Op-Ed: Spotify Payouts Revisited – How Much Does it Pay Now and How Much Should Artists Demand?

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As a music fan, I love the Spotify service. It’s convenient, it sounds great, it’s an insanely good value for the listener, and if you subscribe to the premium service, its payout rates are fairly ethical  (although certainly still too low) at around $.015 per play.

Radiohead producer Nigel Godrich: The music industry is being taken over by the back door.. and if we don't try and make it fair for new music producers and artists...then the art will suffer.

“The music industry is being taken over by the back door.. and if we don’t try and make it fair for new music producers and artists…then the art will suffer.” – Nigel Godrich

Still, I’m glad to see some of my favorite musicians boycotting the company. In a market economy, valuing your own work enough to say “No, you can’t have it for anything less than a fair rate” is one of the most surefire ways to keep others from devaluing it.

But if you’re going to make demands, it’s a good idea to know what you’re demanding.

If you want my opinion, I’d say hold out for $0.03 per play. Once you account for all the people who’d never buy your album but end up kicking you some coin anyway, that’s arguably as good of a return as music sales ever were – and possibly better.

But if it was me? Honestly, I’d probably settle for an increase to $0.02 on the premium service to start. (So long as I could limit or block listening on the ad-supported service.)

A 30% raise would be a huge step in the right direction, and a potentially easy battle to win: Simply raise basic subscription fees from $9.99 to $13.99. Or, just create a new, slightly more expensive product tier for the highest-frequency users. Do either of those things, and the service is already there. Done. And that’s without implementing a single creative idea.

Artists have subsidized Spotify’s growth for quite a few years now. Perhaps today, with countless legal alternatives to piracy priced cheaper and made more convenient than ever before, it’s about time we took off the training wheels.

Now that legal, convenient and affordable alternatives to piracy exist, why should new artists continue to subsidize Spotify?  The only “public assistance” that a huge company like Spotify should get is a concerted effort to crack down on illegal and exploitative pirate sites.

Collectively, pirate sites rake in millions in advertising and pay out $0. Realistically, if we really want legal streaming services to pay well, we’ll all have to work together to clamp down on those kinds of services. This would increase the viability of legal competition to Spotify, giving artists more streaming providers to choose from, and increasing payouts.

We live in a market economy, and it’s about time to let Spotify sink or swim as a real business.  If Spotify can be convinced to start putting greater limitations on the free service and begin paying out a fair and sustainable rate to artists, they’d certainly win me as a customer. As it stands now, that’s the only thing holding me back.

Justin Colletti is a Brooklyn-based producer/engineer, journalist and educator. He records and mixes all over NYC, masters at JLM, teaches at CUNY, is a regular contributor to SonicScoop, and edits the music blog Trust Me, I’m a Scientist.

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  • jeremiahcraig

    Interesting point of view. I’d have to ask where is the basis for increasing payouts? Even before streaming services, most bands have not been able to make a living on just selling their albums. They’ve needed to tour, license songs for TV and such and get creative with merch. Since we do “live in a market economy,” why shouldn’t payout be based on supply and demand like the rest of the market? I’m an indie musician too and I’ve written up my own opinion on the subject. Feel free to take a look if you’re interested: http://blog.jeremiahcraig.com/post/56327232322/music-streaming-is-not-bad-its-for-the-listener

  • TrustMeI’mAScientist

    Hi Jeremiah,

    The basis for increasing payouts is to make them both A ) more on par with what they’ve been historically and B ) sustainable in the current economy.

    It’s true that it will always be difficult to make a living as a musicians. (And perhaps it should be!) But at the very least, it should be possible. I believe we all benefit from having a professional class of musicians.

    (If you disagree, you can probably skip the rest. Or read this: http://trustmeimascientist.com/2013/03/04/in-defense-of-the-amateur/)

    It’s true that artists have always needed to tour and sell merch. But for the majority of the 20th century, live shows were a loss leader for record sales. That trend is beginning to reverse. The data suggests that this reversal has lead to higher ticket prices and fewer middle class musicians.

    (For more on this, see here: http://www.digitalmusicnews.com/permalink/2013/20130704onepct)

    If that’s ok with you, then that’s great. If it’s not, you might want to consider the value in a system that pays artists for their recordings.

    Lastly, you might notice that supply and demand in the music industry have effectively been *warped* by the presence of illegal and exploitative pirate websites. Demand for music is arguable higher than ever! And that’s being exploited by unethical services that pay out $0.

