It has been my desire for several years to make a simple apples-to-apples comparison that would prove precisely how much songwriters should be making from streaming. At last, I finally have enough data to do precisely that.
Figures released by the Recording Industry Association of America (RIAA) last Thursday indicate the amount of revenue generated by streaming music in 2016 grew to 51% of total music sales, more than all other forms of music sales combined. This is a leap of 17 percentage points from 34% in 2015.
Drilling deeper, we learn the total revenue from streaming in 2016 was 3.9 billion. The number of paying subscribers more than doubled from 10.8 million in 2015 to 22.6 million in 2016. Those 22.6 million subscriptions generated 2.5 billion in total revenue, which translates to roughly $110 per subscriber or a little more than $9 per subscriber per month. The other 1.4 billion came from ad revenue via services that are free to consumers and Sound Exchange distributions. Meanwhile, paid downloads (iTunes, Amazon, etc.) decreased 22% to 1.8 billion. Physical sales (CDs, LPs, etc.) decreased 16% to 1.7 billion.
If you are a songwriter, this shift in how music is sold is not rosy. Some songwriters claim they have received less than $20 in royalties for multiple MILLIONS of streams! Even after you allow for a song publisher’s share, co-writers, and so forth, and also allow for the fact that perhaps this example was an odd exception to the norm, it’s still obvious that songwriters are being underpaid. $20 for a million streams after being divided 10 ways is still far off the chart from what compensation should be, and now we can know by just how much.
Consider the sale of a 99-cent download. The songwriter’s share in those sales is fixed at 9.1 cents due to standard licensing, or roughly 9.2% of EVERY sale (split with co-writers, and split with a publisher if they don’t own their own publishing). It doesn’t matter how many times the song is played after the download or CD is purchased. Total revenue earned is fixed at that rate.
Based on that model, Apple proposed last year that songwriters should receive 9.1 cents for every 100 streams. This has been viewed by some as a move by Apple to drive Spotify and Pandora out of business, but Apple’s number is actually a bit low.
Here is what we now know when we combine information from the recent RIAA report and a January Nielsen report on the total number streams in 2016:
1. Individual songs were streamed more than 250 billion times in 2016 according to the Nielsen report.
2. 250 billion streams generated 3.9 billion dollars, assuming the Nielsen data and the RIAA reports are both correct.
3. 3.9 billion dollars divided by 250 billion streams is $.0156 dollars per stream, or 1.56 cents.
Let’s compare that to download royalties. If a download sells for 99 cents and generates 9.1 cents for a songwriter, that same share for the songwriter applied to 1.56 cents in streaming revenue should generate .14339 cents; 9.1 cents divided by 99 cents equals a percentage of .09191919, times 1.56 cents equals .14339394 cents). Converted to dollars, that is $.0014339394.
Therefore, 100 streams should generate 14.3 cents.
1000 streams should generate $1.43.
One million streams should generate $1433.94.
Some songwriters believe they should receive the same 9.1 cents per one-time stream they receive from a download that a customer can enjoy over and over. If streaming services are only collecting 1.56 cents per stream, they can’t very well pay six times that much to songwriters.
14.3 cents per 100 streams is fair, considering the total revenue available and the same ratio of payment vs. physical formats and digital downloads.