Success from music doesn’t happen overnight — but nowadays, it’s easier than ever for anyone to make and earn revenue from their music without a big label. While it’s true that, per stream, the payouts are low, you’ll see that the right marketing, the right release strategy, the right playlists, and the right PR are all important tools to help you achieve your goals. In terms of Spotify, this means you’ll need to focus on release frequency, stream counts, playlisted songs, and gaining followers. In this chapter, we’ll take a look at how royalties work and tell you everything you need to know about making money on Spotify.
2.1 WHAT'S THE DIFFERENCE BETWEEN MECHANICAL ROYALTIES, PERFORMANCE ROYALTIES, AND STREAMS?
To understand how to make money on Spotify, you have to understand how money is paid out in the music industry. To break it down roughly, there are two sources of income available to you from Spotify:
Royalties from the master rights in the form of income from streams. If you self-release, these are directly transferred to your digital music distributor.Revenue from mechanical reproduction or performance rights paid to the composer, lyricist, and publisher of each song via a collection society (also known as performing rights organization) — such as BMI (US), ASCAP (US), PRS (UK), GEMA (DE), SACEM (FR), SGAE (ES) or SUISA — or publisher, if they have one. In the past, this came from the sale of physical recordings, but nowadays private streams are also included. If you’re not sure what collection agencies are in your country, check out this this list of international collection societies.
How do you know what is what? Take the example of Whitney Houston’s “I Will Always Love You.” Whitney recorded the song with Sony Music, her label, which owns the mastering rights and therefore receives the royalties for streams of the hit song. Likewise, Dolly Parton, who was the songwriter and lyricist, receives the mechanical and public performance royalties via her collection society or publisher.
If you self-release and you write your own material, you are the label and the songwriter. That means you hold, respectively, the master rights and the mechanical/performance rights. Accordingly, you should receive royalties from both sources. Of course, if you’re in a band, you should ideally sort out the splits before you release. If your music was released by a record label, they might own the master rights, and therefore receive the royalties you earn on Spotify, Apple Music, Amazon, and any other platform. Normally, if you are the songwriter, composer, or lyricist, you will receive the mechanical and performance rights from your collection society.
In some countries, platforms such as Spotify have to assign a part of their revenues directly to the collecting societies, such as SACEM in France or GEMA in Germany.
But what happens to the fees collected by the collecting society? Together with other income from, for example, radio and TV plays, these end up on the account of the respective societies and wait there for collection. Again, this is minus the processing costs incurred by the collecting societies.
As mentioned above, collection societies distinguish between two types of income:
Performance feesFees from mechanical reproduction
Performance fees include all income from the public use of music. This includes playing the song on a radio station, in a restaurant, or at a bar. And of course, event organizers must also pay fees to the PROs for live performances.
Whether a membership with a collecting society makes sense for you or not depends largely on your expected income. In some countries, as a member you have to pay an annual membership fee. A membership is especially worthwhile if you expect many streams or radio plays, if your music video is shown on television, or if you have some live performances coming up.
How much the composer, lyricist, or music publisher receives per minute and stream varies from country to country. Some collecting societies like STIM in Sweden, for example, offer relatively detailed information.