. In the user-centric model, the fan has a high level of influence on who royalties are being paid out.
Deezer is one of the DSPs that has a user-centric model. Several record companies and collecting agencies have been involved in improving these systems.
Time of year
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Besides certain seasonal discounts on subscriptions, free tiers have the biggest impact on fluctuating royalty rates per time of year. Take the summer holidays as an example. The ratio between paid and free users of streaming services is different during a summer holiday. Students (who in general account for a large part of free subscriptions) leave campus and spend less time behind their desks generating less revenue on the Apple Music Student tier. Desk research shows that students spend fewer hours on music streaming services during summer break. This affects the ratio of streams generated. The same more or less applies for the holiday season and January; gift cards are the perfect Christmas present and contribute to more revenue in January, which also changes the free / paid streams ratio for s short period of time.
Not only is the number of streams from paid subscriptions slightly higher, but advertisers also pay less for advertising space at times when they reach a lower percentage of their target group.
Contracts between labels, distributors and artists
A side note: this does not affect the payouts from the list above but it is of big importance to artists.
Record companies sign deals with artists, distributors or aggregators. At each level of the supply chain, a percentage of money is spent on that particular company.
Example: an artist signs a deal with a record company for 50% royalties from digital sales. That same record company signs a deal with a distributor to deliver the music to Spotify. The distributor charges 15% to the record label, leaving the artist with a little less as opposed to a direct distribution deal. There really is no better or worse scenario here: each level of the supply chain offers its added value.
One famous example is the dispute between US rapper Eminem and Universal Music Group. Universal claimed that the royalty rate in his contract would not apply to digital sales (as the deal was signed well before digital sales even took place).
The difference in ad placements
The type of ads also influences the royalty rates, for free subscriptions of course. Take YouTube Music as an example. YouTube’s royalty rates are very low, but because of Google Ads, they pay huge amounts of royalties per year (in fact, it is estimated that next year royalty payments of YouTube even surpass those of Spotify).
Google Ads is an ads program that offers many types of ad campaigns (display, search, shopping, and in-stream video ads to name a few). These many types of ads, and the fact that there are low entry barriers into this ad-buying market, result in very high ad revenue payouts from YouTube.
Different plans
Not every music streaming service has the same kind of plans or tiers. For example, Apple Music has Apple Music Students, YouTube has YouTube Music Premium, and Amazon has Amazon Music Unlimited. Some of these plans ensure a higher sound quality, offline listening or CD quality. For example: a new song by Taylor Swift can generate different amounts of revenue on different plans. Music streaming isn’t as straightforward as it seems. Some types of music are also more popular on lossless formats or Dolby Atmos, such as classical music.
Key takeaway:
Royalty payouts from DSPs are influenced by many factors and change constantly. Important factors include the type of royalty model, place and time of streams, ad placements and sound quality. Even the best music streaming service in the world would find it challenging to create the perfect business model for music streaming.
Source: https://t-tees.com
Category: WHICH
