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Can Artists Make Money With Music Streaming Service Payments?
This article was originally written in 2013. I've updated it on August 18, 2015 with newer streaming numbers.
The music industry has been suffering due to the widespread theft of music with a drop in revenues of 70%. The vast majority of albums and singles are downloaded illegally. Album sales have fallen drastically in the last decade as a result. There was a time when big name artists could sell 10 to 20 million albums. Now 2 to 4 million is considered hugely successful. Most artists signed to major labels aren't profitable, so those millions are made by a small percentage of singers who have to support everyone else.
Artists have become more dependent on touring to pay their bills and support the many employees who are dependent on them, since record labels take a bulk of the profits from music sales. This may be one reason why concert tickets have become more expensive.
And while we might dislike the executives at these labels, tens of thousands of ordinary people depend on them to make a living. By one estimate 75,000 people have lost jobs due to illegal downloads. Labels are also signing far fewer new artists.
With revenues dropping drastically for record labels, music streaming services may be the key to their survival. Streaming can be controversial. Thom Yorke from Radiohead removed his solo songs from Spotify in protest (Radiohead's music is still available). He complained that:
"new artists get paid f**k all with this model"
The problem is the low payouts per stream. According to estimates, streaming pays about 0.005-0.007 cents per stream. So, it's going to be difficult for new or independent artists who only get thousands of monthly streams to make a living wage. But what does this mean for the industry overall? Can streaming save the struggling music industry?
Royals by Lorde
Timber by Pitbull ft. Ke$ha
How Much Does Streaming Pay Compared to Sales?
When I originally wrote this article I looked at two of the two #1 songs at the time. Royals by Lorde and Timber by Pitbull and Ke$ha. Royals was the number 1 song on US Spotify. Timber was the worldwide number 1 (and number 2 in the US).
Spotify pays out roughly 0.007 cents per stream, so all numbers giving will be an estimate rather than the real payout. I'm also used a very rough estimates of sales at the time I originally wrote this. These estimates were based on certifications in a small number of music markets, so real sales are actually a lot higher. I'll also use $1.29 to estimate the revenue from sales, since that's the price for a single on iTunes in the United States.
Sales Versus Streaming Revenue
Royals by Lorde
Number of Streams/Sales
Approx. 4 million
Timber by Pitbull Feat. Ke$ha
Looking at these numbers, it's easy to see why streaming is controversial. The short term payouts are a lot lower for streaming. And keep in mind that my sales estimates are much lower than real sales.
However, there are some things to consider. Spotify and VEVO are two of many streaming services. Some others are Google Play Music All Access, Mog, Rdio and Grooveshark. There are also online streaming radio services like Pandora and Songza. However, doubling the number of streams in the table wouldn't bring streaming revenue close to sales revenue.
But there are other things to consider as well. Streaming is in it's infancy. The more people who stream music, the higher the earnings will be. As earnings rise for these companies, they pass on higher payouts to record labels. Spotify had approximately 24 million users when I originally wrote this article in 2013. That has increased to approximately 80 million users now. A quarter of those are paying subscribers. Spotify uses ad revenue to support free users. They pay out per stream by a free user is 1/5 that of a paying user. Add to that, Apple has started it's own streaming service called Apple Music. Time will tell how that service performs.
Add to that, streaming can continue to pay for years to come. When a single is sold, that $1.29 is all it will ever make. But a song that continues to be streamed for even several months after release will likely make significantly more per listener in the long term. It would take less than 200 streams of a song at $0.007 to earn more than the $1.29 iTunes and Amazon single download price. It may be short term pain but long term gain. I actually bought both Timber and Royals but I've streamed both songs dozens of times already on both VEVO and Spotify (and I'm a paying Spotify Premium user). If these songs haven't already earned more from my streaming than purchase, they will very soon.
If a large percentage of people who now steal music (meaning a payout of $0) switch to streaming, then the music industry can actually make money from people who currently do nothing for their bottom lines.
Perhaps down the road hundreds of millions of people will stream music. Many will pay to be able to stream music on mobile devices like iPods and iPhones. And with access to unlimited music for just $9.99 a month, many people who now steal music may be willing to pay a price that's less than buying one album per month. It is possible that streaming revenue will be enough to support the music industry and professionally recorded music later on.
For now, if you love particular artists, it's best to both buy and stream their music to ensure they can continue to make more of it. This is especially important for newer and less well known artists. Artists usually make more money when CDs are purchased directly from their websites rather than from Amazon or iTunes, so that's another way to offer your support.