Although the disputes between some superstars and Spotify have ended in favour of the Swedish streaming service, Swift & Yorke have nevertheless revealed weaknesses in the business model of music streaming from the point of view of the artists. The main beneficiaries of the streaming economy are the music majors, and little falls to the artists. In this part of our series on the economics of music streaming, we take a closer look at the slice of the streaming pie that goes to the musicians, and back it up with facts and figures.
The Music Streaming Economy – Part 14: The Artists’ Share of the Music Streaming Pie
In his book “Download!”,[1] published in 2013, Phil Hardy calculated that when a label sells a CD, it has a margin of 36 per cent of the net retail price (i.e. after tax and trade margin). So, assuming a net price of US $15 for a CD, a label selling 500,000 units a year can make around US $2 million, which is the equivalent of a gold certificate in the US. Considering the usual deductions, in the worst case the musician will receive a net share of 5 per cent of the revenue, which would still result in an income of US $100,000. The transition from sound recordings to music downloads has already significantly worsened the income situation for musicians. The profit margin for the label drops to 12 per cent, which means that at a price of around US $10 for an album download, around 1.7 million downloads would be needed to generate a total revenue of US $2 million. This means that 3.4 times more album downloads than CD sales would be needed to generate the same revenue.[2]
What about music streaming? The business model is fundamentally different from selling music. The users get access to music and do not buy music in the form of recordings and downloads. Instead, music consumers pay a flat rate or nothing for an ad-supported service. What matters is how the revenue from streaming is shared between the various players.
The DCMS-Hearings
This question was addressed by the Digital, Culture, Media and Sport (DCMS) Committee of the UK Parliament in public hearings on “The Economics of Music Streaming” in February and March 2021.[3] All relevant representatives of the music industry and major tech companies had to testify before the MPs, while music creators also had the opportunity to present their situation. Colin Young from the auditing firm CC Young & Co. was engaged as an expert on the payment flows in the British music streaming economy to provide an opinion on the prevailing income flows from music streaming and potential alternative distribution systems. The presentation is based on the revenue shares that have already been established: 30 per cent for streaming services, 55 per cent for the neighbouring rights and 15 per cent for the compensation of publishing rights (see fig. 1).
Figure 1: The distribution of music streaming revenue in the UK
Source: After Colin Young, 2021, Comparison of Streaming Treatment by Record Label and Publishing Company, Report for the DCMS Committee Hearings on the Economics of Music Streaming, February-March 2021.
What goes to the artists depends heavily on the contractual arrangements between performers and labels on the one hand, and authors (composers and lyricists) and music publishers on the other. In the best case, performers can negotiate a 30 per cent share of the streaming revenues. This means that 38.5 per cent of the streaming pie remains with the labels and 16.5 petr cent goes to the performers. Revenue streams in the music publishing sector are much more complicated. As we have seen, the mechanical right to a musical work must be distinguished from the performing right.
In the UK, two different collecting societies are responsible for the administration of these rights – the Mechanical-Copyright Protection Society (MCPS) and PRS for Music. PRS for Music distributes royalties to its members when their music is broadcast on radio or television, performed live, streamed or downloaded as a sound file. The MCPS collects money when its members’ music is reproduced on sound carriers, but also for mechanical reproductions on the radio and the internet, as well as for the use of music in TV, film and radio.[4] Since PRS for Music also collects the licence fees for online use on behalf of MCPS, the revenue from this must be divided between the two collecting societies according to a negotiated key based on online use.[5] For simplicity’s sake, Young has assumed that about half of the revenue share – i.e. 3.75 per cent – from music streaming has to be redistributed by PRS for Music to MCPS. PRS for Music then distributes the remaining 3.75 per cent to authors, while MCPS distributes 11.25 per cent to music publishers, who receive 30 per cent, and authors, who receive 70 per cent. In total, music publishers receive 4.5 per cent of the streaming pie and authors (composers and lyricists) receive a total of 10.5 per cent. A singer/songwriter who writes, composes and performs his or her own songs would therefore receive 27 per cent of the total streaming revenue.
