Music Licensing and Streaming Services

Ethan Wanderi is a musician who creates mostly vocal-heavy, jazz-inspired music, categorizing it as R&B/soul, though he does not want to be boxed into one genre, as he likes to take a free-form approach to creating music. He is a third-year student at the University of Maryland, College Park studying Fire Protection Engineering. He began creating music two years ago, after the beginning of the pandemic, and has been steadily growing his catalog of music and “building up a music resume.” Ethan arranges, composes, records, mixes, and masters his music on his own, which means that he owns the copyrights to his musical compositions and sound recordings. Ethan also distributes his music on several popular streaming services, such as Spotify, Apple Music, SoundCloud, and Bandcamp.

DistroKid

Ethan mentioned using the music distribution service/company “DistroKid.” Distrokid is a service for musicians that places their music onto popular online stores & streaming services. Once people listen to their music on those services, DistroKid receives money from the streaming service company, and disburses earnings to the artist. DistroKid has been a popular choice amongst smaller, independent musicians. The main appeal comes from the way DistroKid operates: it requires artists to pay only $19.99 per year to be able to use their service, and allows artists to keep 100% of their incoming royalty payments from streaming services (minus fees from special licenses, PayPal/third-party transaction fees, etc.).

DistroKid Legal Matters

Artists using DistroKid’s service agree must agree to DistroKid’s Terms of Service and Distribution Agreement, which can be found here: https://support.distrokid.com/hc/en-us/articles/360025352813-What-is-DistroKid-s-Terms-of-Service. We examined those legal documents and found the following interesting provisions: 

“DistroKid does not claim any ownership rights with respect to your User Content. By uploading, publishing, modifying, displaying or otherwise submitting User Content to any part of the Services … you automatically grant … to us, as well as to other users of the Services, a non-exclusive, transferable, fully paid, worldwide license to use, copy, reproduce, publicly perform, publicly display, communicate to the public, stream, listen to, make available, reformat, translate, excerpt (in whole or in part), transmit, re-post and distribute such User Content for any purpose on or in connection with Services.” (DistroKid Terms of Service)

• What this means:  Under copyright law, musicians who create their own music have the following exclusive rights: reproduction, preparation of derivative works, distribution, public performance (physical and digital), and public display. Through the above language, DistroKid states that it will not claim ownership rights of the user’s content (music). However, the artist grants DistroKid a license to essentially reproduce, display, and make publicly available the uploaded User Content. The former point is pivotal because it lets the artist know that their work will be protected, and not claimed by DistroKid. The latter point tells us that the artist gives DistroKid a lot of rights, however, this is necessary: DistroKid needs these rights in order to place the music onto streaming services, and put the music into their systems/database (reproduction, display).

“We offer a service to help you obtain licenses for recordings of cover versions of musical compositions, but you must opt-in to and register for that service if you upload any cover versions to us. Your recordings of cover versions will not be available in any digital store until DistroKid receives notice that the appropriate licenses have been cleared." (DistroKid Distribution Agreement)

• What this means:  Musicians who create cover songs and seek to distribute them through DistroKid have to obtain a particular type of permission (a license) from the original songwriters in order to put their cover songs onto streaming services.  These licenses are called mechanical licenses. “Whenever you release a recording of a song that someone else wrote in an audio-only format, even if it's just a small portion of the song, you need a mechanical license. Mechanical licenses are most commonly used for cover songs - new recordings of you or your band performing the copyrighted song. For example, if you release a record of your band playing a Prince song, even if you use only a portion of the song, you need a mechanical license.”  (See https://support.easysong.com/hc/en-us/articles/11650058060307)

DistroKid in fact requires that artists who create cover songs obtain the required mechanical licenses through DistroKid.  The DistroKid Help Center website (which can be found here: https://support.distrokid.com/hc/en-us/articles/360013659693-Why-Am-I-Required-to-Purchase-My-Cover-Song-License-Through-DistroKid) states, “[I]f you already have a license to distribute the cover song? Sorry, but you still must opt into DistroKid's license anyway. The reason is because we have no way of confirming that the original songwriter is getting paid their legally-required share--unless we're the ones paying them. Not opting covers into DistroKid's cover song licensing program can lead to streaming services taking down your content--or worse--songwriters taking legal action.” DistroKid is making sure that the required licenses are obtained for cover songs to avoid copyright issues with other musicians and their labels.

We asked Ethan about his experience with cover music policies: 

Users of music streaming services might think that the subscription fees they pay go directly to the artists they listen to. “In reality, your subscription fee is combined with the fees of all other listeners and then divided among artists based on their percentage of overall streams. If, say, Drake is responsible for 1% of all streams, he receives 1% of all revenue.” (See: https://northwesternbusinessreview.org/spotify-and-small-artists-why-small-artists-struggle-to-make-a-living-on-the-platform-b266eda13f4f.) This quote describes Spotify’s pro-rata, proportionate revenue model. 

Spotify’s model for paying artists has been criticized by the small/independent artist community. Although the model may seem fair, Spotify’s pro rata revenue distribution system disproportionately affects small/independent artists. The above-cited article described the issue as follows:

“Consider two listeners who both subscribe to a platform.… One subscriber plays mainstream music in the background all day and the other only listens to niche music in the evenings. The first subscriber might represent 9,000 streams per month, while the latter represents only 1,000. If both subscribers pay $14 per month, of which $10 is distributed as royalties, then the pro rata revenue model will allocate 9/10 of the total revenue (i.e. $18) to the mainstream artists and only 1/10 to the more niche artists. 80% of the revenues generated by the second subscriber’s subscription fee go to providers of music that they never listen to.”

Bandcamp: A Better Route?

Ethan mentioned how releasing music on Bandcamp is likely the best route for smaller artists to take when releasing music online. According to Bandcamp, 

“[O]ur share is 15% on digital items, and 10% on physical goods. Payment processor fees are separate and vary depending on the size of the transaction, but for an average size purchase, amount to an additional 4-7%. The remainder, usually 80-85%, goes directly to the artist or their label, and we pay out daily.”  (https://bandcamp.com/fair_trade_music_policy) 

This excerpt from Bandcamp’s “Fair Trade Music Policy” explains how they give money back to artists. Bandcamp users have the option to directly purchase music on the platform, rather than buy a general monthly subscription. Artists are then paid directly from the purchases of their music. We can see that Bandcamp may be more beneficial to smaller artists, due to their practice of taking a smaller share of the artist’s revenue, and not following the subscription model that platforms like Spotify utilize. 

Overall, Bandcamp’s overwhelming support of the smaller artist/band community is what leads artists like Ethan to favor them when seeking to make the most amount of revenue online, over platforms like Spotify, Apple Music, and SoundCloud. Spotify’s model of distributing revenue to artists disproportionately affects smaller artists, and lets larger, more mainstream artists collect a larger share of stream revenue. Thus, it is likely that smaller artists will end up better compensated on services like Bandcamp.