Music Streaming has taken over the music industry and even though the physical formats are far from dead (and even are living through a kind of renaissance moment right now), streaming accounts for almost 70% of today’s music industry revenue.
Many, however, argue that the new standard of music consumption is lacking transparency and fairness in the ways artists are getting paid, so it isn’t surprising that major streaming services such as Spotify, Deezer and Soundcloud have recently announced updates to their payout policies. However, these changes are not necessarily in favor of artists, especially if you’re a small indie artist.
In this blog post, we’ll give you a simple breakdown of what these new payout policies are about and what they mean for you as a creator.
To make sure we’re all on the same page, let’s start by taking a look at what the general streaming payout model has been for the last decade. We’re keeping this brief, but if you want to dive deeper into the basics, we recommend you read this article.
Quick Streaming 101
In general, streaming revenue from both subscriptions and free-tier ad revenue are paid into one big pot and the streaming service (eg. Spotify) takes an xx% share out, as a fee for providing the service. The remaining money (let’s call it the “overall royalty pot”) can now be distributed to the different rights holders according to the formular:
(“overall royalty pot” / all streams on the plattform) = Payout per Stream
If the overall royalty pot is 100€ and the service had a total of 1.000 streams, one stream would be worth 0,1 € … pretty simple… yet far from real, as payouts per stream are highly dependent on the overall amount of streams and in reality the payout per stream is more around 0,003 €.
Ultimately, this “pro-rata” system places smaller artists in competition with the biggest names in the industry, and leaves them with a low share of their fans’ revenue.
Big Streaming Services such as Deezer, Soundcloud and Spotify have now all introduced updates to their payout systems. Some of them are already active, some set to kick off in 2024. Whereas these changes don’t affect the general pro-rata logic of the streaming model, they do change the way the streams are counted, divided and/or capped.
Spotify: The Capped Approach
Spotify will continue to use the standard “pro-rata” payout model but has recently announced an update introducing a minimum stream-threshold that artists need to reach before their songs start earning royalties: 1.000 Streams per year. This is a big deal when you look at the amount of very small independent artists that contribute value to Spotify by uploading their songs but will no longer get paid for their contribution. We highly recommend reading Midias’ take on the topic.
Not counting all streams, obviously means that the overall royalty pot gets divided by fewer streams, which could result in a higher payout per stream for those that make the threshold.
Deezer: The Artist-Centric meets User-Centric Capped Approach
This is a long title.. and wtf does it mean?? Well, this is an interesting one! Let’s start with the artist-centric part:
Deezer has introduced certain rules that boost streams for certain artists based on a number of artist-centric factors. For example a stream is counted double, when a user specifically searches for an artist’s song and listens to it. Additionally, streams are counted double if an artist gets over 1.000 plays by 500 individual accounts in a one month period.
In essence this is a shift benefiting more popular artists, as these are most likely to tick both boxes of being searched for and having enough monthly listeners. (This is unsurprising, as this model was first introduced as a deal with UMG and as just released WM has opted into this model too).
Ok, understood, but that’s not all right? What’s the user centric capped part of Deezer’s approach?
This is something Deezer introduced in late October 2023 as an additional policy to the rules we just introduced. This user-centric element is supposed to mitigate the effect that so-called streaming farms have in manipulating streaming numbers (read more about this here). To tackle this Deezer is introducing a monetization cap of 1.000 streams per user, per month (hence “user-centric”). With this policy in place, each user can only contribute 1.000 streams to the overall royalty pot, not the actual amount of streams they listened to.
Let’s look at some examples to make sure we understand what this means:
No matter how many streams we listen to each month, we only contribute 1.000 streams to the overall picture. So our streams need to be broken down into 1.000 streams.
If we for example only listen to 1 artist (let’s say 21Savage) in a month and we listen exactly 1.000 times, then we will contribute 1.000 streams of 21Savage to the overall streaming count. In this scenario each of our streams counts as one stream.
If we however listen to 21Savage 2.000 times in the same time period, we will still only contribute 1.000 streams. Each of our streams now only counts as half a stream. But since we only listened to one artist, it’s the maximum we can give to one single artist. This is how streaming farms are neutralized: With the cap, nobody is able to water down the overall royalty pot by listening to a song 100.000 times per hour. It will always only contribute 1.000 streams.
However, we don’t normally just listen to one artist each month, so let’s look at a more realistic example (yet still far from reality..) of how our streams get divided to represent 1.000 streams:
Let’s say we listen to our friend’s band “Stream Train” 200 times, to Taylor Swift 300 times, 21Savage 400 times, Eminem 200 Times and Cardi B. 300 times. This would give us a total of 1.400 Streams. However, all these Artists, except the first one, are probably being listened to more than 1.000 times each month, so we need to remember the artist-centric rule from above: These streams are counted double. So we end up with 2.600 streams.
Now what we have to do is determine the weight of one of our stream in our basket of 1.000 streams. For this we divide the 1.000 streams by our actual streams. So the weight of 1 of our streams is: 1.000 / 2.600 = 0,385 streams. This means that each stream of the artists we mentioned above are worth 0,385 streams within our user-centric 1.000 stream basket.
So how many streams do we contribute to the overall streaming bucket?
For this we need to multiply our streams by the weight of each stream we just calculated.
So “Stream Train” are now: 200×0,385 = 77 streams, Taylor Swift 300 (x2) x0,385 = 231 streams , 21Savage 400 (x2) x 0,385 = 308 streams, Eminem 200 (x2) x 0,385 = 153 streams and Cardi B 300 (x2) x 0,385 = 231 streams
This is now our 1.000 Stream basket: 77 + 231 + 308 + 153 + 231 = 1.000
Deezer does this calculation across every user (user-centric) and makes sure each user contributes a total of 1.000 streams to the overall royalty pot.
Ok, that was a long read.. let’s summarize:
- Deezer has a user-centric element that divides each user’s streams up to represent 1.000 streams that get added to the overall royalty pot.
- Deezer has a user-centric element that
- The advantage is that the overall pot is not inflated by streaming farms, as each individual streamer can only contribute 1.000 streams.
Soundcloud: The User Centric Streaming Approach (“Fan-Powered Royalties”)
Soundcloud introduced fan-powered royalties a while back and it’s probably the most equitable payout system in the industry right now. If only the UX for listeners were better, I’m sure more people would use it…
At Soundcloud, artists that have signed up for soundcloud for artists get paid based on their fans’ actual listening habits. In comparison to the standard “pro-rata” model introduced at the beginning of this article, each listener’s subscription or advertising revenue is distributed among the artists they actually listen to, rather than being pooled in, what we called, the “overall royalty pot”.
So if somebody pays 10€ for Soundcloud Go+, Soundcloud takes a share of this for providing the service (20%). The remaining 80% is then distributed only between the artists that the user has actually listened to. So if that user had only listened to one artist in one month, that artists would receive around 8€ .. not bad!
Congratulations! You’ve made it through. Now you know all the latest regarding the updated payout systems of Deezer, Soundcloud and Spotify.
Before we part, we’d like to point this out: Streaming has been a substantial shift in they way music is being consumed and pay-per-play is a system that leads to low-payouts per play. Artists are forced to adjust their business strategies accordingly.
What hasn’t changed is that all this revenue is made possible by licensing copyrights. Protecting your intellectual property is therefore still the most important thing artists need to be focused on, to ensure they can seek the rewards from their creative work.
At fuse.space we are dedicated to providing creators with the tools to ensure they can prove ownership of their music assets. As copyright disputes happen on a frequent basis, we recommend using fuse.space as a means to securing your rights beyond dispute.
Keep creating!