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Streaming Royalties: Ever Wondered How Everything Works?
September 29, 2020

Streaming Royalties: Ever Wondered How Everything Works?

It's difficult to recall a time when listening to music wasn't synonymous to streaming. The idea of buying CDs or filling an iPod with a carefully curated selection of digital files seems so last century. Today, streaming services seem to have seized the music scene, luring users with the promise of millions of tunes available just one click away in exchange for a monthly fee.

Since we are launching our new product Royalty Management Solution on Reprtoir software solution, we wanted to go over, well, royalties. While this is great for the end user, the process of generating royalties as an artist is not always straightforward. If you've ever wondered how everything works for artists earning streaming royalties, here are all the answers.

What Are Music Royalties?

Music royalties is a term that refers to payments that artists, composers, songwriters and any other copyright holders receive in exchange for the right of third parties to use their intellectual property. While the definition sounds pretty straightforward, the process of collecting them is often convoluted and confusing.

Rights holders receive royalties whenever institutions such as radio stations, TV channels, and streaming services use their music. The royalties are often collected by intermediary bodies on behalf of the right holders, but sometimes the users pay the royalties directly to the rights holders.

How Do Music Royalties Work With Streaming?

Artists and right holders are entitled to royalties when one or more of their songs is made available on streaming services such as Spotify, Apple Music, Tidal, Deezer, Google Music and others. There are two types of music rights for every song recorded, composition and master, and there's a clear distinction between them:

  • Composition rights refer to the copyright for the harmony, melody, and lyrics. This copyright is obtained when a unique piece of music is created and committed to a tangible medium — a sheet music, notepad, blog post, etc. The song doesn't need to be recorded at that point for the composition copyright to be in place. 
  • Master rights refer to the copyright for the actual song turned into a recording owned by the artist or by the record label if they have a contract, or recording deal, in place. 

Because of this distinction between the two types of copyrights, artists and rights holders receive two types of music royalties — those for the licensed use of the sound recording, and those for the authorized use of the composition.

But there are other distinctions to be made when it comes to royalties, with streaming royalties being in place for music distributed via streaming platforms, digital performance royalties, which are different from those for radio stations, and sync licensing fees, which are paid when music is synced to another type of content, such as movies, video games, ads, etc. Finally, public performance royalties are paid when a song is played in a commercial environment.

How Are Streams Counted?

Every music streaming service has its own process for counting streams and determines the royalties that are going to artists. 

On Spotify, streams are counted when a song is streamed for over 30 seconds. For songs that users listen to offline, the streams are counted when the listener goes online again. In a similar way to Spotify, Apple Music records a stream when a user initiates a song playback for more than 30 seconds. This is also true for Deezer and Google Music.

How Are the Royalties Split?

But counting streams is the easy part. What artists get in the end in terms of money is a different story, and a more complicated one at that.

This is mostly because there are multiple parties that share royalties received from the streaming services. Some of them are going to the rights holders (often the recording artists), who are partial owners of a master recording. The percentage they get is not a fixed one, but a result of the deal they sign with the distributors and record labels.

Next in line are the record labels, which get the rest of the master royalties. Because they are the ones financing the release marketing and sometimes the production, record labels get a sizable chunk of the master royalties.

Distributors are those who are responsible for getting the music on the digital streaming platforms and promote it across multiple digital storefronts. They also collect streaming royalties on behalf of the rights holders. They also take a chunk of the royalties, but not partake on the master royalties.

Songwriters, who are owners of the composition part of the recording, get a percentage of the performance royalties as well as mechanical royalties and sync licensing fees.

To summarize, the process works as following: artists create a song and record it, they contact intermediaries to distribute it, their music is played/streamed, the intermediaries collect and distribute royalties, and artists finally get paid. How much they are getting is subject to many factors, but on average Spotify is said to pay anywhere from $0.006 to $0.0084 per play, to give you an idea.

The world of streaming royalties is a complicated one, mostly because music is built in collaboration and there are many parties involved. Learning to navigate through the meanders of royalties can seem overwhelming, but it's something that's important to understand if you're interested in learning how songs make money.

As for us, we might have the solution you need to keep some peace of mind when it comes to managing contracts, royalty splits and accounting for rights holders linked to your catalog (as a record label or music publisher). We are currently beta testing our brand new product: Royalty Management. Managing everything online, from a secured workspace and directly linked to your catalog sounds like a dream?

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