Sarah Falzon is a lawyer , music enthusiast , and violinist . She is a lawyer with Taylor Oballa Murray Leyland LLP , and works with musicians navigating through varying stages of their careers . For more information , visit www . tomllawyers . com .

By Sarah Falzon

Then , nine years ago , with the dramatic shift towards digital album sales , entertainment lawyer Pat Leyland provided an approximate breakdown of the sale of a $ 9.99 digital album ( Ex . 2 ).

A significant portion of music consumption has since shifted towards use of streaming services such as Spotify , Tidal , Apple Music , etc . Recent growth in this area has been substantial , and royalties from streaming have become more important to recording artists than ever before .

The payment structure for rights holders varies significantly from service to service due to several factors , including ( but not limited to ): the type of streaming , being “ on-demand ,” “ non-interactive ,” or “ semi-interactive ” streaming ; whether it is a paid subscription or ad-supported service ; the agreements the service has with the major record labels ; and the country from which the streams originate .

The result is several complicated and non-transparent payment structures and royalty payouts to artists . For this article , we will be looking at revenues generated under the paid subscription , on-demand streaming format of Spotify Premium .

Note that calculating a “ per stream ” royalty is not entirely reliable . The rate fluctuates from month to month and there are several other factors at hand . For example , we have learned that major labels may have a minimum payout guarantee , and Spotify is constantly negotiating its mechanical royalty obligations and its agreements with labels and publishing rights organizations . Being as that may , the purpose of this article is to provide a general breakdown of the complicated world of streaming royalties .

Let ’ s take a look at “ where the money goes ” in 2017 by breaking down 1 million streams .

Ex . 1 : A Breakdown of the Retail Sale of a $ 19.95 CD ( 1998 )

The Retailer Spotify is the undisputed leader in streaming . They offer an ad-supported free tier service and a paid premium tier subscription service . The gross revenue Spotify earns from each tier is distributed on a monthly basis . Spotify recently published the formula used to determine the amount of money allocated towards any one particular song : [( monthly revenue ) x ( monthly streams per individual song / total monthly streams )]. Put simply , the amount of money attributed to any one song in one month is determined by calculating the number of times it was streamed relative to all other song streams that month .

Data published in 2015 by music royalty collection agency Audiam ( the most recent publicly available data , the “ Audiam Data ”) shows that Spotify earned between $ 24 million and $ 42 million per month from its premium service between January 2014 and March 2015 .

In order to illustrate where the money goes , we will be using the Audiam Data for the month of March 2015 . According to this data , Spotify collected $ 42,559,077.44 USD and generated 4,314,366,992 total streams from its premium tier service that month . Applying Spotify ’ s royalty formula to our 1 million streams [( 42,559,077.44 ) x ( 1,000,000 / 4,314,366,992 )] we can conclude that $ 9,864.50 would be allocated to those 1 million streams . The Audiam Data shows that Spotify retains 20-30 per cent of the gross revenue . On the high end ( 30 per cent ), Spotify retains $ 2,959.35 in our example .

The Label In Canada , on-demand streaming services must currently pay 12.78 per cent of gross revenue to the composition rights holders , which would leave 57.22 per cent to sound recording rights holders . In our example , the owner of the rights in the sound recording is owed $ 5,644.47 . Under a typical recording agreement , the record label would collect this amount , whereas independent artists who own their own masters would collect this .

The Distributor The label may use a third party digital distributor , which may retain between 15-25 per cent of the sound recording share . Using an average distribution fee of 20 per cent , the distributor is entitled to $ 1,128.89 , leaving the label with $ 4,515.58 . Independent artists will often hire digital aggregators like CD Baby and Tunecore to place and administer

Ex . 2 : A Breakdown of the Sale of a $ 9.99 Digital Album Download ( 2008 )

their music on streaming platforms like Spotify . These aggregators provide such services for a fee .

The Artist Generally , a record company pays the artist a royalty for commercial exploitation of their recordings , and the same royalty usually applies for streaming as for standard sales . This rate is applied to the net revenue received by the label in connection with the 1 million streams . The artist royalty is commonly somewhere between 13-18 per cent . Using a midrange artist royalty of 15 per cent , the artist is entitled to $ 677.34 ( subject to any recoupment provisions ) and the label is left with $ 3,838.24 . The artist is then responsible for paying any producer or mixer a royalty in connection with the sound recording .

The Producer / Mixer The producer or mixer royalty is negotiated in the producer ’ s agreement with the artist , and is typically taken from the artist ’ s royalty . For streaming royalties , the producer ’ s share is customarily a percentage of what the artist receives . The percentage varies depending on the specific agreement , but taking a mid-range producer royalty of 20 per cent and assuming that there is only one producer receiving a royalty , $ 135.47 would be payable in producer royalties , and the artist ’ s royalty is reduced to $ 541.87 .

Songwriters / Composers In Canada , Spotify must currently pay 12.78 per cent of its gross revenue to the owners of the composition . These amounts are paid directly to the writers and publishers who have rights in the composition via their public performance organization and their mechanical license agency . In our example , $ 1,260.68 would be paid to the writers and publishers .

Conclusion In summary , the $ 9,864.50 USD generated by 1 million streams would breakdown as outlined in Ex . 3 .

The views and opinions expressed in this article are not meant to substitute for legal advice , which should be sought in each particular instance .

Ex . 3 : A Breakdown of the Royalties from 1 Million Spotify Streams ( 2017 )

62 • CANADIAN MUSICIAN