A few days ago I had a Twitter conversation with Zoe Keating about the article mentioned in the tweet below.
!! RT @TheAtlantic: Why Spotify doesn’t work for musicians: 70,000 listens pays less than $300 theatln.tc/MBOeoz
— Zoe Keating (@zoecello) juni 29, 2012
I have seen a lot of similar articles and the discussion is always the same.
I would endorse Spotify if royalty rates increased. I got $14.87 for a total of 4,030 streams. Doesn’t that seem outrageous?
— shannon hurley (@shannonhurley) juli 1, 2012
“Spotify’s CEO is the 10th richest man in the UK music industry”. If that’s true- i wanna die. Do you know how little they pay the artists?
— apparat (@apparatofficial) juni 21, 2012
People see the low payout rates and everybody starts shouting that Spotify should pay more to fairly compensate artists. Of course I can understand this initial reaction, but maybe it helps if you dig a little deeper.
Bad news for artists and labels demanding higher payout rates
$0.02 per play? Will probably never happen. Reaching $0.01 will be difficult. It even is highly unlikely that the current rate of $0.005 will rise substantially. Shocking maybe, but individual stream payments will remain in fractions of a cent. Why? Because Spotify just cannot pay more!
Let’s do some math to attempt to explain this:
Spotify generates about 71.3% of revenue from subscriptions and 28.7% from advertising. (These are the most recent public figures available). Source: Billboard.biz
70% percent of this revenue is paid out to rights holders. Sources: Billboard.biz , Hypebot
Spotify has 10 million users, 3 million of these have a paid subscription. 7 million use the Free service.
A Premium subscriber brings in $10 every month. So 3 million Premium users create a monthly revenue of $30M. That’s the 71.3%. This means that 28.7% monthly add revenue is $12.08M. With 7 million users of Spotify Free the monthly add revenue per free user is $12,07M / 7million = $1.73. Let’s be generous and round it off to $2.
For the sake of simplicity, I will ignore the revenue from the $5 Unlimited tier, Unlimited is not very popular anyway.
| Revenue per user | Total Monthly Revenue | |
| 3 million Premium users | $10 | $30M |
| 7 million Free users | $ 2 | $14M |
| Total revenue | $44M | |
| 70% Royalties | $30.8M |
Premium
Now how many songs does the average Premium user streams during a month? 25 songs looks like a safe guess to me. That would lead to 750 streams (25 x 30) a month per user and 2,250 million streams for 3 million users.
Now all we have to do is divide the $21M by 2,250 million and there you have your rate per stream: $21M/2250 million = $0.0093
10.5 % of this rate ( $0.0010) goes to the songwriter and publisher, the remaining 89.5% ( $0.0083) is paid out to the performing artist or the label.
| Premium | Royalties | Streams | Rate per stream |
| $21M | 2,250 million | $0.0093 | |
| Songwriters | 10.5 % | $0.0010 | |
| Artist/label | 89.5% | $0.0083 |
Free
Because after six months the use of Free is limited to 10 hrs a month in most countries, I assume a Free user generates less streams. Maybe 15 streams a day in average? That’s 450 streams a month. So 7 million users produce 3150 millions streams in one month
Rate per stream: $9.8M/3150 million = $0.0031
10.5 % of this rate ( $0.0003) goes to the songwriter and publisher, the remaining 89.5% ( $0.0028 ) is paid out to the performing artist or the label.
| Premium | Royalties | Streams | Rate per stream |
| $9.8M | 3150 million | $0.0031 | |
| Songwriters | 10.5 % | $0.0003 | |
| Artist/label | 89.5% | $0.0028 |
In average the songwriters cut per stream is $0.0007 and the artist/label gets $0.0056 for each stream
Of course this calculation is oversimplified. It’s not meant be 100% accurate but to give you a general idea of how the system works.
Having doubts?
I know that you think: But what if users stream more, or maybe less? What happens if the number of Premium users rises or the overall user base increases? Or maybe you just don’t trust me because I run a Spotify blog. Fair enough.
Here is your dashboard. Work out your own scenario below and see what effect this has on the rate. You will be surprised.
Hans,
A very useful exercise and calculator. One question: Your scenarios include guesses as to the number of daily/monthly streams for each type of user. Aren’t the actual numbers–stream volumes per month, both overall and by user type–available from Spotify?
Thanks Steve, Spotify likes too keep things hidden I’m afraid. I don’t have access to data on stream volumes. The best I can do is work with the recent U.S. figures.
13 Billion songs divide by 3 million users is about 4,300 songs per year per person so 12 songs a day.
Thanks, Hans, at least you have the one data point to get the right order of magnitude. Funny – since the basic unit for the company is a stream, unusual that they wouldn’t publish how many they serve. Kind of like a buffet restaurant telling how many customers buy all-you-can-eat dinners, but not how much food they eat.
Spotify can’t pay out more because Daniel Ek’s 307 Million fortune isn’t enough for one man; he needs boats and planes and houses…yeah let’s help him and his “free music for all” while the corporation gets fat concept. I’ll stick with Pandora.
Manda, I was hoping for a better argument.
I’m not very amused either by Daniel Ek being in the Sunday Times’ Rich List. Though I have to add that sort of happened to him. You start a company, take a stake in it, all of a sudden your company gets valued at hundreds of millions and bam! you are a virtual millionaire, virtual. If you have pictures of his boats planes and houses please send them. Doesn’t the same apply to Tim Westergren of Pandora?
You have clearly missed my point. I’m not defending Spotify, Ek or any other service. I’m just trying to explain the system of streaming and royalties. No streaming service will be able to pay more than pennies per stream unless they raise the subscription fee or cap the number of streams.
There is a PR perception issue with Spotify. You don’t make that rich list by accident…obviously the boats comment is sarcasm because it is time for Daniel and Spotify to address the artists who are starring at their royalty statements in shock. Pandora’s payouts are better, the attitude of that companies’ interaction with artists, much better. The genome project that turns you onto cool similar artists. Value is beyond monetary. Sean Parker’s involvement with Spotify and the marriage with Facebook is enough for any artist to question the ethics of this company. Add to that slogans like “a new world of free music is just a click away.” It’s appearing like an animal with little regard to the value of music. I would love to see proof from Spotify directly that shows artists and consumers something different ~ music and art need to be re-valued, not de-valued.
I fully agree with the PR issue. Spotify should do something about that and not leave it to amateurs like me. Are Pandora’s pay outs really better? Haven’s seen any data about this so far.
In can also understand doubts about Sean Parker’s involvement and the Facebook connection.
But I don’t agree with to often mentioned devaluation of music. Music has great value, but who started to measure this value in dollars?
I found this awesome website called PlaylistHQ that will help every user want to stream more often, and that average number of songs streamed per day will increase. PlaylistHQ is powered by Songkick.com and uses Spotify’s API to generate playlists for your upcoming concerts and festivals. You can then share it with friends, listen to it over and over till the concert, and still be able to keep your playlists around for the memories. Thus, giving all involved extra streams and more money. Check it out here: http://www.playlisthq.com/about.aspx