In a digital age, streaming segments have set their standards with the advent of making music streaming platforms for successful artists, musicians, or streaming segments like you! Read the blog on how streaming segments make money and understand how artists can generate revenue from their work.
Most music revenue comes from streaming; it’s no mystery that generating revenue is difficult when people aren’t ready to pay for music anymore. But when you learn how other streaming platforms like Spotify make revenue, you can easily break down how money is made in the streaming industry, how they can support their favorite artists, etc.
What is Royalties?
Before understanding how streaming segments make money, let’s understand an important term like royalties. Royalties are amounts paid to rights-holders when a song is sold, distributed, monetized, or used in other media in many ways. Each music streaming content is split into two different copyrights:
Composition copyrights: owned by publishers and songwriters;
Sound recording: owned by recording artists and labels.
The royalties are split among all these people at various rates negotiated amongst record labels and agencies.
Streaming Age: How Streaming Segments Make Money?
According to a Statista report, music streaming segment revenue is projected to reach around US$29.60 billion in 2024. The music streaming business revenue is expected to grow at 4.70% CAGR, increasing market volume to US$33.97 billion by 2027. Most revenue is expected to be generated in the US; the number of users is projected to reach around 1,083.1m users by 2027.
In the past, the music industry faced lots of challenges, and revenues also declined due to primary reasons like:
- Piracy
- Digital distribution growth
People were listening to lots of music, but the music streaming segment needed a better way to monetize their music. However, listeners demand a more straightforward and legal way to listen to music.
Music streaming platforms that need no intro have revolutionized how people listen to music and how artists sell their work. The platform is none other than Spotify.
Listeners can gain access to an abundance of music streaming options; this is good news for everyone involved with the music streaming platform. Streaming apps are web-based services that enable users to listen to high-definition music streaming without storing and downloading large files.
Music streaming was founded by the peer-to-peer file-sharing system Napster, launched in 2001, followed by Apple’s iTunes. To combat music piracy, Spotify was launched in 2006 by Martin Lorentzon and Daniel Ek.
According to a Global Web Index, Gen Z leads the way with the most significant average streaming times, accessing their tracks across many platforms. More than 68% of adults are using music streaming services.
How are the Streaming Payouts Calculated?
The primary payout calculation is simple: streaming platforms have a set payout rate per stream multiplied by the stream number. For example, Spotify pays around $0.0033 per stream; its payout rate should affect the per-stream payout.
Suppose you have an album that generates 1,500,000 streams on the platform; the payout would be something like this:
$0.0033*1,500,000= $4,950.00
Around $0.0033 is likely generated from Spotify’s payout rate. The setup and payout rates are generated from one stream to another, which might differ. However, Apple disclosed that they have an almost 52% payout rate.
For example, if Apple generated almost $1 million in revenue, the music streaming platforms pay around $520k to the artists. The payment varies depending on lots of factors like stream count, type, and location of users who stream music. However, the amount the artist and music segments receive might be less than we estimated. Many more aspects affect the artist’s payouts and music segment revenue, including subscription type and location.
How Streaming Platforms Make Money
Today, we have lots of music streaming platforms to choose from. Music streaming apps like Deezer, Spotify, and others provide users with different characteristics and features, improving the streaming experience.
Largest streaming giants like Apple Music, Spotify, and other music streaming software rely on identical models to generate revenue. These models include:
Paid Subscriptions:
Attracting users through advertising to shift from freemium to monthly subscription packages. This includes premium and family offerings ranging from anything the music streaming segment wants to charge. For example, from $10 a month to $15 a month.
Advertising:
Advertisers who want to advertise their business need to pay for exposure. Advertisement is played every 15 minutes for a few seconds and includes homepage takeovers and sponsored playlists.
If you want to make money, it’s a wise option to opt for ways that other music streaming platforms utilize. Let’s explore a few of them to help you find worthwhile options for your business.
