How streaming services calculate royalties, featuring trees.
Every spin on Spotify – or any streaming service really – giveth, and every spin taketh away.
Your humble royalty accounting professional refers here to the way streaming services calculate royalties. Every time you spin a track past the 30 second mark, a royalty is generated for the rightsholder (the catalog and/or artist), right? Wrong. After all, you’re not pumping tiny little quarters into Spotify at ~ .004 a spin. You’re paying them $10/month or so, they’re keeping around $3, and the rest is going into a big ‘ol pool of money.
What you’re generating with each play is simply a spin, the sum total of which is the denominator to the money total’s numerator, in what is often referred to as the monthly “pro-rata rate.”
$$$ / Spins = The Monthly Pro-Rata Royalty Rate
Let’s say there’s $70 in the money pool in a given month, and there were 100 spins that month. That’s $0.70/spin! The catalogs and artists who own the rights to whatever generated those spins are going to be psyched.
Now let’s add another 100 spins, from a new catalog/artist. The rate is now down to $0.35/spin — the new catalog/artist is now earning $35, but the others’ income has gone down accordingly, from $70 to $35. Spins don’t add money to the pool — they simply change how the money gets divvied up. Hence: the spins giveth, and spins taketh away.
Which brings us to the curious case of “This Song Plants Trees.” This nifty 31-second number has generated over 1,000,000 spins, the money from which has been used to plant 10,000 trees (according to TSPT, “Around ~100 streams makes enough money to plant one tree”).
That money’s coming from somewhere. It’s not really coming from Spotify (they’re still keeping their same 30%), nor is it likely coming from new subscribers who started paying for their preferred streaming service just to hear “This Song Plants Trees.”
As illustrated above, the tree money is coming out of the overall money pool, and therefore the pockets of other catalogs/artists, many of them trying to make an honest living from music. Without those virally-generated million spins, the pro-rata denominator would be that much lower, and the resulting rate would be ever-so-slightly-higher.
Personally I’m a big fan of trees — especially their leafier work — and I don’t begrudge anyone hacking a system to benefit the planet. This isn’t a criticism of Matt Gordon (creator of TSPT and self-described maker of viral webapps) — indeed it is a testament to their genius, or at least their ability to use their powers for good.
But genius can have unintended consequences. In this case, real money is being redirected from real artists to (also real) trees. I reached out to Matt for comment and had a fascinating chat, in which he noted he was indeed aware of the way streaming services’ calculates royalties, feels that TSPT is its own kind of art, and that the real enemy here is the streaming services for putting artists and rightsholders in this zero-sum game, where every spin giveth and taketh away. He also noted the experiment generated way more money than he expected, a testament to the fact that those streams do add up.
This wasn’t written as a criticism of Spotify et al, so much as an opportunity to illustrate how things works. Clearly there’s consumer appeal in a system where I can pay a flat amount and stream all I want, vs. having to think about it with every spin. Radio’s enduring appeal comes to mind.
Perhaps it’s the pro-rata model that’s worth reconsidering. The user-centric, or “fan powered” model, where your $7/month gets split between what you actually listened to instead of the whole pool, would yield the same take-from-artists-give-to-trees-with-every-viral-spin effect, but would also help the listener understand that their spins are literally allocating money rather than generating it.
However they do it, the main takeaway is that streaming is currently a massive, commonly misunderstood system of redistribution that is rife for manipulation. Leaky pipes, scams, and viral spoken word tracks for trees abound, and catalogs and artists just trying to earn a living from music pay the price. Streaming services aren’t incentivized to do much about streaming fraud (and indeed are incentivized to get in on it), though again, the user-centric model, which Spotify’s long fought against, would help on that front. Maybe this is a criticism of Spotify after all?