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Industry Models: Subscription Based Streaming

In the next few posts titled "Industry Models" we will give an overview of the three major formats for music distribution that have arisen over the past 10 years: subscription-based streaming, the digital store, and online radio. The subscription-based streaming model is currently the most talked about with the growth of services like Spotify, Apple Music, and Tidal. 



Spotify is the dominant subscription-based streaming service today. The way it works is fairly simple...

Cost

Users on Spotify pay $9.99 every month and are able to stream any music from the Spotify catalog from their computer or mobile device. They do not, however, get to keep or download the music they listen to.

Payout

Spotify pays about 70% of its revenue to the rights holders of the music in their catalog. 

Of that 70%, rights owners get a share depending on how many streams their music gets relative to all of the streams on Spotify that month. 

The formula for a single song is as follows:
(The number of streams a song generates in a month/ the total streams on Spotify that month) multiplied by (0.7 * Spotify's total revenue for the month) = payout to the  rights owner of that song. 

Signed artists are not the rights owners of their songs so there is usually another step in the payout process. The payout to rights owners will go to the label, and the artist will get paid whatever their royalty is, which is often somewhere around 16% of the total revenue the song generates.

Spotify announced that the payout to rights holders averages around $0.006 - $0.008/stream.
This means for a signed artist, you get somewhere around 16% of that, or $0.0012/stream.

Based off of those numbers, a signed artist needs about 1,050,000 streams/month to make the federal minimum wage of $1,260/month. 

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