Here's a Practical Approach For Calculating Artist Streaming Revenue

I believe we now understand how increase in streaming numbers doesn't exactly mean a corresponding increase in revenue; particularly how artist’ revenue is dependent on certain variables. This however brings us to another phase in the streaming business.

So, how then do DSPs actually calculate these streams and arrive at these figures artists get quarterly; factoring these variables?

This read will most likely need your undivided attention.

First, the mode with which streaming platforms calculate streaming payout is called Pro-rata payout system AKA Service-centric payout system. This means the streaming platform POOLS distributable revenue it generates in a period in DIFFERENT buckets, then apportion this revenue to artists based on the number of streams a song has amassed [regardless whether or not the stream is maneuvered].

With the Pro-rata system, monthly streaming revenues are pooled in different buckets. For example, revenue from South Africa and Nigeria is not pooled in the same bucket. Even in Nigeria, revenue from Freemium services will not be pooled in same bucket as revenue from Premium services and so it goes.

There are different buckets for each variation. The summation of what you earn from all these buckets is what you are paid at the end of a quarter. This is the first thing to note about the Pro-rata payout system.

So, how does it work?

Before we go ahead to calculate how artists get paid using the Pro-rata payout system, we need to get familiar with some “global music industry standard” applied in revenue sharing with DSPs:

The global music industry and streaming platforms reportedly agreed on a 70:30 (not sure of the exact figure but not far from this) payout rate respectively. Like we already know, the music industry houses two different sectors viz the Recording sector and the Publishing sector.

Of course, the Recording sector deals with the master recording while Publishing sector deals with the composition.

So, out of the 70% revenue that DSPs apportion to the music industry, 13-15% of it (unsure here but not far from this also varies by territories) goes to the publishing sector and the rest [55-57%] goes to the recording sector.

DSP & Music Industry —> 30:70

Recording sector —> 55-57%

Publishing sector —> 13-15%

NB: For this piece, we're addressing just the recording royalty. I mentioned here the three types of royalties generated from streaming.

Now, how do I earn what I get from streaming platforms? How do they arrive at those figures and why is it inconsistent?

Let's attempt calculating for one bucket, say – Spotify Premium for Uganda in March 2020.

A scenario, using an emerging artist, Tsuni as case study:

Imagine Spotify made $1000 in premium subscription revenue from Uganda in March 2020. And in that month, 1 million streams were generated via premium tier. Tsuni has 100,000 [premium] streams in Uganda [out of the 1m premium streams generated] in March 2020. Using the Pro-rata payout system, how would you calculate what Tsuni earned from Uganda's Spotify premium tier in March?

First - here are some important factors to ALWAYS note BEFORE calculating using Pro-rata payout system:

•Total DSP's revenue in that period.

•Recording music industry payout percentage.

•Total number of streams on the platform in that period.

•Number of artist streams [for that tier] in that period.

However, the formula for calculating this is:

(Total DSP revenue x recording music industry payout %) x (total number of artist stream ÷ total number of streams on the platform).

Working:

•Total DSP revenue in that period (March 2020) = $1000

•Recording music industry payout % = 57%

•Total number of DSP streams in that period = 1,000,000 streams

•Number of artist [Tsuni] streams from premium tier in that period = 100,000 streams

Applying this formula using BODMAS:

($1000 x 57/100) = 570

(100,000/1,000,000) = 1/10

$570 x 1/10 = $57

So, Tsuni's earning from Uganda in March from premium tier is $57.

Similar calculation is done for other buckets and the SUMMATION of these calculations across other tiers - market et al is what makes up an artist’s revenue in that period.

Further buttressing the last post - here, you can see DSP revenue is about $1000, giving an artist with 100k [premium] streams $57. If DSP revenue from Uganda were about $100k, best believe Tsuni will earn way more than $57 with the same 100k streams. But the question here is, how can the DSP revenue hit about $100k in a month when subscription is about an equivalent of $2.99 or less. Also considering, how many users are in that region?

Do you understand? This is actually ONE of many rationales for such payout, as I figure them out one at a time.

I hope this is clear enough and we can see just how artists’ streams vary, their revenue does as Spotify might earn different the next month, as well as Tsuni's numbers being different in the next month - getting less/more Premium stream than March 2020.

Disclaimer: The choice of case study in this piece is mere sensationalism and not in anyway intended at throwing jabs.