Are pro rata models fair?

We love music.

You’re probably here because you love music. That’s why we’re in it. We’re passionate about music. We want to learn from and engage with the creators who make our favorite songs. This applies to those of us who make music, as well as those of use that don’t. But do we think about how fair and sustainable the systems we use to distribute and listen to music are? Do we know what a pro rata model is?

Cloudy waters

It’s difficult to find transparent information about how most subscription music streaming services pay artists. Individual deals are hidden from the public. Major labels and publishers may have different arrangements with services than independent entities. Each platform has lengthy and often confusing terms and conditions. The list goes on…

But we do know that streaming services like Spotify and Apple Music currently use a pro rata model to distribute royalty payments. Every month, revenue from subscriptions and ad sales is pooled together. Then the artists are paid a percentage of the royalties pool. But they’re paid relative to how their stream count ranks in the entire pool of streams. Artists get paid not by the amount their tracks are played, but by the amount their tracks are played compared to all of the other artists on the streaming platform. And this is after Spotify or Apple takes their ≈30% cut.

Pro rata model problems

We’ll use some very simplified examples to explain the pro rata model: Let’s say you pay for a monthly Spotify membership and during the month of April, you do not stream Katy Perry at Spotify at all. But if Katy Perry’s music accounted for 8% of Spotify’s overall streams that month, she’ll receive 8% of the royalties pool, including money from your subscription.

Or let’s say your favorite band is Silver Pineapple. 40% of your month’s streaming activity was listening to them. Silver Pineapple will not necessarily see payments that equal 40% of your subscription payment. They will get a portion of the royalties pot, but the portion will be based on the percentage of streams they received out of all of the user streams in the whole platform. After the platform takes their share. The payment to the artist could be much, much smaller than what you thought.

Direct effects from indirect allocations

So in the pro rata model, each individual stream becomes worth less as more streams are counted. The subscription payment a listener provides to these streaming services does not directly get allocated to the artists they enjoy.

The reality is pro rata streaming models favor the most popular artists on the platform. They typically skew benefits towards major labels and paid-for features. This may include artists that don’t have as devoted a fan base as other artists, but instead garner more individual streams. Independent artists usually suffer as a result of a pro rata model.

There’s a huge ocean of tracks out there…why can’t you know how much of your payment is going to the creators you listen to? As an artist, can’t you have a say in how much a stream of your music is worth? The music you worked hard to create?

Another way

We at Artistco believe that with our fellow members, we’re developing a fair, transparent, innovative, and user friendly alternative to the other fragmented and unsustainable options available. Creators decide how much it costs to access their audio and video content or if it’s free. They also get a variety of features and tools to help them promote their content as well as connect and communicate with their audience. Fans get a variety of content and ways to engage with creators, including exclusive experiences. It’s free to join, and all members are rewarded for bringing friends who subscribe.

Furthermore, we’re constantly working to improve the platform, increase its capabilities, as well as develop an environment that empowers a broader diversity of creators and influencers. Become part of the solution revolution. Check out Artistco and our other blog content to learn more. Let us know what you think!

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