Streaming technology has made it easier than ever for fans to consume more music. The creation of streaming platforms has been a great gift to music fans who can access nearly all of recorded music history on their phones.
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For songwriters, the evolution of streaming music has come with a cost. Songwriters have seen their income diminish with the growth of digital music consumption. They find themselves in the middle of a David-and-Goliath story. But Goliath in this case is a two-headed beast made up of record labels and technology giants like Apple and Spotify.
How it all breaks down
A significant revenue stream for songwriters is via the Mechanical Royalty. This royalty is derived from a license from the copyright holder to another party who reproduces the work. For example, a record company must pay songwriters each time their song is reproduced in physical or digital form. Physical and digital downloads fall under this type of royalty. The rate is set in the United States by a Copyright Royalty Board (CRB).
The CRB—three U.S. judges who determine rates and terms for copyright licenses—increased the rate paid to songwriters from 10.5% to 15.1% for the years 2018-22. The CRB sets rates in five-year terms. In another settlement, the rate will increase to 15.35% from January 2023. The ruling increased the percentage of streaming services’ revenue (Apple, Spotify, Amazon, etc.) that must be paid to songwriters.
As of 2021, the mechanical streaming rate for songwriters breaks down to $0.0006 per song.
The mechanical royalty is only a portion of the streaming royalty. The total streaming royalty is based on the CD and vinyl era. Only 20-25% of the streaming royalty goes to songwriters and publishers. The remaining 75–80% goes to performing artists and record labels.
The lopsided distribution of revenue was originally calculated to account for the financial risk to manufacture and distribute records. Shipping boxes of records from a warehouse to physical music stores accrues a significant cost. But digital files are distributed with the click of a mouse.
Does the uneven split still make sense in the streaming age?
Labels argue they assume significant risk in producing and marketing artists. However, the traditional role of artist development is quickly becoming a relic of the past. Major labels are looking for artists who are trending on social media. They search for the artist with millions of fans established on TikTok and YouTube. Most of the work has already been done for them.
The song is the foundation of the music industry. Many of today’s hit songs have four or five writers involved. Sometimes more. The success of the music business is increasingly reliant on the work of songwriters, yet the writers remain stuck on the economic floor.
The situation is further complicated by conflicts of interest. The world’s three biggest music groups own the three biggest record labels and the three biggest music publishers. The big three are: Universal, Sony, and Warner Music Group.
Complicating matters, the royalties are negotiated in very different ways. The music companies negotiate streaming royalties directly with the streaming companies using a free market system. But the mechanical royalty for songwriters is determined by the government using the above-mentioned Copyright Royalty Board.
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To be fair, streaming services rescued the spiraling music industry. In the 2000s, the music business was wrestling with a generation of fans who grew up getting music for free. In a post-Napster world, the music industry saw its revenue cut in half from one generation to the next. CD sales had plunged with the increase of illegal downloads. Spotify—arriving in the United States in 2011—stopped the collapse almost immediately.
Everyone in the debate agrees songwriters deserve more income. The argument is over where the additional money comes from. The streaming companies argue the increased funds for songwriters should come from the record labels’ share. Music companies counter that streaming rates must increase. They point to the low negotiated streaming rates that helped launch streaming services during their infancy.
The music business is now a tale of multiple ironies. The industry is at war with streaming companies, the very thing that rescued it. And the songwriter, who creates the actual product, benefits the least.
The digital age is a story of tech companies earning billions of dollars, yet they make nothing. The current streaming business model reflects a larger issue in the global economy. Folks at the bottom are doing the work while those at the top get rich on the backs of the workers.
Meet the new boss
Same as the old boss
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