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Spotify began 2022 under fire, with criticism raining down on it from many artists, including Neil Young, who has removed his music from the platform. Among the reasons given by Young is that fees paid to music performers are too low, while Spotify invests heavily in the production of podcasts. However, on close inspection, the economic reality of music streaming is not so simple. This article will help you form your own opinion on this issue.
Let’s start with a brief recap of the origins of the music-streaming market giant. Spotify was born in 2008, in a music industry ravaged by the disruption caused by the advent of digital music, mp3 exchanges between individuals and the critical drop in CD sales. At the time it stood out as one of the only alternatives to free piracy and CD purchases for music lovers seeking to listen to a specific track.
As a result, Spotify’s subscription offer boomed, similar services soon emerged and, in 2019, the music industry’s turnover finally increased by 5.4% compared to 2018, in contrast to the constant decreases it had been experiencing in the years until then. Today, Spotify has over 164 million subscribers across more than 180 countries. In short, while Spotify isn’t a big enough revenue source on its own for artists to make a living from it, it is now a popular tool, enabling them to create a previously almost non-existent online relationship with their audience.
Spotify was born in 2008, during a particularly bad economic period in the music industry. It was one of the only alternatives to free piracy and CD purchases for music lovers wanting to listen to a specific song – hence its rapid and massive success, with over 164 million subscribers in 180 countries today.
The company generates its revenue through the cost of its paid subscriptions and the ads it runs on its free subscriptions. Every month, it keeps about 30% of the total collected, an amount corresponding approximately to the margin that the big players in the retail industry took in the pre-digital era.
Spotify then distributes the rest to its partners: the record companies, digital distributors, collective management organizations (CMOs)/performing rights organizations (PROs)/mechanical rights organizations (MROs) in each country, and independent management entities (IMEs) like Bridger. In most countries, the CMOs/PROs/MROs take about 12-15% on behalf of the authors, composers and publishers. We have explained all this to you in a previous article about copyright.
The remaining royalties are then given out to the musicians, but before this, they pass into the hands of the record companies – when these are a part of the loop – according to the share of listening that each right-holder represents out of the total in a particular territory. For example, if Universal makes 38% of the listening in February in a specific country, Universal recovers 38% of the royalties generated via Spotify in February in this country, after the CMO’s share and the platform’s commission have been taken. And that’s where the vagueness lies: we do not know what the contracts signed between artists and their record companies specify.
In short, the money generated by Spotify is a common pot divided between Spotify’s fees, copyright and master rights. The latter are paid out according to the market share of the major record labels and digital distributors.
Spotify keeps 30% of the revenues generated on its site, gives 12-15% to the CMOs/PROs/MROs, who redistribute them to their members, and then the rest to the distributors and labels, according to the percentage of listening that the artists they represent accumulate on a given territory. The distributors and labels then distribute the revenues to their artists according to the contracts signed with them.
Since there are an infinite number of contracts, there is no foolproof way to calculate how much an artist earns on average per stream on Spotify. That said, several geeks have tried to do so, by gathering as much information as possible, including asking artists directly for their results and extrapolating this information by country. Result given by the blog The Trichordist, from their data of 2019-20: each time a track is listened to brings its creator on average $0,00348 or 0,0030 cents (of a euro).
One conclusion taken from this small sample, and confirmed by several studies that included all platforms, not only Spotify, in their research: streaming is not a way to make a living as a musician. To illustrate, international studies conducted by Alpha Data America in the US and Aepo Artists in Europe in 2019, reveal that 90% of artists earn less than 1,000 euros per year, and this is even when their tracks have been played up to 10,000 times. Only 1% of musicians earn a minimum wage through streams.
Finally, these extremes are similar to the inequalities that existed between #1 artists and the lesser known ones before the days of streaming – which is logical when we know that Spotify’s business model is built on that of the pre-digital music industry. Indeed, the distribution of revenues on a pro-rata basis favors listening volumes – thus the majors, and therefore the biggest artists – by default.
With this system, even the fees paid by French subscribers who only listen to a specific Norwegian hardcore metal band without a label go to the pockets of the most streamed artists. However, as the Norwegian band puts its music on streaming platforms via a distributor and without a label, it gets 100% of its master royalties according to its digital distributor's share of listening in France. He also receives the copyright royalties collected by the CMO. Therefore, he isn't paid according to the number of listeners he has in France.
That’s why other streaming sites – such as SoundCloud, which has already implemented it, and Deezer which would like to do so – propose a customer-centric financing model, where artists receive the royalties generated by their listeners in absolute, without it being calculated according to the percentage of listening time they represent in their country. Problem is, this new idea still has to prove itself and show by numbers that it actually is more advantageous for new and emerging artists.
Conclusion: it is better to consider Spotify as a 100% promotional tool that serves to install its image online, seduce its audience by sharing news and messages. To make a living out of your music, there are more efficient ways – like music sync, or selling concert tickets and merch.
Studies from 2019-20 estimate that the average remuneration of an artist per track streamed on Spotify is 0.0030 cents, although it depends on the contracts signed between artists and labels, or between distributors and artists. In any case, streaming is a promotional tool, and it is better to focus on other sources of income such as online sync and live performances.
Spotify keeps 30% of the revenues generated on its site, gives about 12-15% to the CMOs/PROs/MROs which redistribute them to their members, then gives the rest to the distributors and labels according to the percentage of listening that the artists they represent accumulate on specific territories. The latter then distribute the revenues to their artists according to the contracts signed with them.
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