Finally, Spotify Payouts Clarified!
The amount of money that Spotify pays rights holders per stream has been largely a mystery, or at the very least loaded with misinformation. Thanks to an article published yesterday on Hypebot by David Macias, a lot of the mystery has been lifted and the misinformation swatted away in one fell swoop.
We all know the mystery; no one can seem to get a straight answer about Spotify payouts, and it’s frustrating. But how much misinformation is out there? The article starts by quoting a widely circulated/Tweetd/Facebooked article in Pitchfork by Damon Krukowski of indie rock band Galaxie 500 which claimed that indie artists gets paid .005 cents per stream. Turns out that Krukowski’s math was off by a whopping multiple of 100. According to the figures provided, Galaxie 500 was receiving .005 DOLLARS (a half cent), not .005 cents, per stream. Whoops. Mistakes like this abound in discussions of Spotify, Rdio and the like, and this is just one example.
Sure, a half cent per stream might not seem like much. But as we know, Spotify continues to pay every time a track is streamed, whereas the relationship between artist and consumer is finished in a traditional music purchase arrangement:
Let’s take that half a cent per stream and compare that to buying a download. Owners of masters receive 70 cents from iTunes for a download. Once that sale takes place, the transaction between artist and consumer is complete. But if you are a fan of an artist or a song, and you choose to listen on Spotify, then EVERY LISTEN earns an additional half a cent. Just as a point of information, I sorted my iTunes playlist by plays, and the artist that I had listened to the most (Anais Mitchell, in case you were wondering) was over 1400 plays each on a handful of songs. Had I listened to her on Spotify, she would have actually earned 10 times the money for those particular songs. It’s the difference between buying a car and renting one. After a purchase, the transactional relationship is over. But if I’m renting (streaming), then the transactional relationship begins anew with every listen.
And here’s where things get really interesting. Macias sheds some light on what Spotify actually does with the $9.99 monthly subscription fee you pay:
It’s also important that you understand how Spotify splits out the money that they bring in. Of the $10 that I spend monthly for Spotify, $6 goes to the owner of the recordings, $1 goes to the owner of the publishing copyright, and Spotify keeps $3. That is exactly the same proportion by which revenues are shared in the iTunes model, and that 70% which is shared by the owners of the recording and publishing copyrights is a higher percentage than they share for goods sold at physical music retailers. That’s about 60%, but when you consider that an actual CD or LP had to be shipped, retail staff paid, etc., that’s fair value. My point in bringing this up is that the economics of Spotify conform to the economics that have existed in the music business for some time. It’s just a perceptual shift in the transactional relationship. It would be the same as if you stopped paying $20 for your water bill at the end of the month, and started paying 50 cents for every shower and 10 cents for every glass of water. You would be paying roughly the same amount. It just would feel weird until you adjusted to the new norm.
Not discussed in this article: how, if it all, Spotify compensates artists/labels when someone who uses the services for free streams a track. How is the ad revenue shared? Same split as the above, or different? I have yet to see a definitive article on this topic.
Macias then goes on to make several other great points: 1) Artists’ contracts with their record labels, not Spotify, are at least partially responsible for the perceived low payouts, 2) the music industry is a tougher road than it used to be; our attention is simply more fragmented now than it used to be, 3) Comparing Spotify payouts to Pandora payouts is comparing apples to oranges, 4) This is only just the beginning for Spotify… imagine how many times those per-stream payments will multiply when millions more are using the service.
Meanwhile, certain major players in the metal industry — namely Metal Blade, Prosthetic and Sumerian — are completely missing the boat. Will 2013 be the year they finally stop fighting against the forward march of technology? We’ll see.
Highly recommend you read this article. Check it out here.
[via The Lefsetz Letter]
Note: An earlier version of this article incorrectly listed Damon Krukowski as a member of the band Grizzly Bear.