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Wednesday
Apr242013

How Does Spotify Pay Artists? An Answer That Makes Sense!

 

How much does Spotify pay artists? It’s the biggest mystery in music. One independant artist claims to have received a measly $0.004 per stream. There was a rumor that Lady Gaga only earned $162 from a million streams. Even indie band Grizzly Bear chimed in to express their displeasure with the alleged slave wages of Spotify declaring that they only received $0.001 per stream. Some have even taken to restricting their music from the service altogether. Is it really that bad? are the payments that low?

 

In an interview with Hypebot D.A. Wallach, lead vocalist & songwriter in Chester French who works with Spotify as their “Artist in Residence.”, had this to say:

 

…We make money in two ways. We make money through advertising to free users, who have access to Spotify only on computer. The service is interrupted by ads, and the functionality is a lot like YouTube. There is no mobile option for free ad-supported users, either. Second, we generate revenue from selling subscriptions. In the U.S., a subscription is $120 a year. In the U.K. it is ₤120 a year, and in the E.U, it is €120 a year.

 

We aggregate all of this revenue from these two streams, and distribute back 70% in royalties based on a pro rata share in accordance with the popularity of a piece of music. For example, if one of your songs has been streamed 1% of the total number of streams in a month, you will get 1% of the 70% of royalties we pay out to rights holders.

 

According to D.A Wallach in order for anyone to calculate what artists earn from Spotify, in say a month, a few numbers are needed.

 

  1. Spotify’s revenue for the month

  2. Amount of dollars Spotify pays out to rights holders

  3. Combined number of streams

  4. Their number of streams

  5. Percentage of overall streams a song accounts for

 

Being that Spotify is a private company, we don’t have access to their revenue figures so here’s my hypothetical scenario based on real numbers that Spotify has released to the public. According to PrivCo In 2011 Spotify generated 244 million dollars in revenue. In 2011 Spotify released U.S figures that showed there were over 13 billion songs streamed on Spotify in that year. 13 billion songs streamed doesn’t tell us how many times those 13 billion songs were streamed respectively but we’ll use that number being that that’s all we have.

 

$244, 000, 000/ 12 = $20,333,333 per month (Revenue for the month)

 

70% of 20,333,333 = $14,233,333.1 (Amount of dollars Spotify pays out to rights holders)

 

13,000,000,000/ 12 = 1,083,333,333.333333 per month (combined number of monthly streams)

 

20 streams X 100/ 1,083,333,333.333333 = 0.00000184615%  (artist’s percentage of monthly streams)

 

0.00000184615%  X 14,233,333.1 = 0.26276867902 (artist’s royalties)

 

0.26276867902/ 20 = $0.01313843395 (artist’s per stream royalties)

 

So, if an artist on Spotify received 20 streams out of 13 billion and Spotify grossed 244 million dollars, that artist would have earned a little over a penny per stream. It’s pretty safe to assume that the 13 billion songs streamed were listened to more than once and the higher the amount of total streams, the lower the amount of per stream payout for each artist. At the same time, the higher the amount of revenue generated by Spotify, the higher the amount of per stream payout per artist. In addition, Spotify doesn’t accept music submissions directly from artists. As a result artists must submit through digital distribution companies like CdBaby and Tunecore.

 

Some of these distributors charge up to 15% of sales, from what I’ve seem, and have arranged their own rates with Spotify so what an artist can earn through them varies. For instance, from music I’ve released through CDBaby on average I see $0.004 per stream after their 15% deduction. With music I’ve released through a relatively new company called “OneRPM” I receive $0.007 per stream, after their 15% deduction. Artists signed to a label may have arrangements that are far less favorable. Aside from the digital distribution and label fees that are deducted from your per stream payout, A 10.2% publishing fee is deducted as well. What happens to that money? Well, I’ll save that for another post.

 

 

Reader Comments (9)

That is absolutely ridiculous. I can't believe how little these artists get back and still they allow Spotify to make big money off of their backs.

Jenny Dale, CEO at Registry Cleaner Solutions.

