How Streaming Royalties Are Paid: Pro-Rata vs User-Centric

Stream a song once on a paid plan and a tiny slice of your subscription lands with someone. The surprise is who. Under the most common payout system, your monthly fee does not go to the artists you played. It goes into a shared pot, and the pot is divided by popularity. That single design choice explains most of the arguments about streaming money, from small artists complaining about pennies to labels pushing for new rules.

This guide explains how the main payout models work, what changed on Spotify in 2024, how SoundCloud and Deezer tried alternatives, and what it all means for you as a listener who wants your money to reach the music you love.

Where the money comes from

A streaming service earns revenue from two places: subscriptions and advertising on free tiers. It keeps a share and pays out the rest to rights holders, which means labels, distributors and publishers, who then pay artists according to their contracts. So there are really two questions: how the service splits money between rights holders, and how those rights holders split it with the people who made the music.

There is also a split inside the payout. Every song has two layers of rights: the recording (the master, usually controlled by a label or distributor) and the composition (the song as written, handled by publishers and collecting societies). A stream generates money for both, through different channels and at different rates. When someone quotes a "per-stream rate", they are almost always describing only one of these layers, and often a blended estimate from a distributor rather than a number any service publishes.

This is why you should distrust any single figure such as "an artist earns X per stream". The amount changes with the listener's country, the plan type, the month, the distributor's cut and the contract. A fair summary is that a stream does not have a fixed price. It is a share of a pool.

Pro-rata: the pot model

Pro-rata is the standard model. The service collects the money for a period, sets aside the royalty-bearing portion, and divides it by each rights holder's share of total streams on the platform. If one artist accounts for 1% of all streams in a month, that artist's rights holders receive 1% of the pot.

A simple, invented example shows the effect. Imagine a service with two subscribers and 100 streams in total:

• Listener A pays the full fee and plays one pop superstar 90 times.
• Listener B pays the same fee and plays a local folk duo 10 times, but nothing else.

Under pro-rata, the superstar earns 90% of the pot and the folk duo 10%, even though Listener B paid exactly as much as Listener A. Listener B's money has partly subsidized the superstar. This is the core criticism, and a German study co-authored by Sönke Albers describes it as users sometimes subsidizing artists they never listened to.

Pro-rata has defenders. It is simple to run, easy to audit and it treats every stream as equal. A stream from a casual listener counts exactly as much as one from a devoted fan, which some people see as fair. It also scales without needing per-listener accounting for every payout.

User-centric: your fee follows your listening

The main alternative is user-centric payment, sometimes called fan-powered or per-subscriber. Each listener's fee is split only among the artists that listener played. In the example above, Listener A's money goes to the superstar and Listener B's money goes entirely to the folk duo. The folk duo now earns 50% of the pot instead of 10%.

In real life, the difference is much smaller than in this extreme example, because most listeners play a mix of popular and niche music. Modeling studies summarized by industry commentators suggest the shift would move something like 1% to 5% of payouts away from major-label catalogues toward independent and niche artists. The same summaries note that some genres, including hip-hop and rap, could lose under user-centric payment, because their fans tend to stream heavily. Universal Music Group has argued that switching might just replace one set of biases with another.

The practical objection is complexity. Heavy listeners and light listeners would carry very different weight per stream, and every subscription would need its own accounting. That is workable for a service with a few million listeners and harder at global scale.

SoundCloud's experiment

SoundCloud launched Fan-Powered Royalties in 2021 and is the best-known live example. Each fan's subscription or ad revenue is directed to the artists that fan listens to, with listening time deciding the shares. Early coverage by Hypebot noted that it did not apply to every artist at launch, and that eligibility depended on the artist's SoundCloud plan, with some distributors excluded.

Eligibility and fee rules have been revised since, and sources disagree on current details, so anyone planning to earn money there should read SoundCloud's current help pages. Two points stay useful for listeners. First, the model only covers music that has been monetised on the platform. Second, uploads such as unofficial remixes, mashups and DJ sets are generally outside it, which matters because those are a big part of why people use SoundCloud.

Artist-centric: Deezer and Universal

Deezer took a third path. Its artist-centric system, launched with Universal Music Group in October 2023, keeps the shared pot but changes how streams are weighted. As described by distributors and industry press, it boosts streams of artists who reach 1,000 streams a month from at least 500 unique listeners, and gives extra weight to tracks that a listener actively searched for compared with tracks that arrived through algorithmic suggestions.

That last detail is the interesting one. It treats intent as a signal: a song you typed into the search bar counts for more than one that autoplayed after your last album. Whether you like it or not, the system is a bet that deliberate listening deserves more reward than passive listening. It also ties into how recommendation engines shape what we hear, a topic covered in how music recommendation algorithms work.

Some commentators argue the label "user-centric" is wrongly applied to Deezer. It is a redistribution within a pool, not a per-subscriber allocation, so it is closer to a tweaked pro-rata than to the SoundCloud model.

What Spotify changed in 2024

Spotify stayed with pro-rata but changed the rules for who gets paid. It announced the changes in November 2023 and they took effect on April 1, 2024:

Change	What it does
Minimum streams	A track needs at least 1,000 streams in the previous 12 months to generate recorded-music royalties
Unique listeners	A separate unique-listener minimum applies, and Spotify has not disclosed the number to limit manipulation
Functional noise	White noise and similar tracks must be at least two minutes long, so one royalty-bearing stream now replaces what used to take four 30-second plays
Artificial streaming	Labels and distributors are charged per track when flagrant fake streaming is detected

Spotify's stated reasoning is that 99.5% of all streams already go to tracks with at least 1,000 annual streams, so the threshold affects little of the total money, and that the funds not paid out on tiny catalogues stay in the pot for artists with real audiences. The company projected about an extra $1 billion toward emerging and professional artists over five years. Critics reply that the many artists below the threshold lose small amounts that matter to them, and some analysts doubt the changes will reduce fraud. The rule covers recording royalties only: publishing royalties are still paid below the threshold, according to RouteNote.

What this means for listeners

You cannot change a service's payout model, but your habits still count. Streams are the unit of money under every system above, so a few concrete behaviors make a difference.

Make your plays deliberate

• Search for and play full albums by artists you like, instead of letting autoplay finish your session.
• Save and replay songs you love. Under user-centric systems repeat plays from you direct your money; under pro-rata they still add to that artist's share.
• Follow smaller artists and join their mailing lists, which usually pays more than streaming does.

Pay outside the stream when you can

Money spent directly tends to reach artists with fewer layers in between. Bandcamp purchases, merch, tickets at small venues and direct support pages all pay the artist or their label without the pot dilution. A single album purchase can equal a very large number of streams, though the exact comparison varies by artist and distributor.

Use platforms that fit your taste

If you mostly listen to independent producers, DJ mixes and niche scenes, a platform built around user-centric payment or direct sales may route your money more precisely than a pooled model. If your listening is dominated by chart music, the difference between systems is small. Either way, understanding the format of what you hear, including how loudness normalization changed mastering, shows how business rules reshape music itself.

Try this in your own library

Pick the five artists you played most in the last month and look up how each one releases music. Do they sell on Bandcamp? Do they tour small rooms? Do they have a mailing list? Then buy one album or ticket from the smallest of the five.

It takes ten minutes, and a single direct purchase can do more for that artist than a year of your streams. Do it once and you will hear how differently you treat the songs you have actually paid for.

If you make videos, the same pooled-versus-direct logic applies to the music you license, which is covered in music licensing for video creators.