If you’ve actually purchased music lately, it’s likely more for style than function. The vinyl revival has kept the vintage format of buying music steadily increasing. But CD players aren’t cool anymore, and why buy a digital album when you can stream it the same way for free? Today, the majority of today’s music revenue is coming from streaming, so it’s no mystery that making money as a musical artist is difficult when people aren’t paying for music anymore. 

But we learned a few things while reviewing Spotify’s music streaming service. We’re going to break down how money is made in the music streaming system, the current state of the industry, and how you can support your favorite artists. 

This graph from The Economist shows how streaming has come to dominate music revenue.

First, we should untangle a key term — royalties. Royalties are basically the amount paid to any rights-holders when a song (or any creation) is sold, distributed, used in other media (like a commercial or movie), or monetized in any way. Each song is split into two separate copyrights: composition (lyrics, melody) and sound recording owned by the record label and recording artists. 

  • Composition copyrights: Owned by songwriters and publishers
  • Sound recording copyrights: Owned by the record label and recording artists

The royalties are split among all these people, at various rates negotiated amongst record labels and agencies. Citi GPS: Global Perspectives & Solutions’ research team created a handy chart that illustrates the flows of licensing and revenue for music rights.

There’s Not Much Money to Make from Streaming

To earn revenue, music streaming services are either advertisement-supported or subscription-based. If you listen with a free account, advertisers pay the streaming service to interrupt your tunes with their ads. When you pay a monthly fee for a premium subscription, that money directly translates to a services’ revenue. 

The amount that makes it to the artist will vary by streaming service, but it’s generally abysmal. Digital Music News reported that Napster had the highest rate at $0.019 per stream, while YouTube offers the smallest payout at $0.00074 per stream. Apple Music pays third-highest (after Napster and Tidal) with $0.00735 per stream. At those rates, Digital Music News points out, it would take anywhere from tens of thousands of plays (on Napster) to a couple million plays (on YouTube) to make the U.S. minimum wage. And those rates are split amongst and of the rights-holders we talked about above.

To look at it another way, Adweek calculated that about one million plays on Pandora generates $1,650 and $7,000 on Spotify. The most popular artists will regularly surpass one million streams: Spotify’s top track in December of 2017 was Ed Sheerhan’s “Shape of You” with 1.4 billion streams. The Economist reported that, “On average a billion streams on subscription services brings in about $7m for big labels, with perhaps $1m of that going to the artists.” Not so bad if you’re one of the few chart-topping music acts today. 

But not every artist is that popular — the nonprofit Music Industry Research Association (along with Princeton University and MusiCares) conducted a survey of 1,277 U.S. musicians and found the median musician made about $35,000 in 2017 (only $21,300 from music-related sources). And 61% of the musicians said their music-related income didn’t sufficiently support living expenses. 

Even the big names in music have a complicated relationship with streaming. In 2014, Taylor Swift pulled her discography from Spotify, claiming that streaming was a reason for the shrinking numbers in album sales. In her op-ed for The Wall Street Journal, Swift said,”It’s my opinion that music should not be free.” A lot has happened since 2014, including Swift’s re-inclusion to Spotify, but the pay rates haven’t improved by much. 

The Industry is Still Navigating the Streaming Movement

Earlier this year, the Copyright Royalty Board (CRB) ruled that streaming services had to increase royalty payouts by 44% over the next four years. But Spotify, Amazon, Google, and Pandora have filed an appeal to the decision. (Apple’s decision not to appeal was a great PR look for Apple Music.) 

The government is getting behind songwriters too, with the new Music Modernization Act (MMA) signed into law in October of 2018. It’s essentially legislation aimed at increasing songwriter payouts and overall streamlining the complex copyright rules and money-flow systems. The MMA is composed of three parts:

  • The Musical Works Modernization Act: a mechanical license for reproduction and distribution of musical works through downloading and streaming services. A nonprofit entity will be formed, tasked with administering the license and monitoring royalty payments. Also will help better facilitate royalty payments to artists.
  • The Classics Protection and Access Act: will make sure that legacy artists’ work recorded prior to 1972 are paid royalties when played on digital radio.
  • The Allocation for Music Producers Act: officiates a legal process for music professionals (producers, mixers, engineers, etc.) to receive royalty payments. 

As more measures like these are enacted, artist will hopefully see a higher percentage of their streaming listenership. 

Streaming is Great for Artists Anyways

Regardless of the pay-per-stream rates, Spotify and other streaming services have become an invaluable tool for artists. When we spoke with Michael Stover, owner of MTS Management Group/MTS Records, he recommended we think of streaming to work like the radio once did. “Streaming sites like Spotify and Youtube are there for music discovery, promotion, and a way for artists to have their music heard by an audience that wouldn’t normally listen. Is someone going to buy your music when they’ve never heard of you before? Most likely, no. But with streaming, and especially getting on playlists, the opportunity to get discovered by new listeners, and essentially, customers, opens the doors to an audience you wouldn’t have otherwise had.”

Independent and up-and-coming artists can connect to fans easier than ever before. Uploading your tracks to a streaming service is way cheaper than getting CDs in stores. It’s much easier to discover a band on Soundcloud or Spotify with curated and obscure playlists. 

World-tour-headliner Odesza rapidly earned their fanbase just by posting their music for free on Soundcloud and Spotify. When we interviewed hip-hop artist Jaleel Koth, he raved about the opportunities new artists can capture with streaming, “Streaming has opened up a new door for undiscovered talent to build their legacy independently.” Artists can begin to earn money and build an audience base before they’ve signed with a record label and without investing in a tour. 

How to Support Artists in the Streaming Age 

Simply streaming your favorite artist, and even encouraging your friends to do so, is no guarantee they’ll receive any money from your listening. While CD and album sales (both physical and digital) directly influence an artist’s revenue, streaming payouts are more complicated

Let’s say Spotify earns $10 million from ads and subscribers in one month: After overhead and taxes, whatever portion of that money that goes to artists is divided up by their percentage of that month’s streams. They take the total number of streams in one month, then calculate what proportion of that was each artist’s music. So if there are a million streams in one month, and Ariana Grande’s discography was streamed 100,000 times in that month, then Grande is paid 10% of that month’s revenue pool (divided between anyone who has royalty rights on that music). So, even if you’ve never listened to Ariana Grande before, a portion of your premium plan subscription is going to her. 

While streaming your favorite band’s music is certainly going to help them get a slightly bigger piece of the pie, it’s not as direct as music listening used to be. Jaleel told us, “The way fans can support artists is by buying physical tickets to their favorite artists’ shows, downloading their music, and word of mouth.” Purchasing merchandise, albums, and concert tickets are the most direct ways to support your favorite music acts. A British band called While She Sleeps nailed home this point by selling a t-shirt that reads, “One t-shirt is the equivalent to 5000 streams on Spotify. 76% of all music in 2019 is streamed and not bought physically or digitally. Band merchandise is the most direct way of supporting an artist.” 

If you’re listening to your music for free nowadays, consider supporting your the artists that soundtrack your life by going to their concerts and buying a always-in-style band tee. 

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