December 3, 2013 at 9:51 am

What Spotify Just Did There: Transparency, Audaciousness, and The Collective

spotify_artistsFollowing thousands of articles about how Spotify pays — or doesn’t pay — enough money to artists, the company, again worth $4 billion after another round of investment, issuedmini-website on Tuesday to explain how it is not ripping off artists by streaming their music for free or for a monthly subscription to music fans in 39 countries.

It’s not just a public relations move. Spotify is also giving artists direct access to their data (soon), assembled with the help of Next Big Sound.

In a music industry where artists typically have to sue their labels for a chance to look at the books, this amounts to some fairly radical…

Transparency

By laying bare how it pays copyright holders — a group that includes not only recording artists, but songwriters, record labels, and publishers, too – Spotify can no longer hide behind its formerly-opaque royalty calculations. This is a major step forward for transparency in the music business, at least if Spotify and things like it constitute a significant portion of its future.

Spotify wouldn’t do this to make itself look bad, especially when the company is already so polarizing in the artistic community, with some artists (Billy Bragg) coming to its defense and others (Thom Yorke) thinking of ever more clever ways to state their disdain for the service as they withhold their music from its catalog.

This move could pit Spotify and artists, whom some see as enemies, against labels and publishers. After all, once recording artists and songwriters see how much Spotify is paying labels (and then publishers) on their behalf, they might notice how little of that money they’re actually seeing, even after waiting up to 18 months for their slice of the money to work its way through their label(s) and/or publisher(s).

Their very next phone call could be to their label or publisher, wondering where all that Spotify money is going — or to their manager, to see about switching labels or distributing music without a label. That way, they’d get 100 percent of that Spotify loot.

Audaciousness

Spotify hinted that it could pay out a billion dollars to copyright holders in 2013. So far, Spotify says it has paid out half that so far ($500 million). Given that there are only four more weeks in the year, we don’t expect Spotify to hit that billion-dollar mark, although it has paid out over a billion dollars to copyright holders since 2009.

According to Spotify, a niche indie album, presumably with a bit of traction, will earn $17K per month from the service. That would be an amazing world, but it assumes Spotify will hit 40 million paying subscribers.

So far, it has announced six million paying subscribers, and The Guardian’s sources say that figure is approaching 10 million. Finding 30 million more people to pay $10/month for Spotify who don’t already have it will be no easy task, especially when there’s so much free music out there. But if that happens — if — Spotify promises that more artists will earn a decent living from the service.

The Collective

Finally, Spotify clarified a big source of frustration for anyone trying to write about or understand how much it pays per stream.

The answer: Although Spotify pays copyright holder every time a song is streamed, it has no set figure for how much it pays out per stream, which is why previous estimated figures vary so much. The whole thing is a big collective. Some users pay, while others listen for free and put up with advertising that generates another little stream of cash. All of that money goes into a big pot, then gets split up among artists depending on who streams the most, with additional tweaks made for the country in which the listening took place.

After all of these calculations, Spotify says it ends up paying out between $0.006 and $0.0084 per streamed song.

Of course, the initial Spotify checks containing that money go to labels, then the money filters through to publishers, recording artists, and songwriters, according to how their contracts are set up. The biggest result of Spotify’s new transparency could be to affect artist contracts that have yet to be signed, with implications for how artists negotiate streaming rights (some of them are already suing labels about Spotify). Now that they will soon know how much money their music is generating from Spotify, they’ll have a better understanding of their fair share.

  • Ash

    No mention of artist merch on Spotify? That’s bigger than any of this news written here!

  • Anonymous

    I applaud the concept of Spotify in terms of the service it delivers but otherwise: what a load of rubbish when it comes to sharing profits with all those who did the hard work in the first place.

    Between $0.006 and $0.0084 per streamed song is daylight robbery, especