In today's music industry, streaming is the king of the content consumption format. Platforms such as Spotify, Apple Music, Amazon Music, Deezer and many more have revolutionized the way we listen to music. However, few people understand the complicated royalty distribution process behind these platforms. In this article, we'll explore how royalties work on streaming platforms, focusing on the Pro-Rata model.
What is the Pro Rata model?
The Pro Rata model is the traditional approach to distributing royalties in the music industry. It is based on principles that go back to editorial royalties and is used on platforms such as Spotify.
Spotify example
To understand how the Pro Rata model works, let's consider the example of Spotify.
Each month, Spotify adds up the total amount collected in each country for each type of subscription plan. This total is then divided by the number of streams generated by users of that type of plan.
Here's a breakdown:
- Initial Collection: Suppose that in a country there are 100,000 Premium users who pay 10 USD per month, which is equivalent to 1 million dollars.
- Spotify commission: First, Spotify keeps 30% of that revenue, which means that there are 700,000 USD left for royalties.
- Editorial Royalties: Around 20% of royalties go to composers.
- Master Royalties: The remaining 80% of royalties go to distributors, who manage phonograms (or masters).
In this example, the remaining $560,000 goes to phonograms (or masters).
Calculating the Value of a Stream
Let's say that these 100,000 Premium users listened to a total of 560 million streams. If we do the division, we get that the value of each stream is 0.001 USD.
This amount may vary depending on the subscription and collection in each country. The more expensive a subscription is in a country or the more the platform collects in a territory, the greater the value of the royalties.
That's why streaming royalties generated in the United States tend to be worth more than those in South America, and those in Europe are worth more than both. In these regions, subscriptions are more expensive and more users are paying for them.
Final summary
In short, the Pro Rata model is a common way of distributing royalties on streaming platforms, and its value depends on several factors, including subscription and collection in each country.
If you're a label, artist or composer, understanding this system is essential to get an idea of how you're compensated for your music on these platforms.
