The Streaming Business

Music streaming services like Spotify, Apple Music, YouTube Music, Amazon Music, Tidal and Deezer are the biggest revenue generator for the recorded music sector. The music industry also earns when music is used in videos posted to social media and user-generated content platforms like TikTok, Instagram and YouTube.

DIGITAL LICENSING
To legally access and utilise recorded music, digital services of any variety need to secure licences from the music industry.

They actually need licences covering both the distinct song rights and recording rights, which are managed separately by the music business.

As a result, services often need to negotiate two sets of licences – getting licences covering songs from the music publishing sector and licences covering recordings from the record industry.

LICENSING RECORDING RIGHTS
Many services license the recordings first, because the licensors in the record industry also provide the actual music – ie they upload the digital files.

In the record industry, record labels and music distributors usually do the deals. Bigger labels may negotiate directly. Smaller labels and self-releasing artists often rely on a distributor that has negotiated a deal.

There is also an organisation called Merlin which negotiates deals on behalf of a global network of independent labels and distributors.

LICENSING SONG RIGHTS
On the songs side, sometimes collecting societies issue the licence and sometimes music publishers issue the licence, depending on the repertoire.

Streaming exploits both the mechanical rights and the performing rights of the song copyright, and these are sometimes licensed separately.

Where a publisher issues a licence, usually it can only license the mechanical rights, because the performing rights are usually controlled by a collecting society. However, the publisher often has a relationship with the relevant collecting societies allowing it to include the performing rights in its digital licensing deals.

There are lots of music publishers and collecting societies. However, some societies collaborate on digital licensing via special licensing hubs. Meanwhile some publishers collaborate on negotiating direct deals via a global body called IMPEL.

THE STREAMING DEAL
With subscription streaming services like Spotify and Apple Music, the deal is a revenue share based on consumption share arrangement.

First, the consumption share element.

Each month the streaming service allocates each track on its platform a portion of its monthly income based on what percentage of overall listening it accounted for – so if a track accounts for 0.1% of listening, it is allocated 0.1% of the revenue.

This process is done separately in each country, and where there is an ad-funded tier, that money is also allocated separately. So subscription money is allocated to tracks streamed by paying subscribers, ad money to tracks streamed on the free tier.

Second, the revenue share element.

Any money allocated to a track is then shared with whoever controls the recording rights and the song rights, according to the revenue share agreement in each label, distributor, publisher and society’s licensing deal.

Generally the label or distributor that controls the recording gets 50-55% of the allocation, and the society or publisher that controls the song rights gets 10-15%.

In recent years some services have added extra rules at the track allocation stage – for example with Spotify any one track must get 1000 plays from at least 50 users in a twelve month period to be allocated any money at all.

ARTIST & SONGWRITER ROYALTIES
Labels and distributors then share the money they make with their artists, and societies or publishers share the money they make with their writers.

What cut each artist or songwriter receives depends entirely on the specific label, distribution or publishing deal they have signed – or, with collecting societies, it depends on each society’s rules.

USER-GENERATED CONTENT SERVICES
With social media and user-generated content services things might work differently.

First, each label, distributor, publisher and society may receive a lump sum payment per licensing period instead of a share of the service’s revenue.

If it is a revenue share deal, the way that works will be different than with Spotify and Apple Music, because with social media services music is only part of the user experience, and other creators and copyright owners also need to be paid.

Second, the way income is allocated to individual tracks may be different. With long-form video content, a track may receive a share of income generated by advertising specifically played alongside any one video containing the track.

But with short-form video, it is likely to get a share of a general royalty pool, which might be allocated based on how many times a track was inserted into a video, or how many times those videos were streamed, or a combination of the two.

THE ECONOMICS OF STREAMING DEBATE
There has been much debate over the years about the streaming business model, whether it is fair, and whether it favours certain stakeholders in the music industry.

This includes the digital pie debate over how the money is shared between tracks, between the service and the music industry, between the song rights and the recording rights, and between record labels and artists and musicians.

There have also been debates about the lack of transparency regarding the streaming deals and how music-makers get paid; issues around metadata and music-maker credits; and the way streaming service algorithms decide what to play.

Various changes to the streaming business model have been proposed, as have changes to copyright law that would force some of those changes to happen.

In the UK, Parliament’s culture select committee staged an inquiry into the economics of music streaming, which resulted in various government-led initiatives seeking to address some of the issues. CMU’s Chris Cooke has put together this extensive timeline of all his coverage of the economics of streaming debate.

CMU RESOURCES

The CMU Explainer on Music Streaming explains the deals streaming services do with the music industry and how streaming royalties are calculated each month.

The Dissecting The Digital Dollar Book provides a comprehensive overview of the streaming music business and digital licensing. It is based on five years of research by CMU and the UK’s Music Managers Forum.

Published in 2019, the Performer Payments From Streams guide from CMU and the PayPerformers campaign explains which performers are paid when their work is streamed and how those payments are calculated.

EXTERNAL LINKS

ERA is a UK trade body which represents entertainment retailers and also music streaming services like Spotify, Amazon Music and YouTube Music.

DIMA is a US-based trade body that represents digital music services.

Merlin is a global organisation that represents a network of independent labels and distributors in the digital licensing domain.

IMPEL is a global organisation that represents a network of independent music publishers in the digital licensing domain.

ICE is a copyright hub focused on digital licensing and royalty processing co-owned by collecting societies PRS, STIM and GEMA.

The DCMS Economics Of Streaming Inquiry has an official web page collecting all the written submissions made to and oral hearings that took place as part of DCMS select committee inquiry in the UK Parliament.

Spotify Loud & Clear is an official website with various resources explaining how Spotify works from a rights and royalties perspective.