A study published in Finland this week has provided incredibly helpful data for the streaming royalty payment debate.
Using data provided by Spotify, the Finnish research conducted by Aalto University examined the differences between a “pro-rata” and a “user-centric” royalty payment model.
The pro-rata model, which is the current standard, compiles the revenue generated by monthly subscription fees into a big pot, and distributes to artists based on total listening time. This model favors higher royalty payments to tracks with the most plays and listening time.
The streaming service keeps around 30% of revenue, with the remaining 70% shared between the interested parties of the musical composition and the sound recording. If we break this down by Spotify’s $10/month subscriber fee, that means Spotify keeps $3, the songwriters and publishers keep approximately $1 to $2, and the remaining $5+ goes to record companies (and then artists, according to their contracts).
According to this study’s findings, the top 0.4% of songs receive 10% of the streaming royalties under this model.
The user-centric model would create a more direct connection, based on individual listener choices. This model would require a direct and transparent royalty payment for every stream on a user’s account.
For example, if you listen to just one artist for an entire month, that artist would receive 100% of your monthly subscription fee allocated to them. Under this model however, the royalties paid from your account could only add up to the $10/month fee.
So, instead of one massive royalty pool in which the top dogs get most of the money based on overall listening time, the user-centric model would essentially create a small royalty pool for every subscriber and allocate the royalties exactly as that user streamed.
Using this model, the study found that instead of the top 0.4% of tracks receiving 10% of the royalties generated by premium users, those tracks would collect closer to 5.6% of the royalties. The assumption is that the other 99.6% of tracks would receive more.
Will interested parties then receive more or less royalties under a user-centric model?
It all depends. The study makes clear that a user-centric model would likely increase royalties for those in the middle and at the bottom, while reducing royalties for those at the top of the food chain.
Other experts also believe the user-centric model would help prevent fraudulent streams and accounts created by hackers, such as the Bulgarian playlist scam. This scam robbed legitimate artists of an estimated $1 million in streaming royalties.
From a paying subscriber and music creator perspective, the user-centric model seems sensible. Most of the general listening public likely already assumes that their streaming activity is directly helping and financially supporting the artists they love. They want to know the money they pay goes directly to their artists.
From the music creator’s perspective, it simply means giving payment where payment is due, no matter how big or small.
And now for this week’s other headlines:
In Wake of Bulgarian Scam, Spotify Unleashes Its Own Anti-Fraud Squad (Music Business Worldwide)
Benom Plumb, Assistant Professor of Music Industry Studies at the University of Colorado Denver, reviews the biggest stories of the week affecting music royalties. He is a music industry professional, not an attorney. For more info about Benom, visit his website at www.professorplumbmusic.com.
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