Streaming platforms like Spotify have shifted the music industry’s revenue model out of physical and digital sales to subscriptions in addition to pay-per-stream revenues. This change has had both opportunities and challenges for artists, record labels and customers with music. Although streaming has democratized music access and enhanced the access of artists globally, it’s also raised concerns regarding reasonable compensation for creators, rewriting the traditional revenue model of the market.
Possibly the largest shift coming from streaming platforms is the move from ownership to access. Previously, music revenue was derived largely from physical sales (CDs, vinyl, etc.) and electronic downloads (iTunes) whereby consumers paid to have a copy of the music. With streaming services like Spotify, Apple Music and Amazon Music, customers pay a monthly subscription fee or even choose ad-supported free tiers to access millions of songs without purchasing them. This model offers a big catalogue of music at a fraction of the cost.
For the music business, that has meant a recurring revenue model in place of the one time buy model which characterized physical and digital sales. Rather than earning revenue when customers purchase a song or an album, streaming services produce a steady income from subscribers. This move toward subscription based models has helped the market recover from the full revenue loss triggered by electronic piracy and declining physical product sales in the 2000s. Streaming currently accounts for over 80% of all music Industry revenue in the United States, as reported by the Recording industry Association of America (RIAA).
But streaming has also stabilized the industry’s overall revenue but restructured how artists and labels are paid out. Rather than a flat fee from product sales, artists and rights holders are paid out per number of streams of their music. Platforms like Spotify use a pro rata royalty structure where a pool of income (from subscriptions and advertisements) is split amongst owners based on their share of total streams. This means well known artists with countless streams get a bigger share of the revenue and less popular artists with less streams make much less. The typical per-stream income on Spotify is between USD 0.003 to USD 0.005, therefore an artist will require countless streams to generate a good income.
This particular model has attracted criticism from lots of artists that feel underpaid for their work, particularly independent musicians without having the marketing and advertising power of major record companies behind them. Although streaming platforms provide artists globally visibility, the earnings gap between top charting artists and emerging or niche musicians is a source of contention. For independent artists, streaming income is hardly ever enough to allow for a career and so they frequently use various other cash flow streams including merchandise, live shows and crowdfunding.
Record companies also have had to adjust to the booming streaming market. Traditionally, labels made lots of cash with digital and physical sales, but with streaming, they make their money via licensing agreements with services like Spotify and Apple Music. Labels generally negotiate deals with streaming platforms on their artist’s behalf and although major labels have adjusted to the new model, they still garner a substantial share of streaming revenue. But that has raised questions about how power is distributed in the market – with labels frequently taking a big cut of artists ‘streaming royalties – and some musicians making little money money even though their music being streamed.
Streaming platforms also have shaped how music is consumed, with shorter pieces of music, more frequently released and much more singles compared to full length albums. As artists are paid per stream, they adapted by creating content for the algorithm-driven platforms where short, catchy tracks are more likely being added to playlists and repeated plays. This has resulted in an influx of “singles culture,” since artists and music producers more and more concentrate on frequent releases in order to remain relevant and interact with audience on streaming services.
On the flip side, streaming has democratized music access for listeners and creators alike. It has given possibilities for independent musicians to publish their music globally while not signing to a major label. Platforms like Spotify provide information and analytics which enable artists to understand their listener demographics, geographic reach and popular tracks. This data access enables artists to customize their marketing and connect much more directly because of their fan base, creating new possibilities for development outside conventional business structures.
Playlists have grown to be prominent on streaming services and therefore are a vital way to look for brand new music. Playlists curated by algorithms or editorial teams, like Spotify’s “Discover Weekly” or “RapCaviar” might introduce listeners to brand new artists and genres or help artists reach new audiences. A popular playlist is able to improve an artist’s streams and visibility – highlighting the significance of playlist placement in modern music.
Streaming platforms have also added podcasts along with other audio content. Spotify in particular has focused on podcasting, having bought companies including Anchor and Gimlet Media and negotiating deals with popular podcasters. This diversification enables the platform to attract various user demographics and additional revenue streams besides music, positioning streaming services as broader entertainment hubs.
Lastly, streaming services including Spotify have transformed the music business revenue model out of physical product sales to access based subscriptions. Although this particular model has resurrected the market and developed brand new avenues for global recognition, it’s also raised issues of fair compensation for artists – notably independent musicians. While the music business develops, streaming will probably continue to become the dominating force, causing disruption in how music is produced, consumed and monetized. The challenge for streaming platforms ahead is balancing artist compensation with broad accessibility and discovery.