    If we were to clamp down on those illegal, unethical and exploitative services effectively, a lot of the problems discussed here would iron themselves out pretty quickly!

    We’d have an environment conducive to more legal alternatives that could compete for access to artists’ catalogs, driving up pay rates in many cases, and providing even better paid services for consumers as well.

    Think about that for a few! Thanks for your thoughts, and I hope some of this helps.

    Very best,

  • jeremiahcraig

    Justin, thanks for your reply. This is a certainly an interesting and exciting time to be a musician. Amateur or Professional.

    I’m not sure I understand your mention of payouts being more on par with what they’ve been historically. We are witnessing the history of the online streaming model now.

    I did enjoy the “In Defense of the Amateur” post at the link you provided. However, I still believe it is possible for there to be your professional class musician but based on entirely new strategy. The professional musician will also need to be a good business person. They will need to make partnerships and offer interesting creative products/services to go along with their music or hire a team that can. The goal to create an experience around your music that engages fans in and away from the venue.

    Planning for the future in this way will make it possible to make a living on your music without worrying about streaming payouts or illegal downloads. Because the listener still will be without the experience, which is what the musician is selling at that point, not the actual song. Best example that comes to mind is the Grateful Dead. Look at the experience they created. Their strategy would be even more successful now then it was back then!

    I also don’t want to hold my breath for those unethical services to be shut down. I believe that they will always exist and the time spent fighting them could be better focused on creating a new strategy I spoke of above.

    This is a great discussion. Thanks!

  • Tom Lewis

    Grateful Dead experience=Today’s EDM scene!

    What do I mean you ask? DRUGS…

    How will the future Bob Dylan’s, Bruce Springsteen’s, or Joni Mitchell’s of the world endure and put aural art out into society? Spotify, Pandora, Mog, doubtful? These services create nothing. They trade on the back of artists’ creative output, for that matter, so does iTunes.

    Other than their proprietary player and easy integration into one’s music library, do they really warrant a 30% financial stake in an artists’ repertoire. They’re aggregators that serve as an established hub to purchase digital music files. What seems right is a non-profit site like the iTunes store where the margins cover only overhead and storage costs. If fans knew the bulk of their $$$ found its way into their favorite artist’s pocket after a purchase, the $$$ exchange would hold more meaning.

  • jeremiahcraig

    Tom, the Grateful Dead experience was SO much more than drugs. They were great business men. For example, they licensed their logo to fans who wanted to make and sell their own Grateful Dead merch at shows.

    What does that mean? Another revenue stream for Grateful Dead without them having to create a single piece of merch.

    I never said that future singer/songwriters would be able to endure on profits from digital sales and streams alone, only that they can use them as tools to bring new fans into the experience they’ve created around their music.

    And why shouldn’t iTunes take 30%? They made the new model. Shouldn’t they be compensated for their creative efforts too? I believe that many fans are already aware of the fact that iTunes takes 30% and that musicians get $0.005 per stream from spotify. They keep using those channels because it’s easy and more enjoyable for them. And in the end isn’t everything we do about the listener? Musicians are nothing without them.

  • Tyler H Brown

    Did record stores really deserve to take the 30% of CD sales that they took?

  • Tom Lewis

    During their heyday, record retail was not limited primarily to one outlet. Stores charging co-op dollars to even rack a record was a much bigger travesty. Other than providing storage and some technical services, iTunes doesn’t do much to warrant 30%. If an artist goes through a distributor to also seek some physical distribution, they usually have to agree to anywhere between 15-20 percent for digital as well. That type of arrangement means that an artist gives up ostensibly 50% of the retail price of say $9.99 for what?

  • Yup

    This graph explains it as far as I’m concerned: http://www.theatlantic.com/business/archive/2011/11/how-musicians-really-make-money-in-one-long-graph/249267/

    Sorry but Spotify is still a ways off.

  • Tyler H Brown

    I think itunes does a lot to warrant their 30%, like offering a nearly ubiquitous sales platform. I’ve had my music available on other platforms, but it has been my experience that people buy albums through iTunes, not Amazon or any others. If artists are not satisfied with itunes, they can, with out much trouble, simple sell their downloadable music from their own websites. Godaddy.com offers simple set ups for online stores. In this day and age I see little to no reason to go through a distributer to sell physical CDs, those days are gone. Sell your CDs on amazon and at your merch tables at your shows. IMO the days of needing a record company are gone. Use a company like theorchard.com for your digital distribution, hire a PR firm to promote your album, and sell your hard copy CDs and vinyl at shows and through Amazon.

