Here's Why Streaming Music Deals Need to Change in Favor of Artists

Labels take most of the money

  • UMG boss Lucian Grainge blames streaming music services for falling artists’ earnings. 
  • Spotify pays so much in licensing fees it barely turns a profit.
  • You can support artists by buying direct, or via services like Patreon.
A phone streaming music surrounded by broken CDs on a hot pink background.

Nicholas Nguyen / Unsplash

Music streaming services pay musicians so little that even Universal's boss says things have to change.

More of your money should go to the people who make the music, says Universal Music Group chairman/CEO Lucian Grainge, an irony not lost on the artists who have 'enjoyed' a relationship with the music labels over the years. It's clear that something has to change in the music industry. Labels and streaming services need music, and musicians need to get paid to make it. So why is it so hard to keep everyone happy?

"Artists often enter into deals which entitle publishers and other parties to half or more of the royalties. So no matter what the platforms do to pay more, artists will still only receive a percentage of that payout. To address the disparity in royalty payouts for streaming music, the entire music business ecosystem needs to be transformed—from label agreements to publishing deals to ownership splits, and even the definition of 'artist' itself," Dr. Brandon Elliott, Professor of Music and Music Business at Moorpark College, told Lifewire via email.

The Split

In most cases, record labels get the biggest cut. They make the money from CD and vinyl sales, and they charge the music streaming services for the right to use their music. The artists who created the music get a cut depending on their contract. Often, signing to a label also means that artists give up the copyright to their recordings.

Someone laying next to a pool listening to streaming music on a smartphone.

Bruno Gomiero / Unsplash

"Spotify exacerbates the problem because it pays very low rates per stream—but even before the Spotify era, labels signed 10/90 split deals with artists. So, yes, they can and should definitely pay the artists more—maybe the artists won't run away from them as soon as they can," music journalist and musician Eloy Caudet told Lifewire via email. 

Meanwhile, Spotify says that after it pays the licensing fees, there's not enough money left to pay the artists and make a profit. Spotify's revenue grew 18% year-on-year to €2.72bn in 2022, yet it still operates at a loss for much of the time.

So why, if the record labels take the majority of the money from streaming and pay so little to artists, is Universal's Grainge complaining about streaming? It seems like it's down to the fact that the streaming services are filling up with music that the labels don't own and therefore are not making any money on.

The B Side

In his annual New Year's letter to UMG staff, Grainge called out "bad actors" who flood the music streaming services with "lower-quality functional content that in some cases can barely pass for 'music.'" This includes, for example, half-minute tracks designed to game the system and divert royalties, he writes.

Grainge positions his company as a champion for artists, but it seems more like what he doesn't like is sources of music that are not controlled and sold by the major labels. 

To address the disparity in royalty payouts for streaming music, the entire music business ecosystem needs to be transformed...

"Universal owns a significant market share on the recorded music side AND control of one of the world's largest music publishers: Universal Music Publishing Group. Their size and domination on both music copyrights gives them a ton of leverage to negotiate deals and set rates that often indie artists and songwriters then have to accept," Ana Berberana, of music copyright administration company Exploration Group, told Lifewire via email.

None of this helps artists or fans who want to listen to and support their music. Streaming is popular because it is convenient and cheap for listeners. If the majority of Spotify's almost $3 billion-per-year revenue went directly to the artists, everything would be great.

But until that happens, there are still things you can do. You can support artists directly, often via a service like Patreon. Or you can keep streaming but buy your favorite music from the artist via Bandcamp. And there are still CDs and vinyl releases if you don't like paying for downloads.

Grainge is right on one point, though. Something does have to change. Musicians and fans are the only important parts of the music industry. The rest are just middlepersons taking a (huge) cut. But perhaps the big labels like Universal will get so spooked by this "lower-quality functional content" reducing their earnings that they will be forced to offer musicians a better deal. One can only hope.

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