How Streaming Music Online Benefits Independent Artists

By Ryan Wertlieb

Streaming music from Spotify Tidal, iMusic, and Pandora is beneficial to artists who are independent of a record label. 

I was sitting in a music class a few days ago when a professor asked us to answer a seemingly simple question: “What was the first CD or tape that you bought with your own money?” I realized then that most people in my generation had never actually purchased a CD, let alone a tape. The question eventually had to be revised to accommodate the fact that some of us were young enough to have only downloaded our first album.


Millennials have changed the way people engage with the world. Through shopping, education, or music, almost everything has become available to us by the click of a button or the touch of a finger. Such ease of access has increased a desire for instant gratification among society like never before. This change is significant within the music industry due to the introduction of online music streaming platforms like Pandora, Spotify, Tidal, etc.


Online streaming services are said to have changed the music industry for the better. Before services like iMusic, Pandora, Spotify, and Tidal came onto the scene, the music industry had many issues with file sharing and music piracy. Music Piracy is the illegal copying or downloading of a piece of music without the consent of the artist, composer or recording company. Over the past 15 years, the music industry saw a revenue decline of about 40% due to music piracy and file sharing. With this extreme decline in revenue, artists were being paid less and less for their work, and being a successful artist in the music industry became more and more difficult.


The public has a tendency to underestimate the value of music. Music is such a central part of our society that we take advantage of the fact that it’s all around us, and want to listen without paying for it. Erin Jacobson, a music attorney, confronts this issue stating that “most people wouldn’t go into a store and take a piece of clothing or a table without paying for it, yet those same people think it is okay to take music for free.” However, the introduction of streaming gave the public what they wanted: unlimited access to music, for a lower price.


According to the International Federation of the Phonographic Industry (IFPI), “in 2016 there was a 5.9% growth, mainly attributed to the mass adoption of streaming across the world.” This growth resulted in $15.7 Billion in revenue in 2016 alone. In April of 2016, Pandora reached $2 billion in royalty payouts for artists and Songwriters, and Spotify had paid out $3 billion in royalties. I’m sure you're wondering: how much of those royalty payouts actually made it into the pockets of the music artists and composers/publishers? Well, that would depend on whether the artists are backed by a label or not.


Based upon data from Techdirt and the New York Times, it pays to be independent of a record label. On average, a signed artist will make about 11% of the royalty payout for their work, composers/publishers will make about 16% and that last 73% goes to the record label. However,  an unsigned artist, on average, will keep 91% of their royalty payout where that other 9% goes to a royalty processing firm. One of the only things holding artists back from listing their music on Spotify and other music streaming services is the confusion over their business model.


The model that Spotify uses to pay its artists is not the customary, royalty based model that artists are used to. Traditionally, royalty payments are an agreed upon sum of money that is paid to an artist per play or stream, per download, or per album sale. Now, platforms like Spotify are paying artists by a revenue-sharing model.


According to Mark Williamson, the artist services spokesperson for Spotify, they “pay around 70% of the total revenue of Spotify to rights-holders each month. This means that how much the artist gets is based on how much we make in total, not how many clicks you get, so there are a lot of variables around how much each artist will earn.”


This business model is beneficial to artists who are independent from a record label, because when Spotify makes a payout, they get to keep the majority of it, where bigger name artists who are most likely backed by a record label only get a fraction of that payout, making it feel like there is less money paid than what is owed to them if it were paid to them through a royalty per stream. Hence, why you don't see all of the artists like Beyoncé’s and Taylor Swift’s music listed on Spotify.


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