  • TrustMeI’mAScientist

    I’m sorry Mr. “Yup”, but it seems you did not read even three paragraphs into the article!

    Half the point of this piece was to refute that graph and point out just how staggeringly wrong it is. It’s off by a factor of 10 – 50 times.

    Still, I’d agree that the rates aren’t high enough yet. But of course, had you read the piece, you’d know that too!

  • First, I’m a songwriter, former engineer/producer, former project studio owner, and longtime music biz observer.

    Now, I’ll admit that I listen to a LOT of music and have been using various paid subscription systems for most of a decade, but there’s little question that I’ve streamed hundreds of songs into three figures.

    Here’s the thing: when I sold my house a few years back I had occasion to go through my 1200+ LPs and 500+ CDs and really take a look at them as an ‘investment’ — and in a LOT of cases, they were a very poor investment, given the few times I played the whole CD. (And how many times to people really put on a CD just to play one song?) There were hundreds of records I’d barely played.

    As a consumer, I’m simply no longer prepared to play that kind of roulette with my money, buying albums on spec because I heard a good song or two or some good word of mouth. THAT may not have led me to financial ruin, but it was nonetheless a big drain.

    I would much rather see my money go to the artists whose music I most frequently play.

    For sure, the old system was a windfall for many marginal artists who managed to sell albums to some but whose music largely failed to create fans of those purchasers — but it was a drag for music consumers who found themselves paying more or less the same for music they really loved as they did for music they wished they’d never bought.

    And under a paradigm where decreased production costs and negligible distribution costs allow far greater economies, it seems clear that such inequities will eventually collapse of their own imbalance.

  • willbuckley

    Great post. Rarely do I see an actual number for where artists need to be to make money on Spotify. And I agree, these services are more interested in big subscriber numbers, mostly advertising only subscribers, to get their investors excited.

    Pandora with their 200 million subs is an exciting prospect with “potential”, but until they decide to become a real business, it is the artist who pays. And in some ways this is the core of the problem, these businesses are built for investors, not as an equitable way for everyone to make money.

    Where we may part ways in this discussion is that I don’t believe in an either or scenario. Digital has and always will have limitations and promoting vinyl and keeping it alive makes sense. In the same way that every shed level artists needs to give cds away at shows. It is a way to stand out, especially for those who own few cds, and expose fans to other songs they will most likely miss.

    Speaking of which. Once upon a time artists toured to sell pre-recorded music. Now labels/musicians are making up for it with expensive concert tickets. So the whole concept of free music? Never happened, now were just paying elsewhere.

  • David J Caron

    Spotify Revenue apparently Doubled Last Year To $577 Million… ! How would they be able to make any money at all without the content they pay the creators of it, next to nothing for.. I wonder…? What else is there in the world that is only worth $0.02 each time it is enjoyed…Is there anything so easily accepted as worth so little as an original composition.. that takes such unique irreplaceable talent to create ?

  • luetm

    “Fixing this simple problem would require either raising income or lowering the number of steams. To do this, Spotify’s options are: A) Put caps on how much listeners can stream, B) Raise subscription fees, C) Increase advertising rates or the frequency of ads, D) Eliminate or restrict the ad-supported model, or E) Some combination thereof. That’s pretty much it.”
    How about: F) Grow [more subscriptions]

  • Rob54

    Ah, what a mess the whole thing is for all streaming services. I don’t care how it gets worked out, but I hope it does…for the sake of the music, and my ability to hear it. I will continue to do my part by legally streaming (Rdio and torch music for the most part). I hope a decent compromise can be made!

  • TrustMeI’mAScientist

    There’s a clear problem with that option, luetm: If Spotify grows, it will continue to displace actual paid record sales. This means replacing a higher payout (record sales) with a lower one (unsustainable streaming rates.) So growing the business isn’t enough. the actual rate per stream must go up as well.

    The solution you’re mentioning would only work if we assumed that every single Spotify listener was a totally new music fan whose past listening and purchasing habits were completely unaffected by adopting streaming.

    Since we can’t assume that the “cannibalization rate” (the rate at which streaming replaces not just piracy, but actual record sales) is zero, simply growing Spotify’s market share without a raise in the pay-per-stream rate would likely hurt musicians more than help them.

