royalties

There is a growing contingency of artists who have joined the Anti-Spotify club — Beck, Foals, David Byrne, Grizzly Bear, and Thom Yorke are all members. Complaints with Spotify range from disgust over shoddy sound quality, to annoyance with obnoxious advertising, to the overarching accusation that artists might not be making much money from the service. Spotify does pay artists, but the way funds have been distributed since the Swedish company extended services to the U.S. in 2011 has remained a mystery.

Today, Spotify explained their royalties distribution in a basic equation (pictured above). The company claims that approximately 30% of the revenue generated from an artist’s catalogue stays with Spotify, while the other 70% is handed over to the rights holder (labels, publishers, distributors) who are then charged with paying out their artists.

Once Spotify has paid a rights owner the total royalties due for their accumulated streams, that label or publisher pays each artist according to that artist’s contractual royalty rates. This will likely also take into account other factors including recoupment status, which is one reason that different artists in different deals might ultimately receive different royalties from their respective labels and publishers.

Independent artists can retain up to 100% of their royalty payouts from Spotify by using one of our aggregator partners such as Tunecore (a small fee may apply).

In the great debate over Spotify, supporters have been patting themselves on the back based on the assumption that Spotify pays royalties per stream, which turns out to not be the case. The number of times a song is streamed does influence the amount of money that an artist generates for the rights holder, but independent contracts dictate what percentage an artist actually receives. Spotify answers that the revenue generated from a single stream is, essentially, chump change.

Recently, these variables have led to an average “per stream” payout to rights holders of between $0.006 and $0.0084. This combines activity across our tiers of service. The effective average “per stream” payout generated by our Premium subscribers is considerably higher.

So, if you invest in a Spotify Premium account, “you” are technically paying artists more than anyone who is using the service for free, which makes sense. It’s hard to get through a single album stream when you have to listen to an advertisement every couple of tracks — a premium user undoubtedly listens to content at a higher rate than a non-subscriber. This is Spotify’s end goal: To have a high percentage of subscribers paying for content alongside a growing number of non-subscribers, which in turn, will generate more revenue for rights holders.

These are Spotify’s top ten most-streamed songs of 2013:

1. Macklemore & Ryan Lewis – “Can’t Hold Us”
2. Avicii – “Wake Me Up”
3. Macklemore & Ryan Lewis – “Thrift Shop”
4. Daft Punk -”Get Lucky”
5. Imagine Dragons – “Radioactive”
6. Passenger – “Let Her Go”
7. Robin Thicke – “Blurred Lines”
8. P!nk – “Just Give Me A Reason”
9. The Lumineers – “Ho Hey”
10. Calvin Harris – “I Need Your Love”

Read the report for yourself here.

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Comments (21)
  1. Unless I’m missing something, it seems to me that Spotify is being fair here. They’re not allowed to pay the artist’s directly, and how much the artist is paid ultimately dependent on whatever deal that artist has previously negotiated with their record label. I understand that it’s still not a good business model for artists in and of itself, but some of the critics of Spotify have been accusing the company of basically stealing revenue and laughing all the way to the bank. But keeping 30% of the revenue does not seem ridiculous to me at all. In fact, it explains why the company has lost money every year since its creation.

    • 70% is much better than most bands get out of a traditional record label deal (~20+/-% is common). The obvious problem is that when you multiply .7 * .2 you get the tiny royalties that people have been complaining about

      • It seams obvious to me the problem is with record label deals ripping artists off. Today its so easy to build hype and distribute music online, it seems grossly unfair for record labels to demand so much of the money.

        Think about what would happen if Spotify started their own label. They could release albums through their own servers, cutting out the middle man and paying the artists substantially more.

        I’m sure there are a a lot of important things that record labels do that a naive, uninformed person such as myself is neglecting here. But in 2013 do record labels really need to take such a large percentage of music revenue? I feel like record labels have been aggressively lobbying to promote this idea that musicians don’t get paid because of online pirating or sites like Spotify or Pandora or even Youtube, but at the end of the day the labels always seem to be the ones with most of the money in their pockets.

        I don’t want to be another useless person complaining online about things that may or may not be worthy of criticism, but I seriously would like to know: Do record labels deserve the money that they typically take from artists?

    • Absolutely agree. Spotify are offering a perfectly decent deal. The problem – as it’s been since the beginning of the music industry – is the record labels screwing the artists.

  2. “… based on the assumption that Spotify pays royalties per stream, which turns out to not be the case.”

    Weird that you’d say this under a diagram that shows that they do, in fact, pay royalties to publishers per stream, exactly as everyone suggested they did. Spotify doesn’t pay artists directly, sure, but neither does Wal-Mart or iTunes.

    • What they are saying is Spotify doesn’t pay a specified amount per stream, they pay based on the artists percentage of the total overall streams. Those two are different… say you increase your streams from 1M to 2M. Under the pay-per-stream method you would get twice as much in royalties. But under the percentage model, if every other artist also doubled their streams, but Spotify’s total revenue didn’t double, you would end up with less than twice as much.

  3. What the shit does that graph mean with “the royalties we expect to pay out per month for these same right holders when we reach a similar scale to Spotify’s most mature markets”? Regardless, this model is here to stay, and their payout seems reasonable. I really doubt any artist getting “screwed” by Spotify would be more profitable if the service didn’t exist.

    • That graph shows the royalty payout to an artist’s publisher currently (light green), and what the payout would be for a similarly popular song if Spotify were to hit its own company goal of 40m paid subscribers (dark green).

