As Spotify’s revenue goes up, artist per-stream and revenue payouts are going way, way down. And here’s the data to prove it.
Two years ago, in a funding round, investors valued Spotify at $8 billion. In the latest round, investors pushed that number above $13 billion. Sounds like some serious growth. Yet investors can’t ignore one glaring fact: after ten years, the company has yet to turn a profit.
But maybe that’s just another detail. Now, analysts expect the company to finally go public on Wall Street within a year. And the deals to make that a reality are finally starting to happen.
Recently, Spotify struck new long-term licensing deals with both Universal Music Group and independent music rep Merlin. They’re also rumored to be closing a similar deal with Warner Music Group. Ahead of their long-awaited listing on Wall Street, Spotify seems to have it made.
Yet, why are artists receiving less money as Spotify grows, not more?
Top-line revenues at Spotify are surging ahead, thanks to a flood of new subscribers. A boost in monthly premium payments and increased advertising means a lot more revenue. That part is simple. Yet strangely, Spotify’s per-stream royalties across both recordings and publishing appear to be sinking, according to data shared with DMN. That includes per-stream payments to labels (including indie labels and self-administered artists), plus mechanical royalty payments to publishers.
In other words, 1,000 streams on Spotify two years ago — when the platform was making less gross revenue — made rights holders more money than 1,000 streams today.
Musicians and labels on the service have felt the crunch. But why is this happening? Let’s rewind a bit.
Two years ago, a report published by Audiam found that as Spotify’s revenues went up, artists and label royalties went down. Audiam is a reproduction rights organization headed by Jeff Price, and recently purchased by Canadian rights group SOCAN. The company is basing a lot of its data on payouts reported under Section 115 of US Copyright Law.
Audiam stated then,
“However, the impact on the artists, songwriters, labels and music publishers is a bizarre, unexpected anti-intuitive equation that seems to subscribe to Newton’s third law of physics: ‘For every action, there is an equal and opposite reaction.’
“In this case, as more money is made from the music, music creators and copyright holders are making less.”
So, two years later, with Spotify finally reporting growing revenue, have these numbers changed? Not even close. To put it bluntly, Spotify has found a way to keep more of the revenue they earn (per stream) in their pockets.
Spotify seems to be countering this accusation by pointing to increased overall royalty payments. But a closer look at the math shows that Spotify may be paying more — but is also taking a lot more. All of which means that Spotify (and its shareholders, which include major labels) are cutting costs on per-stream payouts.
Audiam has now issued a new report, and shared it exclusively with Digital Music News. Again, Audiam is sourcing a lot of its data from publicly available stats. “The numbers I am providing are not Audiam’s numbers,” remarked Audiam founder Jeff Price. “They are numbers reported by Spotify as required under Sec 115 of US copyright law.”
Essentially, the latest report updates the streaming service’s per stream numbers ending February, 2017. And they reached the same conclusion: as Spotify’s value and revenues go up, artists and publishers are making less.
Mechanical royalty rates are continuing to decline in 2017, at least for Spotify’s premium (ie, subscription) streams.
Let’s start with Spotify’s ad-supported tier. In February 2017, a single ad-supported stream generated $0.00014123 on the streaming service. This means an artist would earn $100 in mechanical royalties after 703,581 streams. Although this number represents a 1.1% increase from January, in December 2016, the number was at $0.00022288.
For the premium tier during the same month, Spotify paid out $0.00066481 per stream in mechanicals. In this scenario, artists would earn $100 after 150,419 streams. This number is up 5.2% from January. Sounds great, until you see the year-over-year trend.
Another key thing to notice is the following discrepancies. In December 2016, to earn $100 from ad-supported streams, a song would need be played 448,672 times. Spotify paid out $0.00022288. Yet, just one month later, the number dropped down to $0.00013508. To earn $100 from ad-supporter streams, a song would have to be played 740,302 times. Note that this didn’t apply to premium streams.
Between December 2016 and January 2017, Spotify cut their ad-supported payouts by nearly half. The number continues dropping as the year progresses, with premium streams slightly increasing.
What goes up must come down. Just not in Spotify’s world.
In a strongly-worded piece in his blog, Bob Lefsetz defended the low payouts. According to him, Spotify pays out over 69% of its revenues. So, why the criminally low payouts? Blame the music labels. Calling out Audiam’s founder and CEO Jeff Price, Lefsetz explains,
“You’re being screwed by the label. And Spotify can’t say this, because the labels are their partners.”
But Lefsetz seems to be ignoring the reality that most of the recordings on Spotify come from self-distributed artists. These artists aren’t signed to a label, they are the label. But also seemingly disregarding Audiam’s previously published numbers, Lefsetz attacked,
“What about Jeff Price, its old fired founder, bullsh—ting that Spotify is not paying on so many tracks? That’s a registry problem, that’s not Spotify seeking to rip-off rights holders, that’s the result of an archaic system wherein we don’t know who wrote what and who owns what. Does it need to be cleared up? Yes.”
