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Understanding music industry payment flows

As it is now, the music industry operates much the same with payouts as it did before the advent of streaming services. Companies such as Spotify pay the same percentage of revenue to the copyright owner as an iTunes download – 73%. Rethink Music, an initiative of Berklee’s Institute for Creative Entrepreneurship, elucidated the current payment structure of the music business.

“Once record labels receive their monies from streaming services, they pay out artists based on recording contracts that usually have low royalty rates (designed for physical product) and multiple deductions, followed by recoupment costs. The net result: little or no royalties land in the artist’s hand.” (3)

The report outlines the basic payment structure as follows. There are two primary copyrights per song, the mechanical license for the sound recording paid to a label and the public performance license for the composition paid to the performing rights organization (i.e. ASCAP or BMI). A percentage of the revenue generated by the sound recording is what ultimately gets paid to the artist from the 70% the label receives.

Here is the crux of the issue – you better believe that the artist gets the rawest deal. The table below, from the report, shows that the average artist payout in subscription service to Spotify is $.006 per stream, in its ad-supported service, it’s $.001. (19) Big artists such as Talib Kweli, Imogen Heap, and Radiohead have all released music themselves as a result of these issues. Taylor Swift pulled her music from Spotify and Apple Music. But less well-known artists may not have as much hope working outside the current structure.

Professor of Music Business/Management at Berklee College of Music, George Howard, has written on the subject exploring the idea of using Bitcoin Blockchain to streamline the payment structure straight from consumer to artist. And sure, why not? He writes, “given the unethical foundation upon which the industry was built, and its many infamous shortcomings, nothing short of a wholesale reinvention will ever lead to real change.” It’s radical thinking, but no different from what similarly big industries are exploring.

Elon Musk, speaking at a 2013 Tesla shareholders meeting about the National Automotive Dealers Association, which has tried to restrict the sales of his cars, said, “Our philosophy, with respect to service, is not to make a profit on service. I think it’s terrible to make a profit on service … If you look at the opinion polls anywhere, in any context, as to whether people want direct sales, the answer is overwhelmingly ‘yes.’ “ The issue is not perfectly parallel, but the notion that direct sales are achievable is clear.

Musk continued, “If democracy was working properly and the legislators were implementing the will of the people, something else would be happening. And there would not be legislation trying to artificially restrict direct sales.” The music industry has found itself in similar waters, and the will of the people has the power to change the structure. Kobalt is one example of a publisher and tech company working towards empowering the artist in the business. The issue with Tesla and NADA is ongoing. Musk concluded, “I think [NADA] is making a big mistake.” So are the major record labels. I think Sean Parker and Shawn Fanning would agree.

By Colin Baylor

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