User-Centric Streaming Royalties Might Not Work As Well As Everyone Thinks

It’s not surprising to hear an artist complain about earning a fraction of a penny from a stream, but the fact of the matter is that most artists don’t understand how streaming royalties work, and who can blame them. It’s a pretty complicated digital world out there, but suffice it to say that whenever you read about a per-stream royalty from a music distribution service, we’re talking about an average payout with no two artists payouts every having the same rates. Many have said that the solution to this accounting mess is user-centric streaming, but that might not be the panacea that most think it could be.

The Difference In Payout Strategies

I’ve covered how streaming royalties work many times, but in a nutshell, all the revenue a platform like Spotify earns in a month is divided by all the streams and that’s the payout (you can read about how Spotify does it here). In other words, you get paid on your market share rather than the specific number of streams.

User-centric is a different way to calculate royalties where if a user pays $10 for the month and only listens to Taylor Swift and no one else during the month, Taylor gets the whole $10. In other words, the money you pay only goes to the artists that you listen to, rather than put into a bucket that’s split up the way that it is now.

Uh. . .Not So Fast

On the surface this seems like a much fairer way to go, but a new study by Pro Musik finds that there will be definite winners and losers when using this plan. For instance, it says that 29.3% of artists would see their royalties increase by 40% or more, including 19% who would double their streaming earnings.

But here’s the downside. Pro Musik’s estimates that 38.8% of artist profiles would see their royalties decrease by more than 40% under a change to user-centric. That leaves about 32% of artists that would see no change at all.

What this means is that artist that are already doing well under the current “pro rata” royalty plan would continue to do as well or better with user-centric royalties. Some artists won’t notice a change, but the rest will be worse off than before.

This is a case of “Be careful what you wish for,” in that sometimes what seems like a perfect option on the surface doesn’t yield the results you’ll think you’ll get.