Streaming music services accounted for roughly 51% of music retail revenue or $3.9 billion in 2016, per the Recording Industry Association of America (RIAA). Retail revenue peaked in 1999. And then revenue fell year after year as the internet became less and less of a passing fad.

Changing music’s delivery system impacts the business and monetization models – in ways many have struggled to understand. That goes for television and news media, too. Just as some started to get a grip on retail mp3 music downloads, along came streaming services like YouTube and Spotify. Fans can stream what they like, when they want, in this new On-Demand paradigm.

This brings up a lot of questions. Here, we aim to answer three. How is streaming music monetized? Who gets paid? And, how much?

How Streaming Music is Monetized

The Top Five music streamers pocketed roughly 95% of 2016’s streaming volume and revenue. These Top Five are: Spotify, iTunes, Google, YouTube and Deezer. Dozens of other content distribution networks (CDN’s) vied for the balance. Some notables include Amazon, Rhapsody, Pandora, Tidal and the nugs.net app, reflecting different audiences, business and monetization models.

As we explained previously in Monetizing Digital Music, a music distribution platform can employ any and all monetization models – advertising, subscriptions, paid downloads, hard copy catalog, pay-per-view, sales of services, licensing and otherwise. Few platforms make use of all options for the sake of simplification.

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For now, though, the focus is on streaming revenue which is predominantly supported with advertising (free to play) and/or subscriptions (premium).

2016 Overview of the Top 5 Music Streamers + Amazon

Service Avg. Pay per Stream  % of Market Volume  % of Market Revenue “Premium” Subscription?
 Spotify  $.0044   63.0%  69.6%   $9.99
 iTunes   $.0073  7.2%  13.4%  $9.99
 Google Play Music  $.0068  2.4%   4.0%  $9.99
 YouTube   $.0007  21.7%  3.8%  Ad Supported Only
 Deezer   $.0064  2.2%  3.5%  $9.99
 Amazon*  $.0040   .6%  .6%   $7.99
  * with Amazon Prime

We include Amazon as it was in 2016’s Top 10 Streamers. Amazon deserves to be watched in conjunction with its VUI Home Assistant (Alexa / Echo and Dot)  To date, Amazon’s believed to have shipped ~13 million systems, compared to just ~1 million by Google. Amazon will have further impact on music streaming landscape by the end of 2017.

Who Gets Paid? Royalty Shares

You’ll hear artists claim they make very little on their music. For the most part, that is true. Ordinarily, artists start out with a 100% share of the royalty rights on the music they write. By signing with a record label, up to 90% of royalty shares may be signed away.

But, it depends upon what the artist brings to the table in terms of their own brand name recognition. Popular artists may sign with top record labels and retain 30-35% of royalties. Many record labels have their own studios, producers, and publishers. And, some artists have their own record labels, too. There can be an awful lot of overlap involved.  It is possible for “the Artist” to fulfill all roles simultaneously.

Give or take – the following is how the royalties break out for most artists:

Role Roles and Functions  Royalty Share
 Artists  Singer, guitarist, bass player, drummer, others.

 Collectively share

100% –
(w + x + y + z)

 Management Business manager, personal manager, lawyer, others.

Usually paid by wages or commission, but could include a share of royalties.

 (w) usually by commision

10-20%.

 Record Label  Studio, Marketing and Distribution.  (x) ~50%
 Producer  like quality assurance, technical mixing, mastering.  (y) ~10%
 Publisher  Register music with associations, create commercial opportunities and administer royalties across all venues.  (z) ~30%

Dividing the Money – Who’s making what streaming?

So, we have the music platform, the artist and their record label trying to make some money.

Rihanna’s song, “FourFiveSeconds” topped Spotify’s chart for a week. In all, 15 million people streamed it for a total payout of $75,000 ($.005 per stream). Presuming this was divided evenly between Rihanna, her record label – Roc Nation, and her publishers, that’d be $25k each.

If you aren’t a Rihanna or a Metallica, an all-inclusive record label might likely take 80-90%, leaving $7,500 – $15,000 to divide between all of its band members.  That’s not bad at all for one song on one streaming service, but then not everyone’s getting 15 million streams.  A million streams equate to $5,000 or perhaps $1,000 to share with the singer, guitarist, drummer, etc.

However, there’s the fine print.

The Recoupment Clause

Because artists rightly assert that they make very little on their music warrants reading the fine print. The devil is in the details. Most record label contracts have a recoupment clause. This usually specifies that artists will be paid their share of royalties only after the record label has recovered their investment.

The record label’s investment includes the studio time, any upfront advance, costs of production, marketing, advertising, distribution, etc. It’s not difficult to envision record labels being on the hook for hundreds of thousands of dollars, even millions when everything is considered. So, it can take a long time for those royalties to appear for artists, if ever.

Coming Next – How to Ride the Stream

How to make a music platform work for you.  Covering streaming revenue paints is but one piece of the puzzle – but it’s a puzzle most still don’t understand very well, yet.  It means different things if you are an artist, have a record label, a radio station, or are investigating it as an investor or entrepreneur.  Whatever you knew about the old music industry is still in play, if in need of some modification.

Mark Dabbs

Expert contributor

Mark Dabbs is an expert contributor and consultant for Reinvently. His passion is helping businesses make better use of mobile technology.

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