In an exclusive interview with Spotify Founder and CEO, Daniel Ek, Digital Music News has learned that Spotify will soon be completely changing their per-play streaming rates. As of April 1st, all future plays on Spotify will earn musicians $1 per stream.
You heard right.
Here is the bulk of our conversation:
DMN: So you have a big announcement to make Dan? Can I call you Dan?
Ek: Daniel is good.
DMN: So, what’s the big announcement Danny?
Ek: I wanted to reveal this to Digital Music News first because you have been so supportive of our service since the beginning.
DMN: Our pleasure.
Ek: We are so excited to announce that we are completely removing the confusion from the current payment structure and are going to pay all musicians $1 per stream. Or about three quarters of a euro.
DMN: Hold up. I thought I heard you say one dollar per stream? As opposed to the half a penny they get now?
Ek: Well, Spotify is currently paying out about six tenths to eighty-four hundredths of a cent right now. So a bit more than half a penny, but you are correct. It will be about 138 times more than we currently pay out.
DMN: How can you afford to do this? Won’t this bankrupt Spotify?
Ek: Well, to be honest, we’ve been experimenting with payment structures since the beginning and really haven’t turned a profit with our current system, but we have been taking a lot of flack from musicians and bloggers. We’ve always paid out 70% of all the money.
We just got $700 million in new funding and we thought that we would use that to support the artists that make our service possible. With the positive buzz that will inevitably come from this major announcement, we predict 250 million active users and 60 million subs by the end of this year.
DMN: When you say paying musicians a dollar per stream, you really mean rights holders? Like major labels?
Ek: Well, actually, the only ones who will not benefit from the new pay structure will be the major labels and their distribution affiliates. The contracts we have with the major labels won’t conclude until September of 2016.
DMN: Why so far out?
Ek: They actually chose that date when we first drew up the contracts.
DMN: Can you reveal those deals?
Ek: We haven’t been able to share any details for a very long time because of the NDAs we signed, but those NDAs concluded this past week. Yes, the labels own some equity in Spotify.
DMN: Can you reveal how much?
Ek: (laughs) I’ve been dodging this question for years because of the NDAs, but now, I guess I can. Every deal is slightly different, but the majors collectively own about 22% of our net earnings.
DMN: Net earnings?
Ek: Well, they haven’t seen any revenue other than what their songs have earned because we haven’t been profitable yet. They’ve been earning their standard streaming revenue.
DMN: So what will their new rates be?
Ek: Their rates will stay the same until September of 2016.
DMN: So what you’re saying is, independent labels and self-distributed musicians will earn $1 per stream, but the major labels will continue to earn only about a half a penny per stream?
DMN: I imagine they’re not ok with this.
Ek: Well, the majors kind of strong-armed us into unfavorable deals in the beginning. But we had to agree to them to get their catalogs. I knew Spotify had no future without the major labels’ catalogs.
“I’d been hearing that the majors weren’t passing along most of the money we paid them to their artists. And I got fed up. I figured, if we’re not going to be profitable in the near future, why not take the new seven hundred mil we got in our latest round of funding and give it back to the musicians who make our service possible. The majors asked for revenue sharing, and they got it. But if we aren’t profitable, then they won’t be either.” – Daniel Ek, Spotify CEO
DMN: Can’t they pull their artists’ catalogs from Spotify?
Ek: Actually no. In the contract it states that once they send a song to Spotify, they agree to keep it up for a minimum of 3 years.
DMN: What about new music?
Ek: We’re hoping that musicians will be our bullhorns and convince their fans that, yes, we do care about musicians and this is the most profitable service out there.
DMN: But couldn’t musicians just sit at home and put their songs on repeat for hours on end and make a living that way?
Ek: I suppose, but I don’t have a problem with that. If a musician takes the time to create music and upload it to Spotify, then why shouldn’t they earn some money from it?
DMN: Isn’t that kind of gaming the system?
Ek: Well, the music that gets played more will earn more.
DMN: Except if it’s from a major label?
Well there you have it. Danny boy is sticking it to the majors. And giving back to the musicians. Will we see a mass exodus from the major labels? Probably. Why would artists who currently make little to nothing from their labels want to stick around when they could earn way more on their own?
The song of the year, “Happy” by Pharrell Williams, has over 94 million plays on Spotify. That means, with this new pay structure, he could have earned $94 million had he released it independently.
**Update: Upon hearing this news, Thom Yorke has issued takedown notices to iTunes and has sent all of his music to Spotify.
Image by Fortune Live Media from Flickr used with the Creative Commons License
Ari Herstand is a Los Angeles based singer/songwriter and the creator of Ari’s Take. Listen to his new album on Spotify. Follow him on Twitter: @aristake