Digital Music Distribution: Who Gets Paid and How Royalties Work

Until the 1990s, vinyl was prominent, followed by cassette tapes with magnetic tape, a peak in pop culture, and then CDs, offering better sound quality and the ability to skip directly to desired tracks. Today, music distribution is digital: streaming offers an infinite catalog of songs and allows us to listen to any track wherever we are. 

Never more than in the last year have the dynamics of the industry been the focus of numerous debates. From Sangiovanni’s withdrawal from Sanremo to Ghemon’s critical post accusing the music industry of being “polluted by the cult of numbers and sold-out events”, it has become evident how difficult it is for an artist to emerge in the era of figures. Supporting this controversy, a recent study by the Università Cattolica and Itsright revealed that nearly 80% of musicians fail to generate significant income from streaming platforms. 

But how did we get here, and what has changed in today’s music industry? 

Today’s Music Industry: From Spotify Onward

Spotify, the undisputed king of music streaming, was born on April 23, 2006, from the idea of Daniel Ek and Martin Lorentzon, radically disrupting the market and becoming the driving force of the global music industry.

Its success lies in its business model: you can listen to music for free, but there’s also the option to upgrade to the Premium plan for a more personalized experience. Additionally, it offers a seamless, intuitive, and high-quality listening experience.

All other digital music distribution platforms like Amazon Music, Tim Music, YouTube, and Deezer have evolved with a very similar principle.

We also cannot ignore the contribution of innovative social platforms like Reels, Twitch, and TikTok (originally Musical.ly), which combine audio and video, along with User Generated Content (UGC) platforms like YouTube, Twitch, Instagram, and TikTok that allow users to use copyrighted music.

Digital Music Distribution: By the Numbers

Until the early 2000s, physical media were the main source of income for the music industry. Around 2004, however, with the advent of digital downloads and music streaming, things started taking a different turn, becoming the primary source of revenue.

According to the IFPI’s Global Music Report 2024, global revenues in the music industry reached $28.6 billion this year, marking the ninth consecutive year of growth. 62.1% of total recorded music comes from streaming, through both subscriptions and advertising, generating $13.4 billion.

Even in Italy, the situation seemed rosy; 2023 marked a milestone with market growth exceeding the global average at 18.8%, totaling €440 million in revenue. Streaming, with a 16.2% increase from the previous year, remained the driving force, representing 65% of market revenues, totaling €287 million, with over 6.5 million premium subscribers (+9%). Premium platforms proved to be the most lucrative, with a segment growing by 18.4%, surpassing €190 million in revenue.

Who Profits from Streaming Music and How?

Digital music distribution allows artists to upload their tracks to streaming platforms and online music stores. Revenue from this process primarily comes from royalties paid per play, which can vary significantly depending on the platform.

These royalties are divided among:

• Artists: They receive a percentage of royalties generated by their tracks.
• Record labels: If the artist is under contract with a label.
• Distribution services: Some of which withhold a commission on royalties.

Streaming royalties are categorized into two types: subscription audio streams (revenue generated from streaming platform subscriptions) and ad-supported streams (revenue generated from advertising on platforms).

Digital Music Distribution: Agreements Between Parties

Each song is protected by copyright and related rights, ensuring compensation for various stakeholders in music production. In the streaming market, an important role is played by rights management organizations like ASCAP, SIAE, BMI, SESAC, which negotiate with platforms to ensure fair payments based on plays and views. In addition to collecting and distributing royalties to rights holders, these organizations must obtain licenses from music rights holders to operate, defining terms of payment for the use of works.

The main issue lies in the necessary agreements, which are complex and often unable to cover all possible scenarios. Legal disputes and claims for compensation from platforms and users are therefore commonplace.

To address these situations, platforms use recognition algorithms not only to identify and manage unauthorized use of music but also to manage the fair use of content. However, these systems are not infallible, sometimes causing unjustified blocking of legitimate content.

The challenge is thus to find a balance between protecting artists’ rights and the creative freedom of creators.

Blockchain and DLT: Heroes of the Music Industry

It is clear that remunerating rights in today’s music industry is a complex issue. Labels, producers, and copyright holders often keep information confidential, limiting collaboration— a stark contrast to the collaborative approach promoted by the Internet of Things and Industry 4.0.

Blockchain presents itself as an innovative solution: through the use of smart contracts, copyright transactions can be automated and permanently recorded. Each time a song is played or purchased, information on rights and royalties is automatically updated on the blockchain. This enables real-time payments, eliminates intermediaries, and reduces the risk of errors or fraud.

Blockchain also ensures greater transparency, allowing all participants to verify transactions and thereby increasing trust in the system. It is clear, therefore, that blockchain could play a fundamental role, but it requires a cultural shift towards digital innovation and open collaboration among industry players.

Digital Music Distribution: AI Means Business Too

The advanced adoption of Big Data is radically transforming how record labels and platforms operate, altering both production and music distribution.

Through the use of machine learning algorithms and predictive analysis, labels can identify emerging talents and predict the success of tracks. Rights management also benefits from this approach: by analyzing user views and interactions, a fairer and more timely distribution of royalties is ensured. Moreover, data analysis supports the creation of new works that reflect listener preferences.

The user experience also benefits from the use of artificial intelligence, currently integrated into a large number of digital music distribution platforms. Personalized recommendation algorithms align suggested songs with individual user tastes, while targeted communications between platform and user become more efficient and relevant.

AI, Listen to Believe

Today’s music industry seems unable to do without new technologies, as evidenced by these 10 artificially generated songs you must listen to.

• “Synthetic Serenade”: An electronic track with futuristic melodies and hypnotic rhythms.
• “Neural Groove”: A mix of jazz and techno with extravagant improvisations.
• “Quantum Echoes”: An ambient track that seems to come from another dimension.
• “Pixel Dreams”: A sonic journey through digital circuits and luminous pixels.
• “Cyber Symphony”: A virtual orchestra guided by algorithms.
• “Electric Dreamscape”: An electric sonic landscape full of surprises.
• “Algorithmic Beats”: Rhythms generated by complex mathematical algorithms.
• “Code Composer”: A symphony created from lines of code.
• “Binary Ballad”: A digital love song with binary notes.