The Business of Music: Streaming Services, Royalties, and What Happens to the Money

The music streaming explosion online has totally redefined the record business. The music universe that was dominated by downloads and hard albums now exists mostly in the realm of streaming websites like Apple Music, Spotify, and YouTube. The process of consuming music has totally been overhauled through the age of digitization, but the mechanism of artists and labels being paid for their work has also been overhauled. Let's take a closer look at the music industry, how streaming works and how payments are split between artists, labels, and distributors.

My Top 3

 

Song 1: "Views" by Drake

  • Record Label: OVO Sound, Republic Records (a division of Universal Music Group)
  • Owner of the Record Label: Universal Music Group (UMG), owned by Vivendi.
  • Cost: Streaming services like Spotify or Apple Music charge either a monthly subscription fee or offer free streaming with ads. Each stream you listen to is technically "free" in terms of direct cost, but it contributes to the platform's revenue generation.
  • How Much Does the Artist Get? For every stream of “Views” by Drake, the payout to the artist is typically about $0.003 to $0.005 per stream. If “Views” has garnered over a billion streams, Drake would likely earn around $3 million to $5 million in royalties for those streams.
  • Where Does the Money Go? A high percentage of the revenue gained by "Views" is earned by Universal Music Group, as Republic Records belongs to it. Drake also makes a percentage of the total royalties after the label has its own share. Major-label artists like Drake normally get 10-15% of the total amount earned by streams.
  • Song 2: "CN Towers" by Drake
    • Record Label: OVO Sound, Republic Records (a division of Universal Music Group)
    • Owner of the Record Label: Universal Music Group.
    • Cost: Just like with “Views,” listeners don’t directly pay for each stream if they have a subscription or are using a free plan.
    • How Much Does the Artist Get? At streaming rates of $0.003 to $0.005 per stream, the funds can quickly add up, especially for a highly successful artist like Drake. If "CN Towers" has racked up tens or hundreds of millions of streams, payments to Drake would be significant, though still a small fraction compared to what Universal Music Group sees.
    • Where Does the Money Go? Again, most of the "CN Towers"' revenues would accrue to Universal Music Group and a portion of the royalties in accordance with Drake's agreement. Despite having ownership control over half of OVO Sound, their global distribution lies with UMG, and so they have rights and enjoy a lion's share of the revenue.

    • "I Get Around" by 2Pac

      Record Label: Interscope Records, Death Row Records (until 1996)

      Owner of the Record Label: Interscope Records, which is part of Universal Music Group.

      Cost: The costs to listeners are the same—subscriptions or free listening options with ads. Streaming services make the music widely available without any direct cost to the consumer.

      How Much Does the Artist Get? For “I Get Around,” which was released long before streaming, modern-day streaming revenue is calculated using the same rates—around $0.003 to $0.005 per stream. While 2Pac passed away in 1996, his estate and heirs still receive royalties from streams of his music.

      Where Does the Money Go? The majority of the revenue earned by "I Get Around" is received by Universal Music Group and Interscope because they own the rights to the song. 2Pac's estate receives a percentage of the revenue from streaming, but it is significantly less than what the label receives.

Streaming Royalties Breakdown

Streaming Service (Spotify, Apple Music, etc.): Streaming platforms typically receive 30% of the subscription revenue. The remaining 70% is shared between the rights holders.
Record Labels: Major labels such as Universal Music Group and Interscope typically get the largest cut of streaming revenue. Depending on the artist's contract, the label may receive 70-85% of the payout.
Artists: After the label takes its share, the artist gets a smaller percentage, usually 10-15%. Major artists like Drake can likely negotiate a better deal, but still, the majority of the profits go to the label and platform.
This system is especially frustrating for indie artists who earn even less than mainstream artists. For billions of streams, artists receive pennies unless they have a fair contract deal or an ownership stake in the record label.



The Impact of Digital Media on the Music Industry

The shift to digital streaming has transformed the music industry in its very core. Here's how:

Accessibility of Music: Streaming services have made music more accessible than ever before. With millions of tracks for the low subscription cost (or even free with ads), listeners can explore and listen to music on a scale that was previously unimaginable.

Decline of Physical Sales: CD and vinyl record sales have nosedived, and even digital downloads are on the decline. While convenient for consumers, this has put financial pressure on record stores and manufacturers that once relied on physical media.

Financial Struggles for Artists: While streaming has been a runaway success, the payout to artists is minimal. Even top artists like Drake and 2Pac are paid only a small percentage of the total earnings, while the majority goes to the record labels and streaming services.

Power of Record Labels: Streaming has also centralized power in the hands of major record labels, who control the music that is provided on streaming platforms like Spotify and Apple Music. As an indie artist, it can be nigh impossible to contend with this chokehold.

Conclusion

Streaming might have transformed the way we consume music, but it has also confused the monetary dynamics of the business. For listeners, it's a victory—unlimited music at their fingertips for a low cost. But for most artists, particularly independent artists, the profit is minimal. The heightened influence of major labels and streaming services has created a less transparent system that makes it more difficult for artists to receive fair compensation for their music. Looking ahead, there needs to be more equity and transparency in how streaming revenues are shared so that artists can benefit from the digital revolution every bit as much as music listeners.

Create Your Own Website With Webador