Behind the Streams: The Truth About Music Royalty Payouts
The music industry has experienced a profound transformation in recent years, with digital streaming platforms like Spotify, Apple Music, and Amazon Music taking center stage. The advent of on-demand music streaming has reshaped how we access and enjoy the songs we know and love.
Before we had an extensive library of songs available at our fingertips, purchasing a physical album was the only way to tune in—one purchase and the music was yours forever. In our modern world, every time a song is streamed, artists and rights holders are entitled to receive royalties as compensation extending the financial lifetime of a song. This allows for artists to earn passive income from their catalog in perpetuity. However, understanding the economics of music streaming and what recording artists can expect to earn per song stream is crucial to musicians and investors alike.
How much do artists make each time their song is streamed?
The answer is not straightforward and can vary widely. Depending on the platform, artists can anticipate earnings ranging from as low as $0.001 to $0.016 per stream. The delta in per stream payouts revolves around the payment structures employed by each platform. Some platforms like Apple Music offer a fixed $0.01—cent per stream model, whereas platforms like Spotify participate in a stream-share model where the per-stream royalty rate varies.
Bulls, Sharks and Vampires
Additionally, an artist's contractual agreements with record labels or distributors can also affect their royalty earnings. The majority of massively successful recording artists are signed to a major label, in some cases giving up to an 85% share in their publishing royalties. For the sake being pragmatic, let’s explore how much revenue a song catalog generates as a whole.
Noting the fact that royalty payouts per stream are variable, we can take the average per-stream payrate from each platform and multiply it by their market share to calculate an average aggregate stream across all platforms. This way, we can make educated revenue estimations for song catalogs based on their public on-demand streams.
The formula for our weighted average royalty calculation is as follows:
Where:
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Calculating the weighted average involves simply multiplying each per-stream royalty rate by the market share of its platform and summing those products. Then, sum the market share weights for all streaming platforms. Finally, divide the first calculation by the second and voila!
Using the table above, simply divide the value in the bottom right cell by 0.9164 to find that the average per-stream royalty payout across all platforms is $0.0056.
Breadcrumbs… Lots and Lots of Breadcrumbs?
While the lone figure may seem minuscule, it's important to recognize the significant volume of streams that popular songs can accumulate over time. Successful recording artists accumulate millions of streams—billions per song for some megastars. This is where the revenue starts to make a real impact.
For example, The Weeknd’s “Blinding Lights” has racked up 3.78 billion streams to date—earning him almost $14 million already from Spotify alone! If you take a look at some of the most successful songs in recent history, the royalty payouts for each song may blow your hair back.
Furthermore, considering that these are simply individual songs that make up an entire catalog of music, we are only viewing a sliver of the total commerce. In the case of an entire catalog of music, artists like The Weeknd are generating over $30-$40 million in residual royalty revenue each year.
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