  4. Props to Spotify for being so open with their model. Hope this shifts some of the focus of the discussion to the publishers and their payout rates to artists, because from where I stand, keeping only 30% of their revenue seems pretty fair on Spotify’s part. Providing a service like theirs to millions of people isn’t free.

  5. Your move Thom…

  6. Spotify is taking 30% of value from artists and labels, is another way to look at it.

    It’s not like Spotify is being generous by returning 70% of revenue to rights holders. Spotify is not generating their own value besides creating the architecture for a streaming service (which by the way, they’re riding the coattails of Facebook for user accounts). They do not create (significant) content or value.

    Of course, album sales have been declining before Spotify got in the game. I’m not really able to crunch the numbers to say if Spotify has accelerated the decline for sales for artists and labels and rights holders, but I very much doubt that Spotify revenues are more than the expected sales revenue.

    Artists and labels should be fighting for better deals or better venues to distribute their music. Why should fans care about a bunch of techies in Sweden looking for their cut?

    • I don’t disagree with anything you said, but I think one of the big benefits of Spotify you miss is that it makes it makes it a lot easier for people to discover new music. When anyone with an internet connection and a Facebook account can listen to any song they want for free and get suggestions from friends and other people with similar taste, it can help artists reach an audience that the traditional model wouldn’t have. This benefits the artists who don’t get played over and over again on the radio. I’ve discovered many artists this way; I may have stumbled upon them eventually but Spotify made it easier. This has lead to me buying concert tickets and even records that I likely wouldn’t have without the service.

    • “Spotify is not generating their own value besides creating the architecture for a streaming service (which by the way, they’re riding the coattails of Facebook for user accounts). They do not create (significant) content or value.”

      …what?

      According to the NY Times, in 1995, “when a CD is sold, 35 percent of the retail price goes to the store, 27 percent to the record company, 16 percent to the artist, 13 percent to the manufacturer, and 9 percent to the distributor.” (source: http://www.nytimes.com/1995/07/05/arts/pennies-that-add-up-to-16.98-why-cd-s-cost-so-much.html?pagewanted=all&src=pm)

      I might be mistaken, but I don’t recall anybody complaining that record stores were keeping too much money for themselves in the 90s. Furthermore, back in that pre-digital golden age of record sales, rightsholders were only keeping 43% of CD revenues. That’s less than half! On Spotify, rightsholders keep 70% of revenue.

      You’re right, Spotify is not being generous in paying 70% to rightsholders. Nor, however, are they being somehow unreasonable in keeping 30%. That’s less than a physical store kept in the 90s, and it’s significantly less than the store and the distributor kept combined. If you were right and building Spotify wasn’t worth anything, then the record companies wouldn’t have agreed to this revenue scheme in the first place. They would have laughed those techies out of the room, slapped together their own service, and called it a day.

      But they didn’t. They saw value in Spotify, and they agreed that that value was worth 30% of revenues. You might argue that record companies were forced to agree to this by the current environment, to which I reply: yes, duh, welcome to capitalism. When nobody is willing to buy music any more, whoever builds the biggest streaming service will be king.

      Artists and labels are fighting for better deals and better venues to distribute their music. The labels weren’t forced at gunpoint into this agreement. They got the best deal they could in the market that existed. If you ask me, artists should spend more time overhauling the record labels and less time complaining about the current version of the record store. Fixing the labels will produce far, far more money for artists than getting Spotify to drop its rate ever will.

      • Yes, the labels weren’t forced into this, of course there’s no disagreement there.

        The current version of the record store though? That is not correct. The distribution is not the same. The labels aren’t selling product to Spotify which it turn sells it to the audience. Spotify is selling the Spotify product to the audience, turning around and sharing it with the labels. It’s a different dynamic.

        It’s also a dynamic generating less revenue than the record store model, and probably cannibalizing sales revenue. Like the Internet in general, it’s a value black hole.

        “When nobody is willing to buy music any more, whoever builds the biggest streaming service will be king.” And we will value the tech king more than the artists and labels, I suppose.

        • So if Spotify isn’t the current version of the record store, maybe it’s closer to being the current version of radio. When a song is played on radio, the artist receives NO performance royalty. So any payout is better than nothing, right?

          Now, this is obviously not a perfect comparison, as radio doesn’t play songs on demand, but keep in mind that when you bought an album in the pre-digital age, the artist got a lump sum and that was it. With Spotify, the artist receives a royalty for every play for years to come. That’s what they call the long tail. Internet radio doesn’t pay much now, but as it scales, more subscribers + more plays = more royalties.

          Everyone needs to keep in mind that this is still a very new market that is far from mature. The hope is that this maturity will help everyone from streaming platforms, to labels, to artists.

  7. 70% goes to the rights holders – if that’s your label, too bad for you the artist. 30% is a good deal for distribution – covers their overhead and gives them a small profit. Radio, ASCAP/BMI licenses (like for music in a store), jukeboxes – bet none of them ever paid 70% of gross to rights holders. And streaming pays better than any label deal ever did in the CD/LP era.

    If you sign a bad deal with a label, it’s no one’s fault but your own.

  8. Find me an indie niche artist that makes 3K a month from Spotify streams and I’ll start to believe this

  9. Indie Niche Artist = Coldplay

  10. What you are not getting in this graph is how Spotify ventilates royalties per artist. And that’s really the key. You see, if a Major label artist gets a larger share on average per play than an independent, that 70% overall ratio does not translate for smaller bands.

    So overall the match might be that spotify gives away 70% of their revenue, but for independents it’s not 70%, pay per stream is weighted towards the labels or artists that generate the most streams.

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