However, Lefsetz, seemingly Spotify’s apologist, can’t defend the following stats, no matter how hard he tries. Take a look at the numbers:
- 2016 Total Gross Revenue: Slightly over $1.1 billion
- Average streaming rate: $0.0046524
- Total plays: Over 162 billion
- Royalty pool amount: $75.4 million
- PRO fees: Almost $72 million
What can we deduce from the amounts? The same conclusion that Audiam came to in 2014. As Spotify’s top line Gross Revenue increases, the per stream mechanical rate continues to drop.
As Spotify continues to prepare for their long-awaited IPO, there’s no clear explanation as to why they continue to pay out artists such little money. Audiam posted a publicly available website to show historically falling per stream mechanical royalty rates. And despite Lefsetz’ best attempts to protect Spotify (calling Jeff Price out of touch), his final defense of the company ultimately sounds very hollow.
“But you’ve got an historical deal with a label that pays an incredibly low percentage, you’ve got a very low royalty rate, is this a problem? Absolutely. BUT IT IS NOT SPOTIFY’S FAULT!”
Or, is it?
Image by Official Leweb Photos (CC by 2.0)
Stop giving your work away
The royalty rate is determined by taking the royalty pool for a given month, and dividing it by the number of plays during the same month. When the royalty rate decreases, this simply means that the number of plays is increasing at a greater rate than the amount of revenue. People with Spotify subscriptions are spending more hours each month listening to Spotify than they used to. When that happens, the per play rate goes down. It doesn’t mean songwriters are earning less money overall though.
Isn’t this the most obvious answer?
Spotify has done a lot to make users listen more – endless playlists, auto-play music when your lists ends, etc – so if the average # of tracks listened to per user goes up the per stream will go down.
This is why Spotify NEEDS to switch to a “Subscriber Share” method of payouts. If I pay $10, then $3 goes to Spotify, and the other $7 should go to the artists I listen to in that month. Period. That’s NOT how it works today, and that’s why payouts are so bad. Bots are gaming the system, and this is the only way to fix it.
I agree with you
It might seem so but bear in mind spotifies service does not make people listen to more music as much as it does different types. If they are growing in payouts to artists it is more likely because they have taken the market from another more traditional source with set royalty rates, radio being an obvious example.
Anonymous is correct but neither DMN or Audiam care about understanding how Spotify’s economics work. They’re just looking for attention.
People don’t listen music this way, they turn it on and forget about. It fills a void that this tech obsessed world is so used to.
Cmon guys leave Paul alone. Spotify is about to go public and if it’s a success his tabloid blog won’t be able to survive on “Why is Apple Music Failing?” stories. Too bad labels decide royalty payouts, from what Spotify pays the label. Sad little article. #gettingdesperate
Always fascinated by the endless, logical explanations we receive on how Spotify payouts work. I’ve not heard one, simple, elegant explanation since Spotify has launched. All of which works to the advantage of Spotify and its owners.
Call me anti-Spotify, call me whatever. I’m just describing a business model that may not be very artist-friendly, by design.
Why the fuck per stream rate matters? Spotify is paying MORE money to artists as it grows.
Would you rather have a per stream payout of 7 usd and have people listen to only 1 song a month?
You really make no fucking sense Paul.
All that matters is the total amount that is being payed, and that is GROWING year by year, not declining.
But, are artists actually being paid more? That’s an assumption worth challenging.
If the money doesn’t get to artists the blame is on the labels. Spotify pays more revenue every year to the rightholders.
” Yet strangely, Spotify’s per-stream royalties across both recordings and publishing appear to be sinking, according to data shared with DMN. That includes per-stream payments to labels (including indie labels and self-administered artists), plus mechanical royalty payments to publishers.”
So tired of the uninformed else shilling posts muddying the waters on this. Give it up.
Rights holders are being paid less as Spotify’s value increases..
For example, in Jan, 2014 10,000 streams = $95 for the recording and composition.
Two years later, in Jan, 2016 10,000 streams = $74 for the recording and composition.
People dont listen to more music because of playlists etc, just a more diverse music perhaps but peeps only have a certain amount of time in the day to dedicate to music consumption, so in this sense it is a zero sum game – if spotify is growing in plays and subscibers it is because they have taken the market share from someone else
I don’t know if spotify has a better-of revenue vs. per subscriber calculation method for their freemium tier on your given distributor, but that could be 1 reason.
Another reason could be that while revenue has increased, the market share of the label / distributor of your content is in decline – reason 2
The per play rate is determined by overall use, so more usage could also erode the per-play payout (all other things being equal)
There are a lot of reasons for this phenomenon…
I am skeptical that they are not actually losing money with their free tier.
What’s your point? Artists shouldn’t get paid or the compensation is so LAME, who cares.
Something’s not right here. Somewhere along the way, these numbers are wrong. As you reported both above in the summary, and in this article (https://www.digitalmusicnews.com/2016/05/26/band-1-million-spotify-streams-royalties/) based on actual royalty statements, the payout per stream is a little less than half of a penny. In Audium’s assessment though, the payout is 1% of a penny and 6% of a penny between ad-supported and premium streams, respectively? That’s a big gap. Now, if it’s closer to half of a penny, which I assume it is, then the payout pool on 162 billion streams is $753.7 million, not $75.4 million. And 753.7/1100 ($1.1 billion reported revenue) = .685, or 68.5% of revenue going out to rights holders. That’s pretty close to the 69% that Lefsetz is reporting.
