Updated: Jan 26, 2020
What is the Future of Music Streaming? Depends on your perspective
There are lots of forecasts about what will happen in the future of music streaming.
In Tim Ingham's recent article "Has Amazon Already Figured Out the Future of the Music Streaming Business?" in Rolling Stone magazine, he lists some of the ways Bezos and company are planning to attract new customers.
One of the ways listed is to "target music 'super-fans' with add-ons," which is also a popular strategy among independent musicians looking to grow their music buying audiences.
Music streaming has only been around for a few years as a format, which started out as an alternative to online music piracy.
As songwriters know first-hand, the royalties paid by streaming services for publishing are minuscule compared to the statutory royalty of $0.091 (9.1 cents) per unit paid for physical or digital downloads in the United States.
Depending on the service, songwriters and publishers earn about $0.001 per stream for their mechanical share of the streaming royalty, which effectively replaces the $0.091 cents of royalty formerly generated from a purchase.
At this rate, it takes 100 streams to earn 1 penny, and 1 million streams to earn $1,000, which gets divided among all the writers and their publishers.
To put it into perspective for the average worker, take what you earn today and divide it by 91.
That's what has happened to the average songwriter over the past 20 years since streaming has been replacing physical music purchases.
As a songwriter, looking at the royalty payouts for a hit single streaming 1 million times being only $1,000, it's obvious that something else needs to happen to make songwriting a sustainable profession.
Knowing this, how does streaming even have a chance of being profitable for the average music maker?
The answer for the time being is in entrepreneurship.
Songwriters have many options when it comes to entrepreneurship, the most obvious one being to diversify as a singer-songwriter and sound recording owner.
Even people, such as Kris Kristofferson, who don't think of themselves as singers, can get away with crooning their great original songs to the right audiences, and doing so adds a significant amount of income to the overall pie.
For example, as a sound recording owner and performer, recent royalty data shows that Amazon Unlimited, one of the highest paying per stream services, pays $0.009662101680 per steam to the owner of the recording after paying out the publishing royalty to a third party writer.
At this rate, you can expect to earn $0.966 (about 97 cents) for 100 streams, and 1 million streams will earn you about $9,662 even after the payout to the songwriters and publishers.
Compare this rate to the earnings you could expect for the same number of physical sales or digital downloads:
1 million physical sales/downloads for the songwriter per song = $91,000
1 million physical sales for the sound recording owner (assume a $10 wholesale price on an album) = $10,000,000
Looking at these figures makes you ask the question, why do music industry people stream music at all when you see how much money is lost in this format compared to physical sales?
The answer is complicated, but one reason that makes business sense is because streaming helps record companies figure out which songs get the most organic listens based on fan engagement and listener preference before they spend money on promotions.
When you think about how much it costs in a traditional music business scenario to break a new artist into the marketplace (upwards of a million dollars if done properly), and then calculate how many of those investments turn out to be unprofitable (over 80%), you can see how streaming with its low cost of entry and quick data returns could be useful.
Another key part of the streaming appeal for businesspeople is the location data for the streaming numbers.
Smart promo teams use the data to plan tour routes where the artist is likely to sell tickets and merchandise, supplementing the income drain from the streaming formats as compared to physical music sales.
The question for each of us as smart songwriter entrepreneurs is: how do I use streaming as part of my business strategy for success without relying on it to be sustainably profitable?
Answering this question is a job everyone needs to do for him or herself using all the facts available, and sound, business principles to make sure that the results of your choices add up to a sustainable career for your songwriting and music business entrepreneurship.
Every person is unique, and this constitutes your unique value proposition as a creative artist.
Through soul searching, examining your mastery skill set, and your commitment level, you can develop a business model that will support your artistry, and even your family.
Without a sound business model created for your music, you are just throwing darts in the dark. How do you expect to hit the target in those conditions?
Sure, you could count on luck to guide you, but how will you repeat your success if you don't know how it was done?
Better to know the facts, research your options, and make your business plan based on the data so that your steps will count, and can be repeated to gain the lasting success you desire and the security you deserve as a songwriter entrepreneur in the new music business.
Continuing education courses for Songwriter Entrepreneurs now enrolling Q2 - Q4.
Additional articles about music streaming:
"Spotify, the 'Solution to Music Piracy,' Is Getting Pirated By 2 Million People" by Marsha Silva Mar 26, 2018 Digital Music News
"Piracy Is Not The Problem, Free YouTube and Spotify Are, says Music Industry Trade Group" by Bruce Houghton 07/22/2019 Hypebot. https://www.hypebot.com/hypebot/2019/07/piracy-is-not-the-problem-free-youtube-and-spotify-are-says-music-industry-trade-group.html
"Jimmy Iovine Knows Music and Tech. Here's Why He's Worried" by Ben Sisario Dec 20, 2019 in The New York Times. https://www.nytimes.com/2019/12/30/arts/music/jimmy-iovine-pop-decade.html
Astute students of music business will recognize that there is a missing royalty from the streaming calculation, namely the performance royalty for the song.
The only royalty calculated in the above example for publishing is the mechanical.
In this example, a 100% songwriter/publisher who owns all the rights would have earned an additional $0.00076 in per stream performance royalty.
That would be $0.00076 X 100 streams = $0.076 for 100 streams and $0.00076 X 1,000,000 = $760 for 1 million streams bringing the total royalty earnings for all songwriters and music publishers on a song up to a grand total of $0.086 cents for 100 streams or $1,760 for 1 million streams.