May 3 | Registered CommenterJenny Dale

Is it even remotely possible for me to listen to an artist's album, on Spotify, enough for the artist to earn as much from me as if I had purchased the album the ITunes or an independent retailer? If so, approximately how many listens?

The math in this article could have been greatly simplified. The $/stream for 2011 is simply (70% x $244,000,000)/13,000,000,000. There is no need to worry about how many tracks an individual artist streamed to calculate this or to divide by months. The $/stream is about 1.31 cents.

But that's 1.3 cents to "rights holders", not artists. Just like $/CD is to a huge group of entities (retailers and such on top of rights holders), not artists. So let's get into some hypothetical math. Let's say the average person will listen to an artist's new album, with 12 tracks, 15 times in the first year. On Spotify, that equals $2.34 going to rights holders (.013 x 12 x 15) in the first year. On a major label, an artist might receive $1.50 out of the $12 retail price of a CD.

So the real question boils down to how much "rights holders" other than the artist are taking out of that $2.34 (or 1.3 cents per track). Based on artist reports of 0.1-0.7 cents/stream, the middle-men are taking a fat cut, even more than they would for traditional CD sales.

There's one other important fact that's being obscured by all these numbers, and that's the fairness of this model for major label artists vs smaller ones vs true independents. To get the full picture we'd have to know what Spotify is paying for access to these various libraries. Part of Spotify's huge appeal is that you have access to "everything," not just the biggest artists and hits. Paying out for each track streamed on a percentage basis sounds fair and egalitarian, but it doesn't necessarily make sense given the real-world business model. After all, as an end user, I'm paying a flat-fee, not a per-track fee, and Spotify isn't paying per artist, album, or track either for their access.

For the time being, Spotify is on top of the world, but I predict that they won't be the only game in town for long. The egalitarianism of the internet will mean that artists can cut out more and more middle-men (look at Louis CK in comedy as an example) and negotiate with these services directly. While smaller artists and labels will fight for a bigger share of the pie (and possibly develop competing software), major labels will definitely develop their own in-house streaming services as well. Netflix continues to lose a share of its streaming rights to Hulu and Amazon Prime, and other entities are on the horizon. The same thing will happen to Spotify.

This isn't a black and white issue though. Both small independent artists as well as huge names have complained for years that they get almost nothing from CD sales, and it looks like this is being transposed into online streaming services like Spotify. The reason that every artist puts up with this measly paycheck, and this is also the reason that so few refuse to put their music up on Spotify, is that it acts as a free, global ad-campaign for their touring, from which some artists make millions. The money isn't in CD sales or streaming services, it's in the ticket sales and merchandise when they actually go out and perform their music live in concert.

July 15 | Unregistered CommenterHJ

As shit as it seems, you have to take into account all the programs like limewire and the like that allow users to just download the songs for free and pay no royalties at all

July 17 | Unregistered CommenterJames

Also, I don't think Spotify has fully reached its monetization capability of its products. Mobile advertising is still new and monetization usually lags user growth - need that user base before advertisers start to consider allocating their budgets to your platform. As Spotify improves its monetization efficacy, it will be 70% share of a way bigger revenue..

August 1 | Unregistered CommenterSam

I wish I got emailed every time somebody posted a comment. I had no idea you guys had so much to say about it.

August 2 | Registered Commenters f

An article from the Guardian (search "Spotify vs Musicians: 10 things to read to better understand the debate") has summaries of this topic from a lot of different sources. One mentioned that Spotify could end up giving artists more money than an album sale over time, as listeners will play their tracks thousands of times over decades. I hope that's the case, as I want to support my favorite artists.
I want to know more about those "truly independent" artists mentioned. If they cut out the middleman, they're likely to receive much more of a cut, right? Like how much does Amanda Palmer make off of her albums produced by her independent label compared to her previous albums under big labels? Something to research, I guess.

August 17 | Unregistered CommenterSS

Pretty crazy. I don't know, music rights is a huge, complicated mess as far as I'm concerned.

Richard
No More Sad Computer

September 21 | Unregistered CommenterRichard

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