How Sustainable Is Streaming Income?

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Guest post from AWAL

This article provides a series of thought experiments to think about basic income forecasting from streaming a bit differently. It is not a tried and tested science. That’ll come later. Enjoy.

*Record scratch* *freeze frame* the music industry at pretty much any point in its history and you’ll uncover the same standard procedure: careers monetized by upfront lump sums, one-off windfalls, and, for the lucky few who recouped, delayed royalty collection.

Artistry (and plenty of professions orbiting it) often attracts those in search of an alternative to run-of-the-mill, 9-to-5 drudgery, but traditional jobs have at least one thing going for them in predictable paychecks. Even today, with a rising number of artists gaining access to daily consumption data, monthly or bimonthly direct deposits, and trustworthy financial reporting, music income remains volatile for many. Few performers, writers, and producers can tell you how last month’s earnings will compare to next’s with confidence.

There’s an entrepreneurial thrill that comes with the topsy turvy nature of getting paid to create what you want, when you want — equal parts adventure and terror. These extremes dominate our attention in pop culture, from the do-or-die hustle of Straight Outta Compton to the ragtag bootstrapping of The Social Network. While the financial unknown is romanticized ad nauseam, day-to-day logistics deserve a little more shine. Exhibit A? Budgets. Boring, stressful, tiresome budgets.

Successful campaigns tend to build upon tentpole moments plotted many months in advance, moments (album releases, music videos, shows) that often require early investment in core activities (recording, filming, rehearsing) with no immediate return. Managing cash flows matters, then, which means an improved understanding of future earnings does too. The tour world offers an easy example: Risk mitigators might place a max ceiling on their upfront expenses (stage design, bus, lodging) to be no more than the sum of the nightly guarantees from that tour, ensuring the run of shows break even.

Recorded music revenues are a different beast. The industry’s widespread adoption of Monthly Listeners as a quick-glance relevance score has fueled back-of-napkin judgments across the board. It’s tempting to multiply an approximated per-stream rate by the previous month’s stream count and assume that product will hold true in the future. That said, failing to account for other factors, like decay rates, repeat listens, and editorial boosts make it far too easy to overestimate future profits. The less you know about what you’ll make in an upcoming pay period, the harder it is to make educated investments (ranging from groceries to tour support) during the current one.

Sustainable Income Percentage

All of this begs the need for a different metric: Sustainable Income Percentage, or the minimum portion of streaming income earned in Month 0 that one can expect to earn in Month 1, Month 2, Month 3, etc. In other words, confidently expecting to take home at least$10,000 next month if you made $14,000 this month.

Prudence is your friend here. Ideally, you’ll always make more and more, but if all else fails, if that radio bid fizzles, you’ll have enough monetary runway to recover when you budget conservatively. Think of it as an indicator of the true value of your streaming audience.

So how do you arrive at this estimate of minimum assured income? It’d require lots of statistical analysis to really have a chance at nailing it, but our estimates can account for the risk of month-over-month decline when we look a bit deeper.

Caveats

It’s worth emphasizing that per-stream rates for recordings (master) royalties vary wildly from DSP to DSP, territory to territory, and month to month, so we’ll use $0.004, a rounded version of a stateside rate reported by Musically at the start of 2019. (You can work out your own rate by looking at your AWAL earnings statements.)

We’ll also emphasize that you shouldn’t run calculations like these during or immediately after release weeks as the numbers skew higher. Managers and collaborators would all traditionally take their share of an artist’s streaming gross, and the distributor or release partner would take their cut from the total revenue they collect from DSPs — variables a comprehensive income forecast would account for.

Last but not least, the calculations below are oversimplified and serve as a starting point for conversation. Let’s jump into an example using anonymized data from a real artist.

The Problem We’re Trying to Solve

• Last Month’s Streams: 9,230,000
• Monthly Listeners: 2,220,000
• Streams Per Listener: 9,230,000 / 2,220,000 = 4.15
• Reported Per Stream Rate: $0.004
• Gross Per Listener: 4.15 x $0.004 = $0.016
• Last Month’s Gross: 9,230,000 x $0.004 = $36,920
• Next Months’ Expected Minimum Gross: [SOLVE]
• Sustainable Income Percentage: [SOLVE] / Last Month’s Gross

We can attempt to figure out [SOLVE] for next month’s minimum gross (what you can expect to make without external support, big marketing campaigns, etc.) by using additional variables as proxies that help us estimate (1) the expected number of future listeners and (2) the expected number of streams those listeners will drive. There’s a number of ways to do this, but we’ll focus on Engaged Listeners and Completed Streams Per Listener.

Again, it’s best to treat the notes below as loose thought experiments meant to encourage the reader to take a deeper look at their own data, on their own terms. Remember: Conservative estimates are usually better than overblown expectations when you’re trying to figure out how much money you have to spend.

Proxy #1: Engaged Listeners

We define engaged listeners as those who make an active choice to play your music, e.g. by clicking on your artist profile, your track page, or your album page, or by playing your music within their own library or personal playlists.

DSP users can overhear an artist’s name in conversation, reactively search that artist’s name in-app, play 40 seconds of that artist’s song, and never listen to that artist again, and still be categorized as an “engaged listener.” For that reason, this proxy isn’t without its shortcomings, but it does help account for an artist’s staying power.

