Spotify royalties

I have published a series of articles on payments by Spotify to artists in my blog. You probably don’t have the time to read all these individuals posts so let me give you a roundup here.

Ever since the story about Lady Gaga receiving $162 for 1 million streams, the Spotify payments have become a hot issue. The Gaga payment turned in to a kind of urban legend that keeps popping up in about every article on the subject of Spotify payments. But how reliable is this story?

To find out the truth I contacted labels, artists, collecting societies and Spotify. No one was willing or able to give me information. They all kept saying it was confidential, because of non-disclosure clauses and stuff. So I decide to use another approach. I contacted a few bands and asked them if they would be so kind to let me release their music on Spotify. Little Things That Kill agreed to this, so I released an album and a single . Being sort of a label owner now I was able to find out what Spotify really pays to an (independent) artist. I’m publishing the results for over a year now. Here is a graph showing the rate per stream in 2011 and 2012

Spotify Pay Outs 

The current payment per stream is $ 0.005 (€ 0.004) Need proof? Here is the spreadsheat

That clears up a lot don’t you think? But wait, it isn’t this easy. Have a look at this statement (click to enlarge):

CDbaby statement

Note the different rates for plays of the same song? As far as I have been able to find out, there seem to be different agreements with individual aggregators (digital distributors), like CDbaby or Tunecore. I have released the tracks by Little Things That Kill through Zimbalam, this aggregator receives/pays the same amount for every stream. CDbaby pays a different rate for every tier ( Free, Unlimited, Premium and people who have a free Premium account through their ISP or Telco). So in this case the payout is calculated from the revenue of this specific tier in the given month. In some cases this even leads to a payment per stream of $0.01700. Confusing, but in average the result is near to the per stream rate I mentioned above.

If you want to take a closer look a real CDbaby Royalty statement, Zoe Keating has put her latest statement online

Scott Busecemi was kind enough to send met the statement of his client HoneBoy Dupree. This band released an album on Spotify using Catapult. This aggregator has statements with about all the info you want to know. All streams with a breakdown per country and tier.

Catapult Statement

Too bad the info is limited because of the low number of streams, still it is interesting to see how the rate differs per country.

Catapult details

Here is a spreadsheet with the raw data so you can dive into it.

How Spotify calculates the payout per stream

About 70% of Spotify’s revenues (advertising + subscriptions) gets paid to the rights holders of the music. This is before Spotify covers their own operational costs (which are still higher than the remaining 30% )  Each month the pay out is calculated based on the revenue and the number of streams. That explains for the different rates each month.

To give you a rough example, a simplified calculation:

Revenue 30 million dollar. 70% for royalties: 21 million dollar. Number of streams 350 million.

Pay out per stream: $21.000.000/350.000.000 = $0.006

So streaming will never be much of an income source for artists?
No that's jumping to a conclusion. The answer is: stop staring at the rate per stream. The more important part is the number of users and the effect that has on the number of streams.

Some artists still look at statements of their streams with "sales glasses" on.

Throw these glasses away and start with a clear vision. Ten thousand streams may look like a lot, but in the world of streams it is peanuts. Check the number of views of one of their YouTube music videos and do the math. Last time I checked the Two Weeks video had 6.3 million views.

The big labels

Now we know what an independent artists gets. One big question remains: How does Spotify pay the big labels? To be honest, I don't know for sure. Spotify has had trouble to get the big labels on board so the big labels probably have a better deal, not based on streams but things like marketshare. The label gets a percentage of the revenue equal to their marketshare. Something like: Pay the largest of A) X percentage of revenue B) Stream revenues at $Y per stream.

So if Universal has a marketshare in recorded music of 28%, the company gets 28% of the Spotify revenue unless music released by Universal has been streamed in a way that the amount based on the number of streams exceeds the amount of 28% of the revenue.

Deals with the big labels are not about streams but about pieces of the pie

Once again, I don't know for sure, but agreements like these seem to be common in the music industry.

Comparing sales to streams

Most artists and labels complain about low revenue by comparing the revenue of streams to sales. But isn't comparing revenue by streams to revenue by sales like comparing apples to oranges?

Paid download:
A one time event: you pay in advance for all of your listens to that track.

Stream:
An ongoing money stream: Spotify pays the artist for each time you listen to a track for over 30 seconds

One could argue that the last method is a more fair way of rewarding good music, but let’s not start that discussion. Fact is that artists will keep on receiving payments for years and years for as long as people keep listening.

For those who cannot stop comparing apples to oranges. For a 99c sale of a track on iTunes an indie artist gets 70c. At the time you need 140 Spotify streams to make the same 70c. How hard can it be to reach 140 listens?

Some people argue that they never listen 140 times to a track they have bought. Of course you don’t! The big difference is that with streaming you can listen without paying upfront. There is a way bigger audience for that. Every song is just a click away.

Why are all these artists and labels complaining about low revenues?

I can understand that an artist who gets a royalty check of $0.56 is not amused. Of course he questions if  Spotify will ever be a significant source of income. But doesn't this low amount imply that his music isn't streamed that much? $0.56 means about 112 streams. Also take in mind that in this stage only 2,7 % of the inhabitants of 31 countries are listening with Spotify. It has all just started, there is not enough volume yet. Some labels and artists consider a higher payment per stream as the solution, but the real solution lies at the start of the calculation: more streams!

Spotify started in Sweden, and look what is happening there now. A popular Swedish artist called Jonathan Johansson made more than $20,000 from streaming services alone in the first month of his album being available. Read the full story.

And how about this label that earns 80% of revenue from Spotify

One more thing

I have already been called a Spotify fanboy, an idiot, insane, a Spotify troll and such. I’m not on the Spotify payroll an have no financial interest in Spotify. I prefer to stay independent so I can say/write what I want. There are more music services than Spotify and I must admit that a service like Deezer does a very good job. Deezer even has some clear benefits over Spotify.

This blog is in no way an attempt to promote Little Things That Kill with the purpose of filling my or their pockets. 100% of the royalties I receive go to Stop the Traffik, an organization fighting human trafficking and modern slavery.

Why am I doing this then? Because I love music and Spotify is the best thing that happened to me musically speaking. I love Spotify as a service, but have some serious doubts about the company. I agree with all the criticism for the lack of transparency and are not very amused 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. The fact that major labels own a stake in Spotify is not a thing I welcome either, but tell me how Spotify should have acted to get them aboard?

Artists, I would love to listen to your music and you deserve to get paid for this. Streaming can help us both out. I'm sure,

Hans Handgraaf