    You’re right to say that adding more subscriptions would help, because subscriptions pay a higher rate than the free service does. But in order to do that effectively, Spotify will need to provide a real incentive for users to pay. At this point, the way to do that would appear to be limiting the free service further in comparison to the paid service.

    And in the long run, the subscription payouts will have to go up as well. There’s just no way to crunch the numbers that would make $.015 per play sustainable for artists. If you can do it, I’d love to see your math!

    Thanks for weighing in,


  • David Duwaer

    Justin, good article! But you’re making a few errors. First of all, you remark that you need 46 plays of one song to pay get up to 77 cents for a song on itunes. There’s indeed not many songs you play that many times, but that’s not a complete view. The question is how many songs you play per month on spotify, multiply it by $0.015, and then compare it to how much money you spend on iTunes. According to the Spotify website (so I know, most biased source ever :P), it’s supposed to be twice as much on average.

    Then, you say that we should get up to $0.02 cents per play. I think, this is never going to happen. A user supposedly on average plays 2 hours of music per day, that’s 60 hours per month, that’s about 1200 songs per month. Pay 10 euro, divide it by 1200 and you get the max pay per play, about 0.9 cents on average (mind that on average, so only pays of 1.5 cents is not sustainable). As more users use Spotify, the pay per play won’t rise. Think about it, Spotify will make more revenue, but just as many more plays will occur. What wíll happen in the future, that, indeed, many more plays will occur as Spotify grows. And that will make more money for the artists.

  • David Duwaer

    I mean basically, the whole idea of raising the pay per play is irrelevant! Why would it help if you decrease the plays :S? It’s about how much money the artist makes… That is only determined by the amount of total revenue and the relative popularity of the artist. Or, if you look at it with a single-user scope, the artists (all artists together, in general), earn €10 per month from a single Spotify Premium user. So every Spotify premium listener generates as much income as someone who used to buy 1 album a month, in the old days. I think that is really solid. I mean, how many people actually did that? And with a streaming service like this, the treshold to that is much lower. Back in the day, I guess you had to be a real music lover to do that, now you just roll into it. This means it actually has potential to make more money for the industry than it did in the highest days of the CD! (end of the 90’s were the most profitable days for the music industry). It just has to grow, grow, grow. As it grows, the 70% can even go up to 80% or 90% because the costs for making the software and doing the label deals doesn’t go up as fast as the user base increases (if they go up at all).

    And don’t forget that the image of very rich artists was all an image from a time that only a handful of people were making that kind of money, since they had record deals. Now, many more artists are taking a slice of the pie. If you don’t like that as an artist, if you think your slice is too small, you have to make better music then…

  • Conor Madigan

    I’m paying 99 danish crowns per month for premium (about 18USD) and many other countries have similar rates. I wonder how it filters down to the artist wrt. to the country a track is played from?

  • robscutt

    Interesting article but I feel even the figures here used must be capped at certain levels. Take for example Avicii – he has within his top 10 most popular songs on Spotify 365m+ plays – let’s say Spotify is paying him the lowest amount of $0.005, that is still $1.8m and I very much doubt that Spotify has paid him that much in royalties! (Well of course not they base it on a percentage of overall plays…so big mega hits like this skew all figures massively, meaning the small get even smaller and the big get capped) It is the classic graph of poor distribution of wealth, it should be more like a higher price paid for the first 100k plays ($0.02) and then less as you get played more so 100-500k ($0.01) then 500-5m ($0.005) 5m+ ($0.0005) not based as it currently is saying all songs are worth the same value and placed in the same pot. That way small and up-coming artists can utilise the service with much better rewards and global superstars can still earn big and fill their stadium gigs making even more money!

  • ItsBS

    Isn’t this person’s post (and, ostensibly, the person posting it) kind of amazing and startling? It makes you wonder how many so-called ‘discussions’ and ‘exchange of ideas’ on the internet are actually just posts like the one above: a person who catches ONE WORD of the headline (‘oh look, the word Spotify!’) and then goes ‘No need to read the article, I have a memory of something relating to that word. Better post it!’ I mean, the VERY BEGINNING of this not-long article points out that the graph is bullshit, and this idiot is like ‘Why is the author not addressing this important graph?’

    This is why I could never blog. I can completely handle people disagreeing with my opinion, strongly or rudely, no problem. But these posters are expecting an author to read and consider a reply to a post when the poster has PROVEN that he has not read or considered the article in the least with the ignorance in his post. This person isn’t really disagreeing with the author. He can’t be. He has no idea what the author’s position is. This is just one tiny step up from “My brother made $51 an hour working from home and you can too! Click here to learn how!” and all such garbage.

  • Charlotte McCl

    I don’t know about other people, but a lot of the music I listen to on Spotify is stuff that I already bought ages ago – I purchased the album and if I’d have stuck with my old offline music player (iTunes, blech) none of those artists would have ever got another penny from me from their old back catalogue. But with Spotify, they’ll once again be getting revenue from my listenings. I’m certainly spending more per month on Spotify than I used to on purchasing music.

  • ᅠᅠᅠ

    Very good and well-founded comments.

    Regarding the image of rich artists, it’s also good to consider that many (if not most) of them were actually neck-deep in debt with their record companies, who provided them these flashy perks as bait and for marketing. The arts have traditionally always been a very tough line of work to make a living on. Some artists managed to turn their popularity into a good living, through good business sense and being careful about what contracts they signed. Way too many others have been exploited by fraudulent business people, which is why we have charities tending to formerly big, chart-successful artists who can no longer afford food and shelter.

    And a very important point you’re making with the slice of the pie. Aside from the phenomena of digital distribution and streaming, one major effect the Internet has had on the music world is a fragmentation. It has become much easier for people to find and discover music, even very obscure stuff, and develop their own tastes and find their niche. It’s made it more difficult to become a mainstream megastar because tastes are less unified, but it has among other things led to an incredibly diverse and healthy indie scene with countless sub-markets.

    But there’s also the big pie of how much time and money people actually have available to spend on leisure and entertainment. That pie hasn’t grown considerably, while the media and entertainment options have become much more diverse. Apart from music there are more movies and TV shows than ever, we now have the massive market of videogames, other pastimes on the web, and of course in the physical world. Yet people still have to make a budget, and they don’t have unlimited spare time to do all of this. The number of possibilities has positively exploded, yet there are still only 24 hours in a day, and some of them you need to work if you want any money to spend on music at all.

  • ᅠᅠᅠ

    It should also be noted that while most industry experts believed that Spotify, using their model, would get at most around 10% to subscribe to a paid model, they are indeed now approaching almost a third of users that pay (of which around 90% are reported to have selected the more expensive plan).

    The subscription rate has already surpassed most expectations considerably, so I don’t think it’s realistic to assume that it will change drastically to, say, exceed 50% of users.

  • ᅠᅠᅠ

    Services like Spotify can also help in that regard. People like to point out how it might keep people from buying an album if access to a stream is enough for them. But the influence on physical product goes both ways. Spotify is also a great discovery and evaluation tool, and I personally increased my spending on records about three-fold since I’ve used services of its ilk. Am I going to spend $30 on a record that I couldn’t listen to beforehand? Probably not. (30 second samples don’t give me much of an idea about an album, and listening in a store is neither always possible, nor a very flexible/comfortable solution). But if I have the chance to listen to the record beforehand, at my own leisure and in full length, I might just be. Of course any positive effect on record sales that Spotify might have is just as impossible to quanitfy as a negative one. But it’s important to not underestimate it. Real music fans, those who are willing to pay for physical albums in the first place, end up buying stuff they discovered or were recommended on Spotify.

    I completely agree with you that there isn’t an either, or. And streaming shouldn’t be seen as a purely competing, but also complementary distribution channel. People always said, piracy at least had the upside of free global promotion. The same is true for streaming services, while in addition paying out royalties roughly (maybe not yet) comparable to radio airplay. Artists don’t count on being able to make minimum wage off radio airplay royalties either, they count on its effect to drive album sales.

  • I would be very fairly happy to pay more for the Spotify service it is so convenient for finding new music I would probably be happy to pay around $15 a month to access the service.

    I’m sure most other subscribers would agree as well if it meant that most of the artist’s stayed and the service continued into the future.

  • Joel Kalsi

    Any update for late 2015/early 2016 on the subject? Unless you are a pop-sensation to-be, I’d recommend artists to self-releasing instead of trying to land a major deal. It may (probably) not get you exposure or stardom as an artist, but will get you better money when there’s no middle man and you are still going to need to do the same amount of work anyway.