Simulating Music Streaming Revenue
Helping to bring financial literacy and sustainability to the music industry
Update 12/26: View New Streaming Revenue Calculator: Here
A little over a month ago, CreateSafe released a much talked about Record Deal Simulator. It was a very interesting tool, and a great step towards creating more clarity in music business practices. However big that step was, the CreateSafe tool does still have its issues (as told by Cherie Hu) and room for improvement. So, some of us at Berklee College Valencia’s Global Entertainment and Music Business Program decided to make our own version. With such quick adoption of the CreateSafe simulator, and some grandiose claims made, it was obvious to us that there is a need for tools like this in the music industry. We want to show that tools like this can be made to handle the complexity of the music industry and still be easily usable by the masses. Check out our streaming simulator here and read a bit about our creation process below.
As Cherie Hu said, “A crucial step on the path to financial sustainability is financial literacy, and a crucial step on the path to financial literacy is financial modeling.” Financial modeling is one of the core learnings in our Berklee Curriculum. Being able to create accurate models that are able to recognize and appreciate the nuances that are so deeply ingrained into the music business. With the help of my finance and law professors, Alexander Perrin and Peter Dyson, we were able to further advance the conversation of clarity and transparency in the music industry by creating a more accurate and detailed streaming revenue calculator.
In order to do that we had to include more revenue streams, more inclusivity of artists, and improved modeling. More details below.
Another Revenue Stream: Music Publishing
If a recording artist also wrote the song they should know all the revenues they are entitled to. For this reason we thought it was extremely important to add Music Publishing to our simulator. Publishing is a great potential revenue source for artists and something that is nowhere to be found in with the CreateSafe simulator, yet.
This added a further level of complexity in the simulator as there are now various publishing deals and more information needed from the user (i.e. are they the writer, recording artist, or both) but it is a necessary addition to get the full picture of potential earnings from streams.
Secondly, we wanted all artists to get in on the fun. Writers, and all recording artists, even those who are not signing “traditional” label deals. Many artists are self-releasing, but they still have costs and goals to earn a living from their work. We thought this could be a valuable tool for these artists as well.
This is why we included additional deal types to include Label Services (like AWAL), and distribution services (like Distrokid) in addition to royalty, net profit, and distribution deals. This will allow artists to see the best deal that could work for them, the costs associated with each, and better clarity on what their music is worth.
Finally, and maybe most importantly, the reason we created our simulator is to have our math rock solid. Record Deal terms and mathematics have a lot of quirks that are difficult to wrap your head around. Don’t worry I will not try to explain all of them here, but I do want to highlight some important tweaks we made, that are lacking with the CreateSafe Simulator.
- Advances are earnings, not costs!
Advances for us are guaranteed revenues, not simply pushed to side as a cost. This is one of the main reasons artists still sign record deals, and why labels can justify taking the splits they do. For our tool, we position advances as they’re supposed to be, pre-earned revenue that is drawn against the artist’s earnings.
With CreateSafe, placing advances as a cost, leads to a warped sense of what your costs and earnings are, and minimum streams needed to “earn” money. This methodology has labels splitting the “advance costs” with the artists, essentially letting the artist off the hook for paying back half of their advance 😬. (See CreatSafe’s response)
2. Accurate value of a stream
It is crucial to know the exact value of a stream is to get an accurate idea of potential earnings. Having a slider were users can pick the value of stream can inflate or deflate the value of someones work by a significant amount. Our Simulator takes the average payout of the biggest streaming services and weighted it against the copmany’s market share. This lead to a weighted average value of a stream to be worth $0.002. There is, however, the abilty for users to pick which DSPs they want in their calculations. For example, removing Youtube’s free tier — average payout of $0.0003 — from the calculation increases the weighted average worth of a stream 85%, to $0.0037. This might loose streams, but increase revenue. Again giving the artist a better picture of their songs’ value.
Check out the Streaming Revenue Estimator, which is available on google sheets (for now!). Let’s continue to peel back the curtain of the music industry, and continue the conversation by letting us know what you think!
Created by: Nikhil Anand (Graduate Student at Berklee College), Alexandre Perrin (Finance Professor at Berklee College), & Peter Dyson (Law Professor at Berklee College)