Spotify Now Has 20 Million Reasons Why ‘Freemium’ Works…

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Major labels like Universal Music Group have been putting heavy pressure on Spotify to limit free access.  But Spotify is stepping up to defend freemium, and put paid-only services on blast.

Spotify says that they have 20 million paying subscribers.  They say they’ve paid out a cumulative total of $3 billion in royalties, and $300 million in the first three months of this year. 

Spotify also claims that payouts for indie artists have been $700,000 a year on average.  Additionally, Spotify estimates that indie artists will receive $1.2 million in the coming year, but they don’t explain their estimation.

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In comparison, Spotify estimates that the most popular artists will be paid $13.9 million in the coming year.  That is, after label advances, premium advertising payouts to top partners, and recoupment costs.


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Nina Ulloa covers breaking news, tech, and more: @nine_u

24 Responses

    • Anonymous

      I’ve solved the mystery:

      Daniel Ek is referring to Zimbabwean dollars!

      (250 trillion Zimbabwe dollars = $1.)

      • Amyt

        Probably. I just saw my royalties for April ’15, Spotify is paying me average 0.00226. At that rate, I’d need 309 million streams to get to 700k (US) dollars per year. Considering I’m a few thousand streams already in this year, just 309 million more to go till the year end.

        Any chance Spotify folks think that Katy Perry is a niche artist?

  1. DavidB

    Hilarious. It is easy to work out that even using a generous average payout figure ($0.008 per stream), it would take 125 million streams a year to generate a payout of $1 million. How many ‘niche/indie’ artists are getting 125 million streams a year on Spotify? This is only ‘typical’ in the sense of typically misleading.

    As for the claimed increase in paying subscribers, it is interesting, but how many of the new subscribers are just taking advantage of the very cheap introductory discounts which started in late 2014, and how many of these will subscribe at the full rate when the discount runs out?

    • jw

      If you’re talking about the $.99 discount deal, that was only for 3 months. So that discount should’ve run out months ago.

      Other than the student discount (which essentially replaced “Spotify Plus”), I don’t know of any ongoing promotion that would be skewing numbers.

      • Bill

        That discount is still running.

        It’s juicing their premium numbers for sure.

        • jw

          I stand corrected. Thought it was only a December offer.

        • FarePlay

          kind of an important detail, JW. Thank you Bill

  2. Other Chris H

    Pffft. $1.2M for a niche/indie artist? Please. At $0.0064 per stream (the top end of estimates from Spotify payouts up to now) you’d need a pretty large fan base. 187,500,000 plays a year. You’d need a fan base of 375,000 people (more than a niche audience) that each streamed your songs 500 times a year (mega fans.) Spotify, defend your payouts I guess, but don’t be obtuse. That’s not niche. Don’t make it sound like you’re making millionaires out of smaller indie artists.

    • ??

      who is getting 0.0064 per stream? it’s still around 0.0045 for me and everybody else i know.

      • Other Chris H

        Agreed. $0.0045 probably more realistic. I remember seeing $0.0064 in a spreadsheet of royalties someone posted. That was quite a while ago though. It was the highest figure I’ve ever seen from Spotify, so I used that as a top end figure to give Spotify the benefit of the doubt. Still doesn’t work out to being a niche artist. With your more realistic figure, it’s even worse – over 266.6 million plays, necessitating over 500,000 mega fans (500 plays a year.) If anyone had that large of a super engaged audience, you wouldn’t care about Spotify payouts, ’cause you’d be making more money elsewhere.
        Of course you could get to 266.6 million plays not from mega fans, but from a broader audience of more casual listeners/fans, and it would be easier to reach that number. But, there again, we’re way outside the definition of niche.

  3. Remi Swierczek

    To keep the bubble in the air top super stars are overpaid. Surprise to see T. Swift to walk away.

    Last year revenues at 1.08 Euro or $1.2B and AVG across the year number of subs at 12M puts avg . monthly subscription at $8.33 To continue 200M subs will make $20B industry.
    Conclusion: 200M might never happen and even if it will will conclude with demolition of $100B of music goodwill to just $25B of subs and ads.

  4. Anonymous

    “Spotify also claims that payouts for indie artists have been $700,000 a year on average”


    • Anonymous

      Try $700 on average…

      If you’re a star, of course.

  5. Anonymous

    Why would Spotify want to lie like that?

    Is Ek about to shut it down?

    What else could explain this?

    • Anonymous

      Cant wait to see the skeletons in Spotify’s closet when they try to IPO later this year.

    • Anonymous

      IPO is Ek’s exit strategy – both him and the investor have had enough.

  6. DavidB

    If the proportion of paying subscribers has increased, we would also expect the average payout per stream to increase, right? It is well established that the payout per stream on a full-price premium account is many times that of a ‘free’ user, so converting ‘free’ to ‘paid’ must increase the average payout, right? Wrong. If a ‘paid’ subscriber is only paying 99 cents for a 3-month trial, that is just 33 cents per month, which is probably less than the advertising revenue per ‘free’ customer. And that is before we even take account of the likelihood that some premium subscribers have found ways to switch to the cheap option, saving themselves 29 dollars at a stroke. So am I being too pessimistic? Well, the acid test is how much money Spotify are paying out to rights holders, who will be in a position to tell how much revenue per stream they are getting. And Zoe Keating (inevitably) has published her data for the first quarter of 2015, and as Chris Castle points out ( article on May 31) the average payout per stream has actually *fallen* quite substantially compared with 2014. Now it is conceivable that Zoe’s figures are unrepresentative, but they certainly aren’t encouraging. If the increase in subscriptions has come largely from people taking advantage of a giveaway offer, the key question is how many of them will upgrade to full-price in due course. Since the ‘default’ position is that Spotify will charge them the full price after 3 months, the proportion may in fact turn out to be quite high. We shall see.

  7. DavidB

    One of the puzzling things about the present music scene is the way so many people who ought to know better still swallow Spotify’s propaganda uncritically. A few days ago Daniel Ek was widely reported as saying it was pointless for Taylor Swift to take her back catalog off Spotify, on the specific grounds that this had just resulted in more people viewing/listening to her music ‘for free’ on YouTube. And he went so far as to say that since taking her music off Spotify her YT plays had ‘gone through the roof’.

    Now it is by no means certain that an ad-supported stream on Spotify actually generates more revenue than a play on YT. A YT track with pre-roll ads might well pay more, and a lot of Swift’s videos seem to be in this category. But in any case is Ek correct in claiming that Swift’s YT plays have ‘gone through the roof’? I doubt that either Swift or YouTube are giving any confidential figures to Spotify, so Spotify must be using publicly available data. Every video on YT has a public cumulative view count, and search results for an artist can be listed in order of view count. For most videos, it is also possible to display a ‘stats’ graphic showing the trend of view count over time since the track went on YT. So I have done a ‘quick and dirty’ check of the kind that any competent journalist could and should do for themselves.

    The first point to note is that Swift’s team are quite effective in keeping unauthorised uploads out of action. The vast majority of high-ranking results are Swift’s own official promo videos. If you search for unauthorised results they do exist, but most of them seem to be muted by ContentID, or they have been pitch-shifted etc in an attempt to evade it.

    But the main point is that the trend stats make a nonsense of Ek’s claim that plays have ‘gone through the roof’. Most of those that I have looked at do show a *slight* upward trend towards the end of 2014, which may have been prompted in part by the removal from Spotify and the resulting publicity, but to describe them as ‘going through the roof’ is just preposterous. So one wonders if Ek was telling a deliberate lie, or just making it up as he went along. And why no-one seems to have called him out on it.

    • Anonymous

      “many people who ought to know better still swallow Spotify’s propaganda uncritically”

      I don’t see much swallowing here, though. 🙂

      I honestly think Ek is losing it. Only a desperate man would lie like this.

  8. Rickshaw

    They just raised $526 million to fight off Apple, so I would say they have 546 million reasons why freemium works.

    • FarePlay

      The entire valuation of Spotify is such fantasy. Who creates that number, goldman sachs? Now they’re a billion in debt.

      One things for sure. They wouldn’t get a deal on shark tank.

      • Rickshaw

        The valuations are set by the same people who set valuations in 1999-2001.