Why Does Spotify Pay Out Such A Terrible Per-Stream Rate? The Answer Is More Complicated Than You Think

Solo (CC)

Open access to the internet is supposed to allow users to pick and choose what kind of content they’d like to receive, whether it’s mainstream content or content made by independent artists and developers.  This should be even more true in the music industry online.

But apparently, not everything is all fun and games in the music streaming industry, according to Kill Rock Stars president, Portia Sabin.  In a YouTube video titled “Why does internet radio play the same songs over and over,” Portia Sabin makes the bold declaration, “there’s only 6 media outlets that are controlling all of the media that we consume.

The video simultaneously shows the 6 major companies “in control” of this media, which are: Comcast, News Corporation, Time Warner, Disney, and National Amusement, which owns CBS and Viacom.  Sabin defines the term as “payola,” where “you give money or gifts to radio stations in exchange for radio play.” Upon hearing this fact, the sock puppet host Weena gasps in shock, proceeding to ask Sabin, “isn’t the internet supposed to change all this?” before asking hopelessly, “is it, is it doing anything to break up all of this stuff?”

Kill Rock Stars, or KRS, was founded in 1991 with the mission to “[put] out exceptional records by important artists” as well as adhere to the tradition of “being queer-positive, feminist, and artist-friendly.” According to their website, KRS is now “distinguished by being of the few female-run indie labels in the US.”

Going back to Weena’s questions, if the 6 media outlets truly control all of the media that we consume, especially online, is there anything positive about streaming online then?  After saying that the internet has had both its “pluses” and “minuses,” Sabin states that an advantage for indie labels is having access to internet radio companies like Pandora and Sirius XM where “our music really shines” because it’s music “that people really do want to hear.”

How much market share, then, does KRS truly have for its indie artists? “We’ve got like something like 40 percent of that market for the indies” while the three major labels (Universal Music Group, Sony, and Warner Music Group) only have “around 20-some percent.”

So, if KRS has a solid amount of market share for indies, a definite plus, what would count as a minus for indies that stream their music online?  According to Sabin, the internet “has provided a filter, or a, a funnel to take venture capital money and shoot it through right back to the major labels,” with none of that money going into artists’ pockets.  Building on Weena’s displeasure expressed through her groans, Sabin uses Swedish music streaming company Spotify as an example.  Summarizing the company’s history in a few short sentences, Spotify got “hundreds of millions of dollars” from venture capitals just to start-up.

Once they were ready, Spotify went to the three major record labels, asking to license their song catalogs, for the high price that major record labels set. Not only that, but according to Sabin, Spotify, in particular, “also gave the major stock so they have ownership,” leading them to negotiate the stream of $0.00004 that artists get paid.

Why did Spotify do this?  Sabin says “because the advances the majors are not recoupable” leading Spotify to not having to pay “the artist any of that money.

So why do indies have to just support this “terrible” stream rate?  Sabin reasons that because there are only 3 major record labels, Spotify can just go with all of them, as opposed to indie labels, which number around 10,000.  Due to a lack of consolidated representation, before Merlin came along, all Spotify had to do is tell indie labels, “You guys get no advances, but you guys get this crappy per-stream rate.

So what happens, then, with the hundreds of millions of dollars that venture capitals invested in Spotify? “All that venture capital money went right back to the majors.”

Is there anything we can do to change this so that our favorite independent artists get paid more? According to Sabin, “the biggest way listeners can make a change in the music business is, is to learn more about how the music, music business works.” Why? Well, one reason is that, due to the bad PR major labels have received over the years of “screw[ing] over artists,” the common person, you and I, come to associate any and all music labels like the major labels, for example, Sony, who “take [artists’] money.”  The only problem with this stereotype that people tend to have about music labels is that not all of them are “conglomerates.”  Sabin uses Universal as a clear example, saying that since they have “a movie studio [and] production companies,” so if they lose money on the music side, “no big deal because they can go make more movies…” But the cold hard reality of indie labels is, as Sabin states, “if I lose money on my music side, I’m out of business and we don’t eat and we have to lay him off.”

The best solution to avoid this problem and help out independent artists and labels avoid this cold, hard reality is becoming “educated.” Sabin ends the 4 minute show with a plug for her radio show, “The Future of What,” with episodes having brought “expertise from businesspeople, gatekeepers, and analysts,” in order to help normal music fans understand how the music industry truly works.

You can check out the full video below, which is the second part of a three part series.

 

Solo (CC) image by Martin Fisch, licensed under Creative Commons Attribution 2.0 Generic (CC by 2.0)

9 Responses

  1. Mr roo

    Great article. We need more shows like hers to learn. I own a small dance music label, and find it hard to understand sometimes exactly how this game works. I’m gettin there, but videos like this make it so much easier to understand. Thank you Portia

    Reply
  2. Casey

    This was a video with good intent but borders on ignorance and conspiracy theory a little, or possibly just plain naivety.

