Music Royalties in the Era of Streaming

Photo by Marcela Laskoski on Unsplash

Music royalties have been a major source of revenue for musicians, songwriters, and producers alike. With the popularity of streaming, however, royalty breakdowns have become increasingly more complicated, frustrating, and confusing. If you are a songwriter, musician, or producer, what are your rights in terms of royalties and streaming?

What is a music royalty?

Music royalties are payments that song creators and rights holders receive. Rights holders can include the recording artists, songwriters, producers, composers, and even the individuals that represent the artist. Music royalty payments typically come from entities that use the song (think of anything from television show to a sports arena). Streaming services, like Spotify or TIDAL, fall into this category of entities that are required to pay out music royalties, however, streaming transactions operate a bit differently than a royalty transaction from usage in a television show.

There are two different types of copyrights for any music: composition and master. The composition copyrights consist of any creative work that goes into the music (i.e., the lyrics, chords, melody, sheet music). The master copyrights consist of the music that is recorded and is typically owned by the artist and a record label. From these two types of copyrights, there are usually two royalty payouts: payments for use of the composition and payments for licensed usage of the master recording.

How does streaming affect music royalties?

Before streaming music was popular, consumers purchased vinyl records, cassettes, CD’s, or digital downloads through a service like iTunes. In 2012, however, streaming services like Spotify took off and became the main source of music consumption among users. With the shift toward streaming, music royalties also had to shift to include streaming as a major source of income for artists and record labels.

Many streaming services are subscription platforms, and revenue is made by consumers subscribing to the service. Music royalties are usually derived from the number of times a track is played. Additionally, artists who have more streamed music receive a larger percentage of the service’s overall revenue from subscribing users. Because of this, streaming royalties differ greatly from traditional music consumerism.

Although many streaming platforms use this method, each streaming platform differs in terms of how they calculate percentages of payments. For example, on Spotify you could need at least 200 streams of your song to receive the same royalty as you would for a digital download of your song. Unfortunately, because of the discrepancies between each streaming platform and many non-disclosure agreements, artists do not have much say or insight into how royalties are calculated by the streaming service. Additionally, some record labels have better terms with streaming services than others, which results in more revenue for the artist.

How can an artist ensure that they are getting the most out of music royalties?

First and foremost, make sure that the contract you have signed with a record label has a royalty rate set forth, meaning you are aware of how much of a percentage you will get from the record labels royalty pay out. Additionally, if you have agency in selecting a record label, try to find one that has better terms or relationships with streaming services, resulting in more income for you.

Bottom line is that there is not a lot of public information on how music royalties are calculated between record labels and streaming platforms, which can be frustrating for an artist. Because of this, making sure you have the most beneficial contract with a record label is incredibly important for your revenue from songs.

Need help reviewing or negotiating an artist contract? Have questions about an existing contract and royalty rate? Contact us, we would love to help!