Spotify
With 188 million premium subscribers worldwide during the second quarter of 2022, Spotify is a global leader in the music streaming industry. The platform had around $12.075B in revenue in 2022, experiencing a 17.47% increase year-over-year. Most of Spotify’s revenue comes from its paid subscriptions and advertisement; the amount is double what Apple Music generates.
Apple Music
Apple Music is the second most preferred music streaming platform after Spotify, with 78 million subscribers worldwide in 2021. It has a large user base in the Asia Pacific, Middle East, and Africa regions. Apple company’s revenue from music and gaming offerings is expected to surpass 36% to $8 billion by 2025.
How Artists Make Money?
The music streaming giant Apple Music and Spotify generate revenue from paid subscriptions and advertising. However, its revenue is spent on paying artists and music labels. Most music streaming segments follow the pro-rata model, which pays based on the shares of streams each artist had on the music streaming software.
For example, if $200 million is generated in revenue, artists account for almost one percent of all streams, and they would receive around $1 million in royalties. However, musicians and artists advocate for a fairer, user-centric model that pays artists based on what each user listens to most through the subscription fee. Music streaming platforms like Deezer are opting for a user-centric model and pressuring established platforms to perform the same.
Future of Music Streaming Platforms!
The music streaming segment continues to transform, with innovations presenting significant challenges and opportunities for both the streaming businesses and customers as well. The future of the streaming business mainly depends on the following aspects:
Personalization:
Music streaming platforms are using modern technology to understand users’ listening practices and tailor music recommendations to them.
Original Content:
Spurred by the growth of streaming services, the music streaming giant purchased Gimlet Media for more than $200 million, signaling the advent of streaming platforms subsidizing original content. Most streaming services are trying to offer original content to the audience.
Premium Prices:
Music labels and artists demand more for their streaming content, forcing streaming platforms to hike subscription rates to make revenue.
Live Streaming:
With the increasing popularity of live streaming, artists can easily offer audiences an intimate connection and an authentic version of music.
Artists can enhance their chances of being featured on more playlists to earn more money by altering their streaming content based on streaming platforms’ algorithms. For example, musicians get paid on streaming platforms if their song is listed for more than 30 seconds, resulting in shorter songs that open with a hook to keep their listeners attention.
However, the music streaming platform provides more avenues for artists or musicians to get in front of the right audience; many industry critics argue that music is no more about creating something for pure enjoyment but a formulaic approach to generating revenue.
Are You Ready to Launch Your Music Streaming App to Make Money?
Want to generate money through a music streaming software similar to Spotify or any other? If yes, then Alphanso Tech is here to help you out. Our white-label music streaming app helps you manage your business online and generate continuous money by opting for effective monetizing methods. For more details, get in touch at sales@alphansotech.com.
Frequently Asked Questions
What are royalties in the context of music streaming?
Royalties are payments to rights-holders for song use, split between composition (publishers, songwriters) and sound recording (artists, labels) copyrights.
How do streaming platforms calculate payouts to artists?
Payouts are calculated by multiplying the platform’s per-stream rate by the number of streams (e.g., Spotify pays $0.0033 per stream).
What are the revenue models for music streaming platforms?
Primary revenue sources are paid subscriptions (monthly fees for premium features) and advertising (businesses paying for exposure).
How do Spotify and Apple Music make money?
Spotify and Apple Music rely on paid subscriptions and advertising to make money.
How do artists make money from music streaming apps?
Artists receive streaming revenue share generated by music streaming platforms. Most platforms follow a pro-rata model, where payouts are based on the shares of streams each artist had on the platform. However, there is advocacy for a fairer, user-centric model that pays artists based on what each user listens to most through the subscription fee.
What is the future of music streaming platforms?
Future trends include personalization, original content creation, premium pricing, and live streaming integration for an authentic artist-audience connection.
Can artists enhance their earnings on streaming platforms?
Yes, by adapting content to platform algorithms. For instance, creating shorter songs with catchy hooks to maintain listener attention.
Is it possible to launch a music streaming app similar to Spotify?
Yes, Alphanso Tech offers white-label music streaming software for launching and managing businesses online. Contact us at sales@alphansotech.com for details.