In the past, when artists released a new single or album, listeners would have to go into a physical store to get a CD to play at home. In store, customers would pay a set price, usually a similar price per album or artist based on market forces. Now, artists can release their tracks to thousands of different digital streaming platforms with the press of a button. How much money an artist sees from their streams depends heavily on which platform the listener consumes the music.
Part of Spotify’s success can be accounted for by their algorithm. Users can discover new music very easily, by listening to other users’ playlists or the personalized playlists based on previous listening behavior. On the other hand, there is Apple Music, where the core value lies in collecting music, the same as how people collected their CD’s and later songs on iTunes.
Streaming platforms’ payout structures are quite complex and dependent on various variables, but in general they use the same key features. The revenue of all the users is collected in one large pool, usually split per country to account for varying purchasing powers and related premiums users pay. The streaming services keep a percentage of the revenue to cover their operational costs, e.g. for Spotify this is capped at 30%. Then all the streams from a country are added together, and the total payout is divided by the total streams. This usually entails that each stream is worth a fraction of a cent.
For artists, this has a couple of consequences. Firstly, whereas in the past it did not matter if a fan wanted to listen to a single song only once or have the album on repeat for weeks, the revenue they received would be a one-time payout. In present day, the number of times someone streams a song determines the payout an artist receives. One stream is almost negligible but having the song or album on repeat can generate higher revenues than the sale of a CD. Additionally, it is no longer the absolute number of streams but the relative number of streams that matter for the revenues. The more people listen to music on a platform, the less each stream is valued because it is pooled. For this reason, songs are becoming shorter and shorter to accommodate this change that the digitalization of the industry has brought forward. With each track being 2,5 minutes instead of 3, artists can gain one stream extra per 15 minutes that their music is consumed. What is more, Spotify almost incentivizes users to listen to more different songs with their algorithm, and thus artists receive a lower payout as their relative share decreases. That’s partly why Apple Music can pay higher revenues to most artists as their discovery mode is more limited and fans listen to the same artists repeatedly.
Some people have expressed their concerns, fearing that the artistic value behind the music is undermined by this business model. Besides, when large artists release a new album, such as Bad Bunny generating 183 million streams on his release day, they take away a large part of the revenue from other artists that are unable to come even close to those numbers, and see their relative share grow smaller as depicted in Figure 1.
To circumvent this issue a new model has been proposed. Here, the relative share per user would be used to pay as revenue to an artist rather than the pooled model. The more a user listens to an artist’s repertoire, the larger the share of the premium of that specific user the artist would receive. For example, if a user only listens to 1 artist, that artist would receive the full premium, no matter if they have listened to a single song or to an album on repeat. However, the largest music distributors in the industry, of which 3 hold around 70% of the market share, would potentially see their revenues decline as they benefit from the pooled distribution and are naturally hesitant to adopt such a new payout structure.
Currently, not only a user’s own listening behavior, but also that of others determines who gets which share of the pie. Should users reclaim this autonomy over which artists they want to support, like they were able with CDs?
References
Mack, Z. (2019). How streaming affects the lengths of songs. Retrieved from https://www.theverge.com/2019/5/28/18642978/music-streaming-spotify-song-length-distribution-production-switched-on-pop-vergecast-interview
Musically. (2022) Majors slightly increased their market share in 2021. Retrieved from https://musically.com/2022/04/06/majors-market-share-in-2021/
Spotify. (n.d.) Audience. Retrieved from https://artists.spotify.com/artists
Spotify. (n.d.) Royalties. Retrieved from https://artists.spotify.com/help/article/royalties
Velardo, V. (2019). Spotify’s Discover Weekly explained – breaking from your music bubble or, maybe not? Retrieved from https://medium.com/the-sound-of-ai/spotifys-discover-weekly-explained-breaking-from-your-music-bubble-or-maybe-not-b506da144123
Hi Esra! Thank you for your contribution. This was quite an interesting blog post to read. I am not aware of these streaming platforms’ payout structures when I listen to music on Spotify at all. I do recon that using the model with the relative share per user is better for smaller artists. It can even be fairer (after all, if I am listening to one artist, I would like all my “payouts” to go to that artist with no pooled revenue). Nonetheless, I can imagine that such a new model would be difficult to roll out, as large music distributors are hesitant. Curious to see what you think: what model would work best in your opinion? And do you think – speaking realistically – that this model can be implemented or is the power of the “music giants” in the industry too big? All the best, Eva
I think that the new way that artists are releasing their tracks is a good thing. It allows them to get their music out to more people and to make more money. I don’t think that the artistic value of the music is being undermined, because I think that people still appreciate good music regardless of how it is released. I do think that some people are concerned about the way that the revenue is divided up, because it means that some artists are getting a lot more money than others. This blog really points out some interesting discussion questions! I liked it and I felt engaged in the reading.