The Pros and Cons of Music Streaming for Recording Artists

Congratulations! You’ve recently recorded a great song and your best friend calls to tell you that she’s heard the song on Spotify. She boasts about your song becoming a hit and how you’re going to become rich and famous, among other things. You’re ecstatic! You know how iTunes works and how much money you’ll make off of a download of your song, but you have no clue on how music streaming services like Spotify and Beats Music operate and how you’ll get paid! So you call your favorite lawyer.

So What Exactly is Music Streaming?

In today’s music industry, music streaming has become a popular tool for fans to listen to their favorite artists without actually having to buy their records. It allows them to hear or access songs “live” or in “real time” instead of having to download or own the music outright. These songs can either be played from a music streaming website or from a music streaming mobile app with Spotify, Rhapsody, and Grooveshark being some of the more popular streaming services available to users.

Although these streaming services benefit music consumers, does it benefit you – the recording artist?

The Benefits of Streaming

To a certain extent, you do receive a benefit because streaming can help increase your fan base. Major and Independent record labels as well as other music rights’ holders provide music streaming services with a license to stream their music catalogs which may include your songs. With potentially millions of music streaming users having access to your music through these services, in addition to increasing your fan base you may find that these fans will purchase tickets to your concerts, buy your merchandise, and possibly purchase your downloads or CDs. For example, statistics show that a Spotify user spends about 80% more than the average music fan on purchasing concert tickets, merchandise, CDs and digital downloads. Overall, music streaming services can help you reach and engage listeners as well as generate some additional revenue from streaming royalties.

How Do You Get Paid?

The growth of today’s music streaming services has led to the paying of music streaming royalties to record labels, music rights’ holders, and eventually you, the recording artist. On average, royalty rates amount to .0005 cents (yes, fractions of a penny!) (“Basic Royalty Rate”) per stream. What does this all mean exactly? Well, streaming services pay royalties to record labels and/or music rights’ holders (i.e., publishers or distributors) pursuant to a direct licensing agreement they’ve entered into with them. Usually these license agreements call for the streaming services to pay fractions of a cent to the record companies and/or music rights’ holders every time a song is played or “streamed” with whatever portions remaining paid to the performers and songwriters. These royalty payments accrue each time a song is streamed. So basically, after the streaming service pays the Basic Royalty Rate to the record label, said record label can often keep up to 85% of that profit leaving you, the recording artist, with only .000075 cents! (We’re talking micro fractions of a penny here!)

As a recording artist, you’ll probably need to consider whether these royalties will enable you to quit your job anytime soon (…NOT)! To give you a clearer picture, getting paid .000075 cents per stream would mean that you’d get paid $75 if your song is streamed a million times! However, if you’re a major recording artist whose songs are receiving massive radio airplay and are climbing the music charts, those fractions of a cent will obviously add up to a larger amount of royalties. But, if you’re an independent recording artist doing it yourself (“DIY”), as you can see, your royalties will be pretty minimal. Also, streaming can cannibalize your CD and download sales because it offers your listeners a free music alternative. As an “indie” recording artist, it makes a big difference if one person buys your CD or downloads your song on iTunes versus streaming your music because it would take, literally, millions of streams to approximate the purchase price of a download or CD. Imagine if your song was downloaded a million times from iTunes at .99 cents per download compared to .000075 cents per stream! You do the math! The amount of streams your song would have to generate in order to equal the price of one download or the purchase of a CD would be more than what any person would ever want to listen to (without becoming completely sick of your song)!

The Effect of Future Subscriber Growth

Presently, it seems more beneficial for you as a recording artist to have your fans purchase a download or a CD as opposed to streaming your music. However, all hope may not be lost. Streaming is becoming widely popular each day and there is evidence to suggest that the amount of paying subscribers will continue to grow causing streaming royalty payouts to also climb. For example, Spotify now offers a $9.99 per month uninterrupted, unlimited subscription service which allows subscribers to listen to all the music in its vast catalog of songs (reportedly over 20 million songs). Spotify already has over 30 million registered users, 10 million of which are subscribers, and is still growing. Therefore, in time, profits from streaming royalties will increase and you may just be able to quit your day job one day!

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