Fair Revenue Distribution from Streaming. Is it possible?

If you don’t know what it’s about, it’s about money. And big money at that. I’m referring to the revenue that streaming platforms generate.

In the last decade, streaming platforms have played and continue to play a significant role in the growth of music consumption. Their business model has gradually replaced the sales of physical media such as CDs or vinyl records (thankfully, vinyl sales have been growing year by year for the past 18 years!), changing the structure of the market, which is now predominantly digitized.

There is no doubt that the development of digital technology will not be stopped. We live in an information- and technology-driven environment. Currently, there is no indication that streaming will lose its crown as the king of the market. Therefore, it is worth considering what the actual revenue distribution from streaming looks like and who is making a lot of money from it today. It may sound strange, but in my opinion, it is the digital revolution that reproduces existing inequalities in this area.

Inequalities in Revenue Distribution

We perceive diversity in music as its richness. But can we say the same about the diversity in the revenue distribution from streaming platforms?

Perhaps not everyone listening to music on platforms like Spotify is aware of what happens to the money from paid subscriptions. We might be surprised because inequalities in revenue distribution persist despite structural changes in the market. Currently, royalty rates are subject to individual negotiations between streaming platforms and copyright holders, such as record labels and publishers.

“Streaming today lacks both transparency and fairness and benefits the people at the top of the food chain,” says Ksenia Kolchina, Head of Marketing for Europe, Africa, and Asia at Deezer.

The “majors” (major record labels owned by international media conglomerates, such as Universal Music) have a clear advantage in negotiations because each participant’s economic strength determines their ability to obtain a better deal. In other words, ‘big’ can get more!

Currently, streaming platforms take an average of 30% of revenue, record labels about 55% (with 12.7% going to performers), and publishers 15% (with 9.7% going to songwriters and composers). This demonstrates that record labels still maintain a dominant position. It’s hard not to criticize such an approach, especially since streaming platforms do not have to bear any costs of physical production.

Streaming Platforms’ Rate Policy

A key issue that needs to be addressed is the payment policy of streaming platforms. Currently, streaming platforms employ proportional rates: the total revenue from ads and subscriptions is divided among each song based on the total number of streams. Is this system fair? At first glance, it may seem so, but upon closer inspection, we notice that this system is too favorable to the most popular artists, who are currently on the rise.

What is the User-Centric Payment System (UCPS)?

An alternative approach is the “user-centric payment system” (UCPS). This model suggests distributing the revenue that each user generates among their various streams. I believe that this model is more fair. It allows individual users to reward the artists they actually listen to, providing better revenue distribution among artists.

This user-oriented model connects artists with their fans, treating each artist equally. It ensures that fans support the artist they want, the one they listen to, and the one they simply love.

Deezer

Deezer has implemented this system (https://thebackstage-deezer.com/music/how-much-does-Deezer-pay-artists/). The goal is simple: direct subscriber fees to the artists subscribers are actually listening to. Thus, Deezer aims to replace the outdated market share model, where artists are paid proportionally to how much their streams contribute to the total number of streams on the platform. UCPS gives niche music genre artists a chance to receive a more equitable share of subscriber fees.

It was enough for one competitor to introduce it to the market as a differentiator and a flagship, and suddenly, the giant in the market, Spotify, announced the Loud & Clear initiative (https://loudandclear.byspotify.com/). This strategy aims to introduce more transparency in payments to artists by breaking down the royalty system to better understand where the money really goes. Interestingly, until someone introduced UCPS, everything was okay! Or perhaps it’s just good PR, and at the end of the day, money will flow into the same pockets again? I don’t believe in sudden conversions and changes in mindset.

One more observation. I don’t know if you’ve heard of “fake streams” or “streaming farms” (https://www.qoncertapp.com/blog/streaming-farms-artists-labels-fake-streams). These are bot farms that increase the number of streams. A streaming farm is an illegal practice of buying artificial plays on streaming platforms like Spotify to boost an artist’s visibility and success. This can lead to booking concerts, collaborations with brands, or securing a record deal.

Therefore, by introducing the UCPS into royalty settlements, we could combat fraud from automatic bots and streaming farms, as artificially generated streams would have less impact on the compensation rate. It’s interesting, isn’t it?

Conclusions

It cannot be denied that the issue of inequalities in the distribution of streaming revenue is an open one. Its resolution should not only be through negotiations: ‘big’ (can get more) and’small’ (must accept the unilateral will of the big). It’s about creating a more just system.”

What do you think about it? Do you have any thoughts and suggestions of your own? Share it with others!