Spotify’s paycheque puzzle

LOS ANGELES (AP):

Every day, millions of people use Spotify to stream music. A few years ago, it would’ve felt like an impossibility.

Streaming now accounts for most of the money generated by the music industry – 84 per cent in the United States, according to the RIAA, and 67.3 per cent worldwide, according to a 2024 report by the International Federation of the Phonographic Industry, which tracks global sales.

Spotify makes up roughly 31 per cent of the total market share – with a reported 626 million users and 246 million subscribers in over 180 markets.

In July, Spotify increased its monthly subscription cost. So, how does Spotify pay artistes and songwriters? Short answer: They don’t.

Spotify pays roughly two-thirds of each dollar it makes from music streams – a collection of paid subscriptions and advertiser income – to the rights holders of the music on its platform, paid out between recording and publishing agreements.

Those rights holders usually comprise a combination of record labels, distributors, aggregators and collecting societies – think Sony, Warner, Universal, the digital music licensing organisation Merlin that represents independent labels – who then pay their artistes according to their contracts.

If an artiste is self-distributed, they might pay a small fee to an aggregator, or upload service (some popular ones include DistroKid and TuneCore).

ROYALTIES

A self-distributed artiste keeps “the vast majority of (the royalties)”, explains Charlie Hellman, the vice-president and global head of music product at Spotify. Or it “goes to their label and their publisher”.

Payments to rights holders are determined by a process called streamshare. Once Spotify pays the rights holders, “we sort of lose visibility of exactly what happens after that,” Hellman says.

When you buy an album in a store, a percentage goes directly to the artiste. With streaming, subscription fees are pooled together and distributed based on streamshare, which Spotify calculates by dividing the number of streams for each rights holder by the total streams in that market.

Most streaming platforms like Apple Music and Amazon Music use streamshare.

Hellman explains that “whatever fraction of streams” a rights holder has on Spotify is “the fraction of the total payouts that are paid out” to them. “We calculate that per market,” he says.

If a rights holder like Universal Music Group accounted for half of all the streams in the US, they’d “get half of all the revenue generated”.

Liz Pelly, a journalist whose first book, Mood Machine: The Rise of Spotify and the Costs of the Perfect Playlist, will be published in 2025, says the streamshare system has been criticised for “benefiting the artistes who generate the most streams” and “the major labels who already have, like, so much market share”.

In recent years, artistes’ organisations and independent unions have advocated for a user-centric system. In this model, royalties are paid directly to rights holders based on each user’s listening habits. For example, if you only streamed Charli XCX this month, she and her rights holders would receive about two-thirds of the revenue from your subscription.

FIGURES NOT ACCURATE

You might have seen a popular metric that suggests artistes make, on average, somewhere between $0.003 and $0.005 per stream. But because streaming platforms don’t pay artistes directly, that number isn’t exactly accurate.

“This concept of the per stream rate is one of the most misunderstood aspects of the music industry,” says Hellman. “There is no per stream rate.”

He uses an example: Say, for the ease of understanding, a listener spends $10 on their monthly subscription. Three of those dollars go to Spotify, the other seven go to rights holders. (Currently, the individual subscription plan is now $11.99, not $9.99.)

“If they played only one stream in the month, the per stream payout would be $7 per stream. But if they played (700) streams in that month, then the per stream effective payout would be a penny,” he says.

Pelly says artistes deduce the “penny fractions” they make in royalties by looking at their statements. “And that is meaningful.”

They are “symbolically important,” she adds, if inexact, “because they communicate the reality that a lot of artistes are seeing, like, very little pay from digital services.”

Los Angeles experimental artiste Julia Holter, whose sixth studio album Something in the Room She Moves was released in March, says artistes do receive what adds up to penny fractions.

“The current Spotify model does not work for most artistes, in that you cannot easily make a living solely from streams,” she says. “The math here is so complicated, which is part of the issue.”