our other blogs<\/a>, not every DSP has the same calculation model for royalties. There are basically two different models: the pro rata model and the user-centric model.\u00a0<\/p>\n\n\n\nPro rata model in short:<\/strong>\u00a0income from streams is accumulated and paid out pro rata to all rights holders.<\/p>\n\n\n\nUser-centric model:<\/strong>\u00a0the royalty rate is based on the listening time of individual users; how many tracks a user streams and how many times. If, for example, a user would only listen to 1 track, his or her whole monthly fee would be paid out to that one rightsholder. In the user-centric model, the fan has a high level of influence on who royalties are being paid out.<\/p>\n\n\n\nDeezer is one of the DSPs that has a user-centric model. Several record companies and collecting agencies have been involved in improving these systems.<\/p>\n\n\n\n
Time of year<\/h2>\n\n\n\n
Besides certain seasonal discounts on subscriptions, free tiers have the biggest impact on fluctuating royalty rates per time of year. Take the summer holidays as an example. The ratio between paid and free users of streaming services is different during a summer holiday. Students (who in general account for a large part of free subscriptions) leave campus and spend less time behind their desks generating less revenue on the Apple Music Student tier. Desk research shows that students spend fewer hours on music streaming services during summer break. This affects the ratio of streams generated. The same more or less applies for the holiday season and January; gift cards are the perfect Christmas present and contribute to more revenue in January, which also changes the free \/ paid streams ratio for s short period of time.<\/p>\n\n\n\n
Not only is the number of streams from paid subscriptions slightly higher, but advertisers also pay less for advertising space at times when they reach a lower percentage of their target group.<\/p>\n\n\n\n
Contracts between labels, distributors and artists<\/h2>\n\n\n\n
A side note: this does not affect the payouts from the list above but it is of big importance to artists.<\/p>\n\n\n\n
Record companies sign deals with artists, distributors or aggregators. At each level of the supply chain, a percentage of money is spent on that particular company.<\/p>\n\n\n\n
Example: an artist signs a deal with a record company for 50% royalties from digital sales. That same record company signs a deal with a distributor to deliver the music to Spotify. The distributor charges 15% to the record label, leaving the artist with a little less as opposed to a direct distribution deal. There really is no better or worse scenario here: each level of the supply chain offers its added value.<\/p>\n\n\n\n
One famous example is the dispute between US rapper Eminem and Universal Music Group. Universal claimed that the royalty rate in his contract would not apply to digital sales (as the deal was signed well before digital sales even took place).<\/p>\n\n\n\n
The difference in ad placements<\/h2>\n\n\n\n
The type of ads also influences the royalty rates, for free subscriptions of course. Take YouTube Music as an example. YouTube\u2019s royalty rates are very low, but because of Google Ads, they pay huge amounts of royalties per year (in fact, it is estimated that next year royalty payments of YouTube even surpass those of Spotify).<\/p>\n\n\n\n
Google Ads is an ads program that offers many types of ad campaigns (display, search, shopping, and in-stream video ads to name a few). These many types of ads, and the fact that there are low entry barriers into this ad-buying market, result in very high ad revenue payouts from YouTube.<\/p>\n\n\n\n