Streaming services have increased in popularity in recent years; with popular services like Spotify, Apple Music, Tidal and others.
These services are known “digitally interactive” because users can choose what they want to listen to. Generally, streaming services generate revenue either through (1) paid subscriptions by users or (2) advertising revenues. For example, people can listen for free on Pandora, but their listening will be interrupted by Ads. On the other hand, if you pay for a Pandora subscription, you are given Ad free listening.
Each streaming service has a different way of calculating how much artists are paid. The most common way artists are paid via streaming services involves the use of a “pro-rata” or “user-centric” formula.
A pro- rata formula calculates the monthly royalty payment to each individual artist by taking the streaming company’s overall revenue for that given month, dividing it by the overall number of streams by all the artists on that platform, and then multiplying the resulting number by that specific individual artists’ total streams for the month. This is the formula used by Spotify, Apple Music, and most other major streaming service providers.
The User-Centric formula calculates the monthly royalty payment to each individual artist based on each individual subscriber’s listening consumption in that given month. For example, if you pay a subscription fee of $10.00 per month for a streaming platform and in January only listen to Bad Bunny, then 100% of your subscription fee for that month will go to Bad Bunny and is not shared with other artists.