How Spotify Streams Turn Into Royalties

Since its launch, Spotify has become the world’s leading music streaming platform with over 191 million active users globally. In today’s market, it’s vital for creators to understand how streams turn into royalties (the money your songs earn). In order to fully reap the benefits of the music you worked hard on, we’ll show you how a stream on Spotify turns into publishing royalties, and how to get those royalties into your pocket.

At the highest level, a song can be thought of as being split into two halves: the master (the sound recording itself) and the composition (the underlying song—like lyrics and notes). When your song is played on a streaming service, master recording and publishing royalties are both generated. 

Two Halves of a Song

Your distribution company (such as CD Baby or DistroKid) or record label is responsible for collecting and paying master recording royalties to the artist(s) and performer(s) that have rights on the master recording side. Publishing royalties are earned for the use of the composition of a song, and are paid to the songwriter(s) that worked on that piece of music and their publisher(s). Publishing royalties include performance and mechanical royalties, which are earned, tracked and then collected by collection societies around the world. 

If you are a songwriter and/or publisher of a song that is available on streaming services, you’re entitled to these royalties. While there is an entire separate process for the master recording side, for the purpose of this article, we’ll focus specifically on the publishing royalties earned from your composition. It should also be noted that while this article is focused on Spotify, there are other digital streaming services that follow the same basic structure for earning royalties, but the pay rates may differ. We suggest that you use this as a guide to understand streaming royalties and do further research to better understand the specific streaming services your music is distributed on. 

What Are Streaming Royalties?

In general, anytime your song is played digitally, but not downloaded, it can be considered a music stream. Performance and mechanical royalties are both generated when your song streams on a digital streaming service like Spotify because a music stream is technically a public performance and a mechanical reproduction of your work -- allowing you to collect both types of royalties. The payout on a Spotify stream can vary based on what country and what kind of user (premium, free, family, student, etc.) is streaming the song. For example, someone streaming your song in the US on Spotify using the free version will generate less royalties than someone streaming in the US with a premium subscription.

Depending on the service, you may earn different rates for performance and mechanical royalties per stream, and these rates are set by different entities. In the US, mechanical royalty rates are set by the Copyright Royalty Board (CRB). Performance royalty rates are primarily set through negotiations between Spotify and your domestic PRO (performing rights organizations such as ASCAP, BMI, and SESAC in the US). In order to capture these royalties, you’ll need to affiliate and properly register your song with the appropriate collection societies.

Performance Royalties

The public performance, broadcast, or stream of a musical work generates a performance royalty for the songwriter and publisher. If your song is placed in a broadcast TV (network or cable), played on the radio (whether broadcast or satellite), or distributed on streaming services like Spotify, you’re entitled to collect performance royalties. Performance royalties are tracked and collected by collection societies -- PROs like ASCAP, BMI, and SESAC in the US or collection management organizations (CMOs) such as GEMA in Germany or ABRAMUS in Brazil. Your songs must be registered with a collection society to be paid this royalty. For those new to publishing and yet to affiliate with a society, Songtrust can streamline the process by not only affiliating you with a society on your behalf, but also ensuring your songs are globally registered.

Performance royalties are based on each songwriter’s ownership share of the song. For example, if you play in a guitar-and-drums garage rock duo, and both members contributed equally to the song, you might agree to share the songwriting credit 50/50. However, in genres like pop and hip-hop that may have many contributors to different aspects of a song, you may encounter more complex songwriting share distribution.

Co-Writing Split Example

The performance royalty is also split and distributed equally between the songwriter(s) and the publisher(s), with each being allocated 50 percent of the performance royalty pie. These are known as the writer’s share and the publisher’s share. As a songwriter, you’ll always collect 100 percent of your writer’s share directly from your home collection society. Depending on what type of deal you have with your publisher (administration, co-publishing, income participation) you may only see a portion of the publisher’s share of the performance royalties. 

Writer's Share vs Publisher's Share

You’ll also need to collect royalties when your song is streamed on Spotify outside of the US. These can be collected in two different ways - through your collection society’s reciprocal agreements with other societies or by using a publishing administrator, like Songtrust. By signing up with Songtrust, you can have your songs directly registered with over 50 collection societies globally in exchange for a small administrative fee. 

Mechanical Royalties

When your songs are reproduced, retransmitted, or re-broadcasted, mechanical royalties are generated. For example, if you get a record deal and your album sells ten thousand copies (digital downloads or physical copy) your record label will have to report these sales to you and your publisher, and then pay out the mechanical royalties accordingly. But with digital streams via services like Spotify, the mechanical royalties aren’t paid by a label or distributor, but directly by the streaming service to a Mechanical Rights Organization (MRO). In the US, a songwriter must have a music publisher or administrator in order to claim mechanical royalties from an MRO. Because of this, mechanicals are often left uncollected.

For example, the Harry Fox Agency (HFA) is the MRO in charge of distributing Spotify’s mechanical royalties and licensing their catalog in the United States. Spotify is legally required to license your work based on Section 115 of the US Copyright Act. This is called a “compulsory license,” and it basically outlines that Spotify has your music on their platform and shows that they’re mechanically reproducing it (in this case, digitally streaming). Mechanical royalties from Spotify are collected by HFA, and then that money is paid out to each publisher based on the compulsory license. This money is then distributed back to the songwriter. If we use the split example from earlier (the 50/50 split), each publisher will claim 50 percent of the song on behalf of their songwriter, and Spotify will issue a license to each publisher on the song. It’s important to note that, in the US, mechanical royalties are publisher royalties only, so there is no writer’s share. Your publisher would pay these respective royalties to you, the songwriter they represent.

Another important note is that the Harry Fox Agency, for example, is only in charge of distributing and licensing Spotify’s catalog in the US. When your song gets streamed in, say, Australia, that money will be paid to AMCOS, Australia’s mechanical society. In order to claim these royalties, you’ll need to affiliate and register with the appropriate country your song is streaming in. While this is an option for DIY creators to do themselves, if you’re getting streams worldwide, you’d have to affiliate and register as a publisher with every mechanical society to ensure you’re collecting on all of your streams. Alternatively, you can do it all at once with a publishing administrator. If your songs do not have a publisher, Songtrust is able to collect on your behalf—leaving you with more time to focus on your music.

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Beyond Royalty Collection

Music streaming is becoming one of the largest sources for royalty collection, and Spotify is leading the charge. Now that you better understand the type of royalties your song earns when streamed on a digital streaming service like Spotify and who collects the royalties earned, it’s important to think ahead about bringing in more streams. As we mentioned earlier, the pay rates differ from service to service and, even though streaming is the number one way music is consumed, creators only really start making substantial money when they hit higher stream counts. 

To get those prized Spotify streams, we encourage you to use the service actively, rather than just putting your song up and forgetting about it. Sharing your music on social media (Facebook, Twitter, Instagram) is one crucial way of getting your songs heard and shared to new communities. Also, pitching your music to your favorite culture blog and getting on a popular Spotify playlist can be hard, but can give you big returns—especially if you’re maximizing all of your royalty sources. 

However you decide to market your songs, don’t forget about the business side and make sure you fully understand all the ways your songs earn money -- starting with music publishing. 

Interested in seeing how much more your song could be making by collecting your publishing royalties? Check out our estimator tool.

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