A listener might play a song more than once via a lean-back source, e.g. using a curated mood playlist once a week for eight weeks, but it’s much safer to assume you have their sustained attention if their streams are engaged, simply because they’re making a choice. The choice to listen tends to precede the choice to listen again, so this rate helps us identify those most likely to become repeat listeners. Engaged Listeners, then, help us predict the pool of Potential Repeat Listeners. This artist had 1,050,000 engaged listeners last month. Here’s how the math works out…

• Last Month’s Streams: 9,230,000
• Monthly Listeners: 2,220,000
• Streams Per Listener: 4.15
• Reported Per Stream Rate: $0.004
• Gross Per Listener: 4.15 x $0.004 = $0.016
• Last Month’s Gross: 9,230,000 x $0.004 = $36,920
• Engaged Streams Percentage: 60% (via AWAL Analytics)
• Engaged Streams: 0.60 x 9,230,000 = 5,538,000
• Engaged Listeners: 1,050,000 (via AWAL Analytics)
• Engaged Streams Per Listener: 5.27 (via AWAL Analytics)
• Next Month’s Expected Min Streams: 5,533,500
• Next Month’s Expected Minimum Gross: $22,134
• Sustainable Income Percentage: $22,134 / $36,920 = 60%

On its own, this proxy ends up suggesting that next month’s minimums will equal this month’s engaged metrics, isolated. This gives us a conservative estimate of the number of people who might stick around long enough to generate streams in the future, but is this forecast good enough on its own? Probably not. For starters, even if all engaged listeners do return next month, which is unlikely, how many times might they actually play your music?

Proxy #2: Completed Streams Per Listener

We can try to answer that question by combining the Streams Per Listener (SPL) metric with the Completion Rate, or the % of streams during which the listener plays at least 95% of the song’s length. This is important because folks who can’t complete a song probably won’t listen to it four weeks from now. Those who do, though, might be more likely to continue tuning in.

Usually, we calculate Streams Per Listener by simply dividing total streams by total listeners in a given period. If we divide completedstreams by listeners, we get Completed Streams Per Listener, or the average number of times a user finishes the stuff you make. We can apply a Completed SPL to overall listeners and to engaged listeners. We’ll start with the first one.

• (Total Streams, Month X) / (Total Listeners, Month X) = SPL, Month X

Here’s how this works out in our current anonymized artist example.

• Previous Month’s Completion Rate: 81%
• Previous Month’s Total Streams: 9,230,000
• Previous Month’s Completed Streams: 7,476,300
• Previous Month’s Monthly Listeners: 2,200,000
• Previous Month’s Completed SPL: 3.39

Completed SPL x Total Listeners

This Completed SPL of 3.39 is lower than the overall SPL of 4.15, which will produce a more conservative forecast for next month’s outcomes than the $36,920 we previously calculated for last month’s earnings.

• Previous Month’s Monthly Listeners: 2,200,000
• Previous Month’s Completed SPL: 3.39
• Next Month’s Expected Min Streams: 2,200,000 x 3.39 = 7,458,000
• Next Month’s Expected Minimum Gross: $29,832
• Sustainable Income Percentage: $29,832/ $36,920 = 80%

The problem with total listeners? They include lots of people who don’t actively choose to listen to you, so it’s more of a stretch to assume they’ll be listening down the line when all else is held constant.

Completed SPL x Engaged Listeners

To try and fix this, we can tweak our Completed SPL to account for engaged listeners — those who have made an active choice to hear you — for an even more conservative forecast. Here’s how SPL works in this context…

• (Engaged Streams) / (Engaged Listeners) = Engaged SPL

And here’s how we use a revised Completed SPL in this context;

• Previous Month’s Engaged Listeners: 1,050,000
• Previous Month’s Engaged Completion Rate: 81%
• Engaged Completed SPL: 0.81 x 5.27 = 4.26
• Next Month’s Expected Min Streams: 4.26 x 1,050,000 = 4,473,000
• Estimated Gross, Next Month: 4,473,000 x $0.004 = 17,892
• Sustainable Income Percentage: $17,892 / $36,920 = 48%

By zeroing in on listeners who both (1) choose to listen and (2) choose to finish, we create a smaller pool of potential drivers of future revenue.

Completed SPL: Range of Outcomes

Collectively, the low-end (48%) and high-end (80%) estimates for Sustainable Income Percentage that we used Completed SPL to calculate provide a range of outcomes. The smaller and more accurate the window, the better the forecasting model. The better the forecasting model, the easier it is to make smarter spending decisions and clearly understand your streaming business.

What’s Missing?

This oversimplified exercise holds many variables constant (e.g. new releases, marketing budgets, consumer trends, decay rates) that rapidly fluctuate in reality. A true model would not only incorporate numerous proxies and data sources but also closely monitor how they ebb and flow.

The proxies mentioned here only capture a sliver of possible options. Take Saves, for example, which AWAL Analytics defines as the % of listeners that have added your music to their personal collection. In our artist example, the Saves rate gives us a new, smaller pool of potential future revenue drivers:

• Previous Month’s Saves: 35%
• Previous Month’s Monthly Listeners: 2,200,000
• Number of Listeners Who Saved Artist: 770,000

Saves function across lean-back and engaged listening, which makes this metric a solid representation of the size of the audience that doesn’t want to forget about you, whether it’s a superfan adding a new song to their playlist the second it drops or a runner hearing a track during their break on a Nike playlist. Of course, Saves don’t automatically result in sustained plays: A curious streamer might add a project to their library on a Thursday night, only for it to get buried that Friday during an onslaught of marquee releases from superstars. Even still, few other metrics double as a vote of confidence as much as this one, and for that reason, it’s useful in projecting sustained consumption.

Hopefully, this piece opens the door for your own creative analysis of personal performance. Pick the metrics you want to track, record their changes over time, and explore the relationships that emerge between them. You never know what you might find.

P.S. If you need help figuring out where to spend your available funds, read our five-part Decoded series about smart artist marketing.