Understanding the Music Industry - Part II: Where the Money Really Goes
Most artists don’t have a lick of understanding of how money actually moves in the music industry - and that’s by design. So much so that if you ask your $220/month AI to give you a clean graph explaining it, it’ll fail. I’d like to shed some light on this arcane topic, partly because it’s exhausting to explain it to colleagues, family, and friends over and over.
A shocking number of people believe that “Spotify pays the artists.” Spotify doesn’t.
Spotify, like any other DSP (Digital Streaming Platform - Apple Music, YouTube Music, Amazon Music, etc.), pays rights holders - not artists. In 90% of cases, that means labels, distributors, and publishers, or some combination of them. But then the money finally reaches the artist... not really.
Every cent an artist earns takes a long and expensive journey through multiple industry layers.
The graph shows a hyper-simplified version of the streaming royalties pathway with ballpark numbers, and it doesn’t apply to performers or use in Film, TV or ads (that’s called Sync). But let’s start at the beginning.
1. The Starting Point - The Music Itself
Every track has two parts:
The recording (master) - owned by a label or distributor
The composition (publishing) - owned by writers and managed by a publisher.
Both generate separate royalties, travel through different collection paths, and get eaten up by different middlemen.
2. The DSPs - The Top of the Funnel
Streaming platforms retain no less than 30–35% of gross revenue for themselves.
That’s contractual and the exact figures are confidential.
Of the remaining 65-70%, roughly 80% goes to the master side (labels, distributors), and 20% goes to publishing (publishers, PROs, MLCs - more on that later).
Here’s where it splits:
Major labels get about 52–56% of total DSP revenue - confirmed through several publicized court cases.
Indie distributors usually receive 45% or less, depending on their contract, while the rest stays in the platform’s pocket.
It’s important to note the trick here - when an indie distributor says they’re giving artists 100% of the royalties, it’s not the same as 100% from a major label. That’s 100% of what the distributor receives after the DSP takes its undisclosed share - and that share depends entirely on the distributor’s deal. It’s a clever piece of small-print marketing.
And when Spotify says “we paid $10 billion to artists,” what they mean is they paid it to labels and distributors who then decide what (if anything) trickles down to the creators.
3. Major Labels and Distributors - The Intermediaries
Once that money hits a label’s account:
The label recoups all costs (recording, marketing, videos, tour support, etc.).
Only then does the artist receive their royalty, typically 15-25% of the label’s net receipts.
And the DIY alternative?
For self-released artists, it’s simpler but often not better:
Distributors keep anywhere from 0-25%, depending on their plan or subscription.
The artist keeps the rest - but also bears all marketing and promotion costs, and rarely gains algorithmic traction.
Either way, the majority of streaming revenue never reaches the artist’s hands.
4. The Publishing Side - The Hidden Maze
Before even paying labels or distributors, DSPs send up to 20% of their revenue to publishing:
US mechanical royalties go through the MLC (Mechanical Licensing Collective).
Performance and international mechanicals go through publishers and PROs (Performing Rights Organizations like ASCAP, BMI, PRS).
And joining these organizations isn’t free.
From there:
Publishers keep 10–25% as admin fees.
PROs split performance income 50% writer / 50% publisher.
Writers ultimately receive around 75–90% of their publishing share after all deductions.
That’s why most songwriters make pennies – even on millions of streams.
5. The Sync Route - Film, TV, Ads
When a song is licensed for visual media (a “sync”), two licenses are paid:
- A master license to the label (or artist, if self-released).
- A sync license to the publisher or writer.
Each side typically receives 50% of the total fee.
Inside those halves, labels and publishers again take their own cuts.
A $10,000 sync might leave a signed artist with $1,500–2,000 once everyone else is done eating.
I’ll touch on publishing, Sync and Performers in more detail in the following articles.
The Problem
After all the “innovation” in the industry, artists remain the least-paid link in a chain built entirely on their work, while every platform and intermediary charges for an automated toll booth.
Freecords is here to flip that. We’re removing unnecessary intermediaries and making the creator the primary beneficiary. Cheers!