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Digital Streaming Platforms: How Do Artists Earn Money?

Introduction:

Today, thanks to the curation of digital streaming platforms (DSPs), your new favorite song is accessible with just one click. These platforms, including Spotify, Apple Music, TIDAL and more, have totally revolutionized how we consume and discover music.


However, while this digital evolution has provided listeners with unlimited access to music, subsequently increasing exposure for artists, it has also sparked (and continues to fuel) an ongoing debate about their fair compensation. In this article, we delve into the “backstage” of royalties, exploring how the nature of digital streaming platforms create issues around the task of redistributing such royalties.


A person listening to music on Spotify

The Rise of Digital Streaming Platforms:

Streaming services have become the primary global platforms for music consumption. The shift from physical sales and digital downloads to streaming has democratized access to music, promoting access to a vast library of songs, and it doesn’t look as though this ecosystem stands to change anytime soon.


A significant advantage of streaming is its ability to highlight emerging artists through recommendation algorithms that suggest music based on the listener's preferences. For example, Spotify uses personalized playlists such as "Discover Weekly," regularly featuring emerging artists and facilitating their integration among industry giants. Algorithms such as these have dramatically increased exposure for emerging artists, helping to foster a more inspiring and boundless industry at a grass-roots level.


Compensation Model And Challenges:

So how does compensation work on DSPs? Well, unlike traditional album sales, from which artists receive a fixed sum per unit sold, streaming platforms operate on a subscription-based model. As a result, artists earn revenue based on the number of plays accumulated by their songs. For instance, Spotify, the world's most used streaming platform, pays an average of $0.0042 per play, although this amount can vary from one artist to another.


While the increased exposure of DSPs might seem like a more advantageous system, the reality is somewhat different, as the per-stream compensation is often minimal. Since 2024, only tracks with more than 1000 listens in a 12-month period are eligible for compensation. Although this may seem low, it raises questions about the financial viability of a music career relying solely on streaming revenue for lesser-known artists, as well over half of the tracks on Spotify have not reached the 1000 listens threshold for compensation. 


As such, the vast majority of emerging artists, as well as even more established ones, have expressed their frustration with the streaming platforms' payment model, arguing that this model favors the most popular artists at the expense of others and emphasizing that the proposed royalties are too low. This issue is not new, either; in 2021, Paul McCartney, along with 150 other artists, sent a letter to the British Prime Minister urging streaming platforms to change their economic model so that artists receive a more equitable compensation.


Artist Royalties And Collective Management: Modern Challenges

When a song is broadcasted on DSPs, copyright is generated. It’s at this stage that collective management societies (AKA “PROs”), such as SACEM or BMI, come into play, tasked to collect the streaming revenue from the song. The respective CMO has the responsibility to ensure a fair distribution of revenues, taking into account the popularity and frequency of each work on streaming platforms.


But a pressing issue has emerged in recent years concerning the content published on digital streaming platforms and the validity thereof. Despite the best efforts of traditional copyright detection tools, a significant number of infringements, including unlicensed covers, AI-generated deep fakes and unauthorized master uses, have continued to escape the scrutiny of filtering systems. As a result, it becomes complicated for these organizations to control the entirety of the content on these platforms, and subsequently remunerate the rights holders appropriately, leaving hundreds of millions of dollars in "black box" royalties. This is revenue that could be in the hands of struggling artists, yet it remains unclaimed.

 

Having recognized this problem at MatchTune, we decided to find an effective solution to counter the issue and facilitate more comprehensive copyright management. This led us to develop CoverNet, a tool that uses artificial intelligence to detect any unauthorized use of your copyright-protected works, including unauthorized covers and AI-generated deep fakes. CoverNet scans all major online platforms, delivering results and updates in an intuitive dashboard and reporting grid.


Conclusion:

It is evident that the advent of music streaming has profoundly altered the musical ecosystem, facilitating the integration of emerging artists and expanding the general audience. However, the current compensation model is undoubtedly limited, especially as it pertains to lesser-known artists with lower royalties and more difficult parameters.


So what needs to change? Well, the first key factor in this is legislation, and there is a possibility that things could well change in the coming year as more and more industry players call upon the law for change. Most recently, a majority of European parliamentarians adopted a resolution calling for a renewal in the streaming music sector. Whether this will provoke real change remains to be seen, but maintaining the conversation is arguably the most important driver of change.


The other facet of this change is technology; developing the right products that place every single cent of revenue into the right hands, and "de-muddy" the waters. CoverNet is a key example of this, and you can learn more about the platform here.



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