Pro Rata Vs User Centric Streaming Model: The Streaming Royalty Debate
The way that artists are paid from music streams is a thorny debate within the music industry. Over the past few years, streaming has grown to become the main way that listeners access music, raising the question of how to distribute the revenues in a way that is fair to platforms and rightsholders. At the heart of this discussion are two different payout systems: the pro-rata streaming model and the user-centric streaming model. In this article, we look at what each model is and discuss the implications for artists and the music streaming business model.
What Is The Pro-Rata Streaming Model?
The pro-rata streaming model is the system currently used by most major streaming platforms, including Apple Music and Spotify. The system pools all the subscriptions and advertising revenue collected by the platform in a given period into one large ‘royalty pot’. The pot is then divided among rights holders based on their share of the total streams on the platform. So, if an artist's music accounts for 1% of all streams in a month, they receive 1% of the royalty pot, and so on.
One of the main criticisms of the model is that the subscriber’s money doesn’t directly support the artists they listen to; it is simply distributed to the artists who command the largest market share. For subscribers who listen to lesser-known or niche artists, very little, if any, of their subscription money is likely to reach the artists they support, with most going to artists they may never have streamed.
What About The User-Centric Streaming Model?
An alternative approach is the user-centric streaming model. In this system, instead of pooling all the revenue, each user's subscription fee is distributed only to the artist they actually listen to. So, if you pay £10 a month and listen to only five songs, your subscription fee (after the platform takes its cut) will be divided among the rightsholders for those five songs you listened to. You won’t be inadvertently funding Taylor Swift if all you’ve been listening to this month is your favourite up-and-coming local band. Supporters argue that this system creates a more direct link between fans and the artists they support, while critics are wary of the extra complexity this could involve and the impact on subscription rates.
The Streaming Royalty Debate: Why Now?
The independent music community has long advocated for a move away from the pro-rata streaming model. However, the debate has recently become more heated as some major labels, which historically benefited from the pro-rata streaming model, have also begun calling for change.
One of the reasons for this is that people now listen to a broader range of music. Thanks to the availability of millions of tracks through streaming services, many people listen to a broader range of music than they did previously, covering a wider selection of genres and artists. A system in which most revenue goes to a handful of top-tier artists is no longer viewed as fair.
There is also a growing issue with fake artists and fraud. With tens of thousands of tracks uploaded to streaming services each day, the royalty pot is being divided among an ever-increasing number of tracks. Many of these tracks are from legitimate independent artists, a sign of a vibrant and growing industry. However, the uploads also include fraudulent ‘fake artists’, AI-generated content, and non-musical audio intended to siphon streams and revenues away from legitimate creators.
So, What Can Be Done?
There are several potential changes being explored by streaming services at the moment. These include a hybrid model that rewards different types of listening differently. For example, ‘lean forward’ actions like searching for a specific song or playing a saved album could generate a higher royalty rate than ‘lean back’ passive listening, such as accessing songs through playlists or platform suggestions.
Thresholds for payouts have also been implemented, in which platforms introduce a minimum number of streams or listens before a track becomes eligible for royalties. This is intended to offset the dilution of the royalty pool by low-quality or fraudulent uploads. Greater market differentiation may also see streaming platforms lean more heavily into specific niches. We have already seen this in Spotify becoming, arguably, the “Netflix of audio streaming”, attempting to cater to the widest number of music, podcast, and audiobook fans, while others, such as Qobuz and Tidal, focus more on high-resolution streaming, and Bandcamp on social music discovery and independent artists.
Find Out More
Some sort of change to the music streaming business model is almost certain in the near future. Depending on the outcome, this could mean new calculation rules and different revenue streams to track. Curve Royalty Systems' software can be configured to handle various royalty calculation models, empowering you to navigate the music streaming landscape with confidence.
For more information, please get in touch with one of our experienced team members today.
