Streaming royalties are determined in consultation with stakeholders like record labels, distributors and music publishers - mostly those who have the loudest voices, aka those who have the most money; the majors. These stakeholders are the ones representing global superstars, the likes of Taylor Swift, Lizzo, Mariah Carey, Harry Styles, etc. In 2020, it was reported that the ‘big three’ labels (Sony, Universal and Warner) were making roughly a combined $1M PER HOUR from streaming. So, you can see why independent artists are not part of this conversation.
Here are some real (pretty exciting!) numbers an emerging artist who has a good listenership on Spotify shared in their Spotify Wrapped recently:
410k Streams, 108k Listeners, 22k Hours
I did a bunch of math which I'll include below for those who want to see my work, but basically here's what it comes down to: Those fans paid roughly 8 cents each to be able to access this artist's music. The artist might have made about $1230.00 before expenses. Spotify took in $1.2M off the same users. (All figures in USD). They do pay out a lot of money compared to the amount they keep, but most of it lands in major labels' pockets.
If even 10% of those 108k fans had purchased the artist's music for just $10, they'd have made $100k, instead of $1230. It's clear that there is a disconnect there. I think that as music fans, if we want to be true patrons of the arts, it is our responsibility to seek out ways to support independent artists directly.
THE MATH
Okay, so first of all, Spotify doesn't exactly pay out on a per-stream basis, and they have actually explained the money flow pretty well in this video. But the average amount earned per stream is around $0.003, so for arguments' sake that's the rate we are going with here.
410,000 streams x $0.003 (average royalty rate) = $1230, the approximate amount of money the rights holders (record label and publisher) likely made for these streams. For most independent artists, they are their own record label and publisher, so this would be the same person or people if they are a band. This money would be funnelled to the rightsholder via a distributor, who would take a cut of the money, their fee for having distributed it to the streaming platform.
108,000 listeners x $120 (the approx price of 11 months of Spotify premium for an individual user) = $12,960,000 in subscription fees collected from 108,000 listeners
$10.99/27 = $0.407 average value per hour of Spotify use (27 is the average number of hours a Spotify user listens to music in a month*)
22000/108000 = 0.20 hours, average amount of time each fan listened for
0.20 x 0.407= $0.081 USD, amount of money each fan paid to Spotify to listen to this artist
0.081*108000 fans= $8954.8 USD, the approx amount of money Spotify received in order for users to access this artist's music on their platform
$1230/108000 = $0.011 USD, gives the average amount of money the artist made from Spotify per fan