Music streaming on Digital Service Providers has only been around since the beginning of the 21st century, and yet, there is much history about royalty payments paid out to artists. Many people know about how these services pay relatively little per stream in comparison to physical sales or downloads, but how did we get to the point where we are today? Let’s take a look!
Image obtained from Mojo Audio
To begin, I want to talk about what royalties actually are. A royalty is a payment made to an owner of an asset for the use of said asset. Royalties are a derivative of copyright, which is included in the U.S Constitution. Every song has two kinds of copyrights: the underlying musical composition and the master sound recording. The underlying musical composition is what is written by the songwriter and composers, like the lyrics and instrumentals. The master sound recording, on the other hand, is the physical recording of the song. So, the owners of the underlying musical composition and the master sound recording get royalties each time the song is licensed or used. However, copyright protections do expire. Currently, copyright protections (for works made before January 1st, 1978) last for the life of the author plus 70 years. If there are multiple authors, the 70 years would only begin once the last composer dies.
Image obtained from Wall Street Mojo
To understand how streaming royalties were set up, I do want to briefly discuss royalties prior to streaming. Congress enacted the first mechanical copyright law in 1909, which meant that artists could get paid for the physical production of their work. At this time, mechanical copyrights were used for piano rolls, but this progressed into vinyl records, cassettes, and CDs. However, when streaming became another method of music consumption, it became a problem. The music being played wasn’t being physically created, so how would the copyright owners get royalties? Congress enacted the Digital Performance Right in Sound Recordings Act, which allowed the owners to get paid for these digital uses.
Image obtained from Unified Manufacturing
The next big stride in streaming royalty payments was the Music Modernization Act of 2018. The act addressed problems with compensation and streamlined the process for audio-only, on-demand streaming, such as Spotify and Apple Music. There had long been calls for increases in royalty payments from streaming (and there still are), and the act addressed that problem. However, the act did much more.
It created the Mechanical Licensing Collective, which helps issue blanket licenses, which are a singular license that grants you access to a large catalog of music.
It created a public database of songs, license owners, and the percent of ownership. The database matches the writers to their compositions and sound recordings for royalty payments
It allowed for producers and engineers to get royalties for their additions to the underlying musical composition and the master recording.
The reasons for the creation of the act include:
Streaming was driving the vast majority of the growth in the music industry. According the to the RIAA (the Recording Industry Association of America), streaming accounted for 84% of recorded music revenue in 2023, roughly 14.4 billion dollars
It was a complex process for streaming services to get individual licenses from all the composers. With the Music Modernization Act, it created a blanket license,, which streamlines the process of licensing
There were attempts to make a database similar to the MLC called the Global Repertoire Database (GRD). However this failed due to political reasons.
Image obtained from the Recording Academy
So, what’s happened since then? A bill, titled the Living Wage For Musicians Act, was introduced into the House in March of this year, which aims to bypass the middlemen (aka record labels) in royalty payouts. The goal is to increase the royalty payments to one cent per stream, as opposed to the fraction of a cent that streaming royalty rates are currently set as. These payments would be funded by a 50% fee added to every subscription. However, this fund of money to the artist is not a replacement to the current royalty payment system, but a supplement. In addition, the bill would also establish a cap on royalty payments for songs that get over 1 million streams a month. Rashida Tlaib (D-Mich) and Jamaal Bowman (D-NY) collaborated with Damon Krukowski, an organizer of the Union of Musicians and Allied Workers, to draft the bill. It is currently under review by the House Committee on the Judiciary.
Image obtained from the United Musicians and Allied Workers
Streaming services themselves have also responded to the calls for higher streaming rates. Spotify introduced a new model in 2023 that would require tracks to obtain at least 1000 streams per year to get royalties. This is more in response to the great abundance of AI-generated tracks on streaming services, but this new model was also designed for artists who generate a substantial amount of engagement. Deezer, in collaboration with Universal Music Group, created a similar model that would increase revenue for tracks with over 1000 streams a month for 500 different artists.
These actions have all received mixed reviews from industry professionals and artists alike. The issue of streaming royalty payments is one that has become increasingly complex. In order to raise revenues for artists, it will most likely come out of the consumer’s pockets. To find this balance isn’t easy, but I hope that in the future we can find a way to properly compensate musicians that add so much to our lives.
Written By Lauren DiGiovanni
*copyright not intended. Fair use act, section 107.