    First of all, please understand in no way did hundreds of millions of BC money go to major labels, that’s preposterous. VCs don’t just write blank checks and tell a company to do as they please. Yes, the majors make millions from Spotify due to guaranteed minimums and advances but there are lots more expenses and people getting paid. Including the inflated exec salaries as DMN has pointed out.

    The worst thing in the video is this statement though: Why did Spotify do this? Sabin says “because the advances the majors are not recoupable” leading Spotify to not having to pay “the artist any of that money.”

    The answer to why did SPOTIFY pay advances is simply because they had to. Nothing more, nothing less. If it was solely up to them I’d bet money it would go to artists or even homeless shelters. They don’t care, that’s the bottom line. They only pay what they have to, HOW they have to, and to WHO they have to in order to raise money, make money, and grow. What the video should have said there is why do the MAJORS require advances. And then yes, the answer is correct. So they can avoid paying artists.

    I wish after all these years we could start pointing fingers in the right direction. The major labels, publishers, and PROs do not have artists best interests. They don’t function the way indie labels do as the video points out.

    Reply
  3. Musicservices4less

    I think that this can be the start of a great conversation and thank Portia for her video. I my view, there are some inaccuracies or perhaps misunderstandings in many of the points Portia and others who comment here have made. I will focus on a few points (there are many brought up by Portia) and hope there are further comments to my points and others that have been made.
    I think it is important to focus on Spotify as opposed to internet radio because they are two different animals in the music business.
    1. Any record label, major or independent, wants advances if they can get it on any licensing deal. That’s just good business. They way advances work at my label, is when the statements come in from the licensee, we account to our artists and producers based on the data that is contained thereon. Now if you’re accusing the majors of not operating that way, fine, but I don’t know that is a fact in all situations or even a majority of situations. I only know from my own, very long time experience dealing with the majors that in general, they don’t play that game.
    2. It is my understanding of the agreement I have with Spotify, my label is NOT paid at a FIXED $0.00004 cents a stream, otherwise known as a “penny rate.” Rather, we are paid on a complicated formula based on INCOMING ADVERTISING REVENUE. While that may currently average to about $0.00004 per stream, it is by no means FIXED at that rate. If advertising revenue rises, then the payout rate rises as well. And the reverse is true as well, of course. So if Spotify was the only source of revenue for the record industry, we would all live and die with how much advertisers spend with Spotify.
    Am I right or wrong?

    Reply
    • Casey

      Glad you pointed out the problem with saying “fixed,” great catch. There’s so much miseducation and propaganda on both sides being spread around and I wish those with the resources (DMN) would do something about it. But that’s American culture any way so can’t blame them.

      What did you mean by, “I only know from my own, very long time experience dealing with the majors that in general, they don’t play that game.”

      Are you saying you think the majors shared their advances with artists. Because from my knowledge its been well documented that they haven’t. And contractually don’t have to based on some witty legal language.

      Reply
    • Daniel Adrian Sanchez
      Daniel Adrian Sanchez

      You make a great point. It’s great to have feedback from actual people who are working directly with Spotify.

      Reply
  4. Digital Boy

    There are a lot of mistakes in this article. One for example is the fact that Sabin uses Universal as a clear example, saying that since they have “a movie studio [and] production companies,” so if they lose money on the music side, “no big deal because they can go make more movies…”

    Universal Music and Universal Pictures are completely seperate companies – the Music company belongs to VIVENDI and the Movies company belongs to NBC.

    Reply
  5. Musicservices4less

    Hi Casey,
    Are you saying you think the majors shared their advances with artists. Because from my knowledge its been well documented that they haven’t. And contractually don’t have to based on some witty legal language.

    No label that is smart would share advances with an artist unless: the artist contract specifically says so or, the artist confronts the label about it and the label wants to continue to have an amicable day to day relationship with the artist. In my opinion, if the label does follow the contract, it will only lead to trouble, either for the label or the artist. For the artist, the artist will get screwed. For the label, it will go out of business. I know this for a fact. I ( with the equal if not more help from my partner and mentor) have keep my label in business for over 35 years.

    Reply
    • Musicservices4less

      Oops. That part about the label following the contract should have read “In my opinion, if the label does NOT follow the contract, it will only lead to trouble,. . .”

      Reply
  6. Casey Rae

    It’s wild that people ask me if I’ve posted on this or that because of regular commenter Casey. Alas, I am the other Casey and I rarely comment here. Maybe I should start…

    Reply

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