On-Demand Music Streaming

Thanks to the advent of the Internet and ever-improving digital technology over the last decade, the digital music industry has gained significant momentum. A wide range of digital platforms—streaming services, downloads, digital media players, webcasters, and more—have grown and consolidated to become major players in an entirely new sector of the music industry. Streaming is one of the most popular digital formats among digital music listeners, with an estimated 92.2 million U.S. streaming users in 2016, according to Statista, an online market data portal.

The trend does not appear to be slowing any time soon. Streaming has taken over as the main source of digital music in the United States. Data from the Recording Industry of America Association (RIAA) shows that total revenues from streaming music grew 19.9% to $8.8 billion in 2019 accounting for 79.5% of all recorded music revenues. Not only is streaming the most popular digital music format in the U.S.–it is also the most profitable.

Americans spent roughly 6.7 billion hours listening to digital music per month in 2016. According to Statista, among the most popular music genres, dance/electronic, R&B/Hip-Hop, and Latin music were more likely to be consumed via streaming services than on physical albums. These numbers continue to rise.

Music industry standards in relation to on-demand music streaming are changing in real time as major players reach various agreements with each other and address the challenges and opportunities of new sources of digital media.

The Meaning of “On-Demand”

On-demand music streaming contrasts with non-interactive webcasting because it is an interactive service, meaning the user is able to listen to any song in the Digital Service Provider (DSP)’s database without any restrictions on time or playback capabilities. The user can pause, skip, rewind, and create playlists—but cannot copy the digital file.

Popular on-demand music streaming services include Spotify, Tidal, SoundCloud, Apple Music, and Bandcamp. In the world of computing, such DSPs are considered “cloud servers,” meaning they operate via remote servers which store data and allow users to access them wherever there is access to the internet.

To date, two tiers of on-demand music streaming exist:

• Advertiser-Supported/“Freemium”: The on-demand digital service provided is free to the listener and supported by advertisements.
• Subscription/Premium: The on-demand digital service provider charges a monthly subscription fee to users, who can listen without advertisements.

Performance Royalties for the Master

The Digital Performance Right in Sound Recordings Act of 1995 instituted a public performance royalty for artists and record labels when certain sound recordings are performed through digital audio transmissions, opening a world of royalty revenue previously only available to songwriters and music publishers.

The 1995 Act only refers to subscription-based on-demand music streaming. However, the Digital Millennium Copyright Act of 1998 extended this right to webcasters offering non-interactive streaming (to learn more about this, visit Non-Interactive Streaming). License rates and terms between DSPs and master copyright owners are decided by voluntary negotiation or compulsory arbitration.

From the DSP to the Record Label to the Recording Artist

On-demand music streaming deals between record labels and Digital Service Providers (e.g. between Sony Music Entertainment and Spotify) typically award the record labels a large percentage of the DSP’s advertising revenue and/or subscription fees, multiplied by the fraction of plays for each master over the number of plays that occur in total on the DSP.

It is important to note that these deals do not occur on a person-to-person basis; a record label will negotiate with a DSP for royalty rates that apply to every artist on its roster. A recording artist may negotiate for better terms separately with the record label in his or her recording contract, but it is highly unlikely that an artist will negotiate directly with a DSP.

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