The Study “Music Creators’ Earnings in the Digital Era”
Building on the UK Parliament’s DCMS hearings, a team of researchers led by David Hesmondhalgh, commissioned by the Intellectual Property Office (IPO), has produced the study, “Music Creators’ Earnings in the Digital Era”,[6] which meticulously traced the generation and distribution of music streaming revenues in the United Kingdom. Based on the statements of music industry insiders before the parliamentary committee, they came to a slightly different conclusion regarding the distribution of revenue in the music streaming economy compared to Colin Young’s study. According to their calculations, the recording sector generated 52 per cent of the streaming revenue and publishing generated 15 per cent. In their model, around one third (33 per cent) of all streaming revenues remain with Spotify & Co.[7] From the hearings it was clear that the median revenue share for music streaming income for performers in label deals is 25 per cent. From this, 4 per cent is deducted for the music producer, leaving a net share of 21 per cent. The 15 per cent share for music publishers is split 75:25 between authors (composers and lyricists) and music publishers.[8] This results in the following simplified overall picture (fig. 2), because the administrative costs of the collecting societies have not yet been considered.
Figure 2: Distribution of streaming revenues between rights holders
Source: After Hesmondhalgh et al., 2021, p 139.
Based on these splits, a monthly income for the music creators can now be calculated. Hesmondhalgh and his team assume that an average of GBP 0.011 per stream is generated in the UK, with GBP 0.008 being distributed to the rights holders. If an artist’s songs are streamed 1 million times per month, this results in a monthly streaming revenue of GBP 11,000, of which GBP 8,000 is distributed to the rights holders. Of this, around 11 per cent is paid out by the labels to the performers, who thus earn around GBP 1,200 per month. The authors (composers and writers) receive a little more than the performers, with GBP 1,238, due to the higher share of publishing revenues. Finally, the producers are also to be considered, who participate with GBP 229.
Figure 3: Monthly music streaming revenues for 1 million streams in the UK (in GBP) by stakeholder
Source: Calculations based on Hesmondhalgh et al., 2021, pp 201-202.
Over the course of a year, this translates into a respectable income of around GBP 14,400 for the performer and GBP 14,850 for the songwriter. If the performer is a singer/songwriter, they would earn almost GBP 30,000 per year from music streaming. The picture changes, if you consider that many acts are bands, usually consisting of four members. To achieve the same result, their songs would have to be streamed 4 million times a month. The situation is similar for songwriters, who rarely have sole song credits but usually work in songwriting collectives. Moreover, 1 million streams per month is a hurdle to overcome. The authors of the study “Music Creators’ Earnings in the Digital Era” calculated, using data from the Official Charts Company (OCC), which compiles the UK-charts, that of 424,073 artists listed in 2020, only 1,613, or just under 0.4 per cent, were able to record more than 1 million streams (and less than 10 million) per month. Only 8,322 artists, or around 2 per cent of the artists, were able to exceed the 100,000 streams threshold. More than 10,000 (and fewer than 100,000) streams per month were achieved by 27,180 artists (6.4 per cent), and more than 1,000 (and fewer than 10,000 streams) were achieved by around 60,000 musicians (14 per cent) (fig. 4).
Figure 4: Number of artists per streaming and income threshold, UK 2014 and 2020
Number of streams per month | Annual income per threshold in GBP | 2014 | in % | 2020 | in % | Change 2014 to 2020 |
10 to 100 million | 145,200 | 3 | 0.001% | 110 | 0.03% | 3,567% |
1 to 10 million | 14,520 | 187 | 0.09% | 1,613 | 0.38% | 763% |
100,000 to 1 million | 1,452 | 1,610 | 0.74% | 8,322 | 1.96% | 417% |
10,000 to 100,000 | 145.20 | 7,026 | 3.22% | 27,180 | 6.41% | 287% |
1,000 to 10,000 | 14.52 | 19,778 | 9.07% | 59,997 | 14.15% | 203% |
0 to 1,000 | 0 | 189,546 | 86.89% | 326,881 | 77.08% | 72% |
Total |
| 218,150 | 100% | 424,073 | 100% | 94% |
Source: After Hesmondhalgh et al., 2021, p 201.
The comparison between 2014 and 2020 highlights a clear improvement in the income situation for musicians. While in 2014, when Taylor Swift had her music removed from Spotify, only 187 musicians were able to cross the threshold of 1 million streams per month, by 2020 the number had increased almost ninefold to 1,613. And the number of musicians whose tracks were streamed more than 100,000 times a month has more than quintupled, from 1,610 to 8,322. However, with 100,000 streams per month, a musician can earn an annual income of GBP 1,452 from music streaming, and a singer/songwriter can earn around twice as much. However, it should be noted that only just under 2.4 per cent of all musicians in the UK can generate more than 100,000 streams per month with their music. Those who only manage 10,000 streams per month earn just GBP 145.20 per year, and those who exceed the 1,000 stream per month threshold earn GBP 14.52, which only 23 per cent of all musicians manage to do. Conversely, this means that 77 per cent of musicians in the UK were not able to earn even GBP 14 per year from streaming music in 2020.
In March 2021, Hesmondhalgh et al. (2021) conducted a survey of 708 music professionals in the UK to supplement these hypothetical calculations and to assess their income situation. 71 per cent of respondents were male and 28 per cent female. 1 per cent of respondents identified as diverse. 40 per cent were instrumentalists, 33 per cent were singers and 55 per cent were songwriters or composers, with multiple answers possible. It is also interesting to note that 52 per cent of respondents had a solo career, with the remainder either working with another artist or in small ensembles or bands.[9]
28 per cent of respondents said that music was their only source of income, while a further 26 per cent said it was their main source of income. 30 per cent said their main income came from non-music related activities and the rest would like to earn money from music but were unable to at the time of the survey.[10] It is therefore not surprising that 37 per cent of respondents earned no more than GBP 5,000 in 2019 and a further 10 per cent earned no more than GBP 10,000. Based on the UK’s national minimum annual income of GBP 20,000, around 62 per cent of respondents were below this level in 2019, taking only their music income into account.[11] Another important benchmark is he median income of a full-time employee in the UK, which the Office for National Statistics (ONS) determines around GBP 31,000. The study highlights that 72 per cent of respondents earned no more than GBP 30,000 per year from their musical activities and were therefore below this median income.[12]
These figures show that even before the COVID-19 pandemic, musicians in the UK had a comparatively low income from their musical activities. The pandemic has further worsened the income situation, and in 2020 some 54 per cent of respondents fell below an annual income of GBP 10,000 and 65 per cent below the national minimum wage.[13]
Music streaming does not play a significant role as a source of income in the already difficult economic situation of musicians. Respondents indicated that before the pandemic, the most important source of income was concert activity, which accounted for 31 per cent of total income. Music lessons followed with a share of 9 per cent, and only in third place was income from music streaming at 6 per cent equally important as the income from the sale of sound recordings.[14] These empirical data support the fact that music streaming is not a relevant or even a negligible source of income for most musicians in the United Kingdom.
The Income Situation of Musicians in der US
This also confirms the findings of a study on the income situation of US musicians conducted by Alan Krueger in 2018.[15] The survey asked 1,227 musicians about the source and amount of their music-related income. The result was that around 81 per cent of respondents said they earned income from live performances, making it the most important source of income. Teaching music was a relevant source of income for 42 per cent of respondents, followed by participation in church choirs and other religious music performances (38 per cent of respondents). Some 36 per cent of respondents said they earned income from audio and video recordings, 29 per cent from songwriting and 28 per cent from music streaming. Although streaming revenue was a source of income for more than a quarter of respondents, the median income was only US$100 per year and was one of the least important sources of income for US musicians after YouTube monetisation, at US $53 per year. Respondents earned significantly more from songwriting and recording, at US $850 each. But this is nothing compared to the live music business, from which respondents earned a median income of around US $5,400. However, the highest median income of US $8,000 per year was earned from performing music in a religious context. Music teaching, with a median annual income of US $4,000, was also significantly more lucrative for the musicians surveyed in 2017 than the music streaming business.[16]
As the 2021 UK study highlights, the situation has not really improved. Revenues from music streaming are usually economically irrelevant for music creators.
Endnotes
[1] Phil Hardy, 2013, Download! How the Internet Transformed the Record Business. London etc.: Omnibus Press.
[2] Ibid.
[3] The transcripts of the hearings, as well as statements and studies, can be accessed on the DCMS website: https://committees.parliament.uk/work/646/economics-of-music-streaming/, accessed: 2024-09-16.
[4] The collaboration between PRS for Music and the MCPS is explained on the PRS for Music website: “PRS and MCPS”, n.d., accessed: 2024-09-16.
[5] The exact distribution of online revenues is explained on the PRS for Music website, “Online royalties”, n.d., accessed: 2024-09-16.
[6] Hesmonhalgh, David, Richard Osborne, Hyojung Sun & Kenny Barr, 2021, Music Creators’ Earnings in the Digital Era, study commissioned by the Intellectual Property Office (IPO), London.
[7] Ibid., p 139.
[8] Ibid.
[9] Ibid., pp 165-166.
[10] Ibid., p 168.
[11] Ibid., p 169.
[12] Ibid., p 170.
[13] Ibid., p 169.
[14] Ibid., pp 171-172.
[15] Krueger, Alan, 2018, Inaugural Music Industry Research Association (MIRA) Survey of Musicians, p 18.
[16] Ibid.
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