A RAW DEAL

How music streaming reshaped royalties

In recent years, the way we experience music has undergone a fundamental shift. Platforms like Spotify, Apple Music, and others are at the center of this transformation, redefining not only how we listen but also reshaping the financial landscape of the music industry, particularly concerning royalties.

The Rise of Streaming Platforms

It wasn’t too long ago that physical music formats such as CDs and vinyl records dominated music sales, followed by a surge in digital downloads that allowed listeners to purchase and store music. However, with the advent of streaming platforms, the paradigm has shifted once again.

Now, rather than owning music, users can access vast libraries of songs instantly. For a small monthly fee—or even free with ads—listeners can enjoy a world of music whenever they wish. This shift has made streaming the preferred method for most music fans and has fundamentally altered the industry. In fact, by 2020, streaming contributed 83% of music industry revenue in the United States alone, underscoring its dominance.

Platforms like Spotify and Apple Music have seen tremendous growth in their subscriber base, with Spotify, as of 2023, boasting over 500 million active users, 200 million of whom are paying subscribers. Consumer preferences have clearly evolved, favoring on-demand streaming over music ownership, as streaming services offer the added benefit of curated playlists and personalized recommendations, enhancing music discovery and convenience.

In sum, streaming has become the standard in music consumption, shaping not only how people listen to music but also how the industry generates revenue.

Shifts in Royalty Distribution

The shift to streaming has redefined how artists and industry professionals earn from their work. Previously, artists earned through physical album sales or digital downloads, allowing them to make a predictable amount per sale. Now, however, earnings are based on a “per-stream” model where artists receive a fraction of a cent for each play of their song.

How Royalties Are Calculated

Streaming services operate on a per-stream royalty model. For example, Spotify pays artists between $0.003 and $0.005 per stream, meaning an artist needs millions of streams to see substantial revenue. In comparison, traditional sales offered a higher, fixed revenue per album, which was often more profitable for artists than today’s streaming revenue model.

Artist Compensation Concerns

For many artists, especially those outside the mainstream, the new royalty structure presents financial challenges. Achieving even a modest income through streaming requires millions of plays each month, making it difficult for many musicians to sustain themselves financially. Some artists, like Taylor Swift, have been vocal about this issue; she temporarily pulled her music from Spotify in 2014, citing low royalty rates, and only returned after negotiating improved terms. Her decision brought attention to the ongoing debate over fair compensation in the streaming era.

New Revenue Opportunities

Despite these challenges, streaming services do offer artists additional revenue streams. Subscription fees, advertisements, and increased exposure through curated playlists and social media can help musicians reach new audiences, boosting visibility and potentially their earnings.

The Future of Streaming and Royalties

Looking ahead, streaming platforms are likely to continue evolving. As technology advances, so will the quality of listening experiences, with some services already offering high-fidelity audio. Additionally, artificial intelligence (AI) is enhancing music recommendations, making it easier for listeners to discover new music that aligns with their tastes.

The streaming market itself is expected to grow significantly, with projections estimating the global market could surpass $33 billion by 2027. Growth is also expected in emerging markets like Asia, Africa, and Latin America, where streaming adoption is on the rise. This could provide artists with access to new audiences around the world, expanding their reach and potential income sources.

However, challenges remain. Global streaming means dealing with complex copyright and licensing laws that vary across countries, which can complicate royalty distribution. Some regions enforce stricter copyright laws, impacting artist compensation. Future regulatory changes could also influence how royalties are distributed, making it essential for the industry to find ways to ensure fair and consistent compensation across diverse markets.

Conclusion

Streaming has revolutionized the way music royalties work. While platforms have made music more accessible to listeners worldwide, they’ve introduced new complexities in how artists are paid. The low per-stream rates often mean that artists must work harder to see a fair return, particularly compared to the earnings from traditional sales.

To help address these challenges, services like Royalty Exchange allow artists to sell a portion of their future royalties. This model gives musicians an option to secure immediate income while still benefiting from the continued success of their music. As streaming continues to evolve, both artists and industry leaders will need to find innovative solutions to ensure fair compensation in this new era of music consumption.