In Support of Music

January 04, 2023
By Kristan L. Anderson, CFP®, CEBS®
Woman playing the guitar and singing. West Financial Services, Inc.

Anyone who knows me, knows that I love music. I sent both of my kids through the School of Rock program from elementary school through high school. My daughter still works for them during her college breaks and is in a band, herself. So, I’m very interested in how music is made and shared, and how artists profit from their efforts over time. It seems like a dicey way to earn a living, unless you are very talented, or supremely lucky.

The evolution of how we listen to music, other than live, is pretty interesting, as well. From radio and records, to 8-track and cassettes, CDs, back to vinyl and now streaming, there is always a demand to hear music in some form or another. Fun side note, if you own records or cassettes or CDs, then you actually own something, whereas if you have iTunes, you are merely renting the content, even if you paid specifically for certain songs or records in your library. 

Music streaming services are now generating close to $20 billion in revenue worldwide, with about half coming from the U.S. The top revenue generator is Spotify, with about one-third of the market share, followed by Apple Music. Despite having the most paid subscribers and significant revenue, Spotify has yet to publish an operating profit. The primary reason for the losses is royalty fees, which are split 70/30 between the artist or rights-holder and Spotify. More on that, later.

One major complaint from artists is the lack of revenue from the streaming services. To be fair, if you are a working musician, chances are you are not relying on streaming revenue to make a living. Soundcharts breaks down the types of streaming payouts as:

  • Mechanical royalties – in other words payment for whenever a user plays a song
  • Public performance royalties – every stream is considered a public performance
  • Payout to recording owners – based on the copyright and paid to label and distributor

Regardless of per stream payout rates, which differ by each platform, the simple math around streaming revenue is total revenue generated times an average of 70% payout rate. Of that 70%, the split goes 57% to recording owner and 13% to publishers. What any individual artist gets of that payout is a function of total number of streams for the period and the individual artist’s total streams. So, the example is $1,000 of revenue being paid out to an artist who has 100,000 streams out of 1 million total streams - $1,000 * 57% * (100,000/1,000,000) = $57.

But nothing is that simple and streaming payouts are complicated by the user base (free versus paid subscriber), pricing differentials in global markets, and the number of users and their engagement, at a minimum. 

It is a fascinating topic to me, and one that I think deserves a little more light shed on it. For now, I will continue to be amazed that the band my daughter is in, Indigo Boulevard, actually makes any money at all from music streaming services. Check them out. Over 300,000 streams on Spotify of their song, “Drive Me Home.” Legal note: I do not get any reimbursement for hyping the band.

Meet Kristan L. Anderson, CFP®, CEBS® »


Sources:

https://www.businessofapps.com/data/music-streaming-market/

https://soundcharts.com/blog/music-streaming-rates-payouts

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