The Revenue Problem with Music Streaming
Spotify’s initial public offering (IPO) on the New York Stock Exchange still has investors analyzing the sustainability of music streaming services. Despite a steadily growing subscriber base, Spotify lost $601 million in 2016 and $1.5 billion in 2017. Other music streaming giants like Pandora and Deezer have also reported annual losses in the millions. Many streaming industry giants are bleeding money, and that’s not their only problem: many have rocky relationships with artists. Taylor Swift and Neil Young have pulled their music from Spotify in the past, and Spotify faces pricey lawsuits from songwriter legends Tom Petty and Neil Young. Music streaming services are notorious for failing to adequately compensate artists who share their music on these platforms. Information Is Beautiful, a data visualization firm, ran the numbers on the top music streaming services and compared how each paid their artists. Their findings, shown below, give a glimpse into just how little artists receive from music streaming services.
For an artist to earn a monthly minimum wage from Spotify streaming revenue, they must collect 366,000 plays on a song—And this is an estimate for a singular artist, not for a band with more than one member
Comparing how the most popular music streaming services pay their artists is complicated: subscriber counts differ across streaming services, which makes it difficult to use the average artist revenue per play as an indicator for how well artists are compensated. For example, though Napster has the highest average artist revenue per play ($.0190), their total user base is only five million—making it much harder for an artist to rack up plays when there are less listeners. On the other hand, Youtube has one of the lowest average artist revenues per play ($.0007), but its massive user base—which is in the billions—makes it much easier for artists to garner plays on songs more quickly than if the songs were posted on Napster.
Spotify, with approximately 159 million subscribers, pays artists around $0.0044 per play. For an artist to earn a monthly minimum wage from Spotify streaming revenue, they must collect 366,000 plays on a song—And this is an estimate for a singular artist, not for a band with more than one member. For a band like Arcade Fire, which has six core members, they have to collect well over two million plays on a song for each member to receive a monthly minimum wage. And this estimate is likely lowballed: many bands have to shell out part of their streaming revenue to record labels and crews and various other miscellanies—making it even harder to profit from music streaming. Musicians, especially lesser-known ones, who rely on streaming services for revenue should look elsewhere--artists need hundreds of thousands of plays on a song to earn a monthly minimum wage, not to mention that many bands contain more than one member—slicing their revenue share even more.
Though Napster and Tidal have higher average artist revenues per play, they have much smaller user bases. But for platforms with larger user bases (Spotify, Youtube, Pandora), their revenue payout for artists is extremely low. Music streaming services seem to operate according to economies of scale: streaming services with smaller user bases usually have larger payouts for artists, while streaming services with larger user bases typically pay their artists much less. Put simply, these services work like any other business that wants to maximize their profit margins, and each streaming service has an obvious benefit and drawback depending on the size of their user base and their average artist revenue per play.
“Most of our revenue comes from merch or physical music,” says Maggie Geeslin of Lunar Vacation, an Atlanta-based band best categorized as dreamy pool rock. The band has navigated through music streaming services: their music is available on Spotify, iTunes, Apple Music, Bandcamp and SoundCloud. Their top songs, “Blue Honey” and “Swimming”, have garnered 147,984 and 165,200 plays on Spotify, respectively. Much of Lunar Vacation’s streaming success has been on Spotify, but the band’s listener base often streams and downloads their music on other streaming services like Bandcamp and Apple Music. For artists like Lunar Vacation, music streaming services perform best as a platform that makes their music more accessible to listeners. “Streaming services’ relationship with royalties is not ideal,” said Geeslin. “Artists deserve proper credit for their music… Yet, it's nearly impossible to find success without streaming these days.”
Artists have to make a calculated decision to either post their music on streaming services and face low revenue payouts (and even negative net revenue—it’s not cheap to post music on most streaming services), or keep their music off these streaming services, which makes it harder for them to build a sturdy listener base. For most artists, the decision is decidedly simple: streaming is the best way to grow their listener base right now, and there aren’t viable alternatives. It’s also unlikely that music streaming services will significantly alter their revenue models anytime soon. The predominant onus for ensuring that artists are fairly compensated comes down to listeners. Instead of blaming music streaming services for their cut-rate revenue payouts to artists, listeners should fill the music streaming revenue gap and support artists that they enjoy listening to through other means, such as attending concerts or purchasing merchandise—or even just sharing a song with a friend online.