So, I’m not sure who’s right and who’s wrong and where this disparity happened, but recheck your math and get back to us….
They aren’t interested in being right, they are interested in bashing Spotify and streaming music. If they really wanted to call someone out why not make a case for all the stupid deals the labels are allowed to get away with? Labels as insisting on getting the same piece of the pie as when it was vinyl and big A&R budgets which means the artist and distributor get screwed with smaller pieces.
there are two sets of royalties for every stream.. One for the sound recording and a second separate one for the composition. For example: Sony hired Whitney Houston to sing “I Will Always Love You”. Sony owns the recording of the song. However, Dolly Parton wrote the lyric and the melody (called the composition).
When the recording streams on Spotify, one royalty and payment goes to Sony and the second separate royalty goes to Dolly Parton. Different rates, different payments.
As a financial person I like your analysis.
It’s way worse than you’ve even noticed so far. Nearly all the numbers I’ve seen quoted across the board in these “debates” are incorrect. Half the numbers quoted are songwriter royalties with the authors representing them as artist royalties. The other half are the result of people dividing their total payment by total streams (often incorrectly or with decimals in the wrong place), then presenting them as fact with no mention of the enormous difference between rates in various countries, payment tiers, etc. Even official industry bloggers seem to not understand how to read a statement or use a calculator.
Spotify has actually paid HIGHER rates per paid stream in many countries than Tidal, Google, or Apple, for instance, yet the rampant skewing of stats misrepresents this reality. Overall rates have much more to do with free/paid mix of listeners and country of origin, but all of those are laid out exactly line by line for anyone to read if they just bother to do so.
I’ve yet to have a single conversation with anyone online who appears to even understand the difference between their line-item downloadable pdf final sales report, and their aggregate sales report that feeds live and gives overall numbers.
It’s just a comedy of never-ending errors, but people are more interested in arguing than reading. The truth is very simple once you learn to properly read the data… but that requires understanding whether you’re reading the CORRECT data.
Can you say “Highway robbery of artists”? There is no explanation more complicated than that.
Why is everybody trying so hard to figure out what is simple theft of intellectual property, as if there were some kind of mysterious rationale to the way Spotify can justify this?
They distribute music and pay out almost 70% of their revenue. Whatever is done with that 70% is not on them it is on the labels and artists and whatever deal they signed.
Not really. Spotify’s value comes from the number of people that use the service (market share). It does not come from how much money they make off music.
This is why they lose money and are going to have a public offering at a value of about $13 billion.
They use artists to get their fans to use their service and translate that market share to financial value.
Making money off the music is not a concern.
Imagine what it would look like if Spotify could only have a public offering if it was profitable. Then it would have to create a service where they priced the product at the right price and offered something everyone wanted.
Perhaps less would use it but pay more.
But they don’t need to worry about that, they only need to worry about collecting people.
Which is why there is a “Free Tier” where anyone can use Spotify. And the amount paid to the songwriter when the recording stream is $0.00014, barely something you can call money.
One point that I haven’t really seen in these discussion is the fact that radio vs streaming is not that different. When a song plays on there’s a relatively flat fee (which depends on a variety of factors), but a ton of people listen to it. With a popular station we might be talking about hundreds of thousands of people (I have no idea of actual numbers), so when you divide the amount payed per radio play to the artist with the number of listeners you might actually get very close to what an artist gets per stream.
That said, I have no clue whether this is the case, so someone would have to look up the stats and do the math. And, of course, there’s the issue of buying records which streaming affects tremendously.
I’m not interested in a debate with all those who can’t read a statement, confuse paid with free, quote combined rates, etc. For those who really are making their living this way, and can take a look at the exact per country and per tier rates, please help me understand something.
Spotify has consistently paid me $8k or more per month for most of the past year, so I am quite troubled to see that in the past couple of months (pay periods for March and April 2017), US paid tier per stream rate has dropped from ~1.4Eu to ~0.4Eu.
What the hell is going on? They’ve been extremely consistent up until this point, and that tier has not varied by more than .001 in at least the past year. For anti-Spotify noise out there, this is a massive and sudden shift. Something really has changed, and very suddenly at that.
Does anyone know what’s going on? Accounting error? New deal with Universal means they’re taking out money BEFORE they calculate the 70% Something huge has just happened. Who has info?
There are many problem with today’s musical apps like Spotify for example. Here is why there are problems…GREEDY MEN…and here all the problems Spotify payed a flat flee for fake tracks; or, perhaps unwittingly took the songs of illegal sites were the artist don’t make a fair amount of money.
Spotify refuses to state that they are “guilty” (hypebot.com). Spotify could just erase all the fake songs off their app and the problem would disappear. Which means Spotify could lose large sums of money and have to lay people off their jobs or close down the whole company. They need to live up to it.
Another reason is the artist who are on Spotify are loosing money. “2 years ago Spotify had investments from others at $8 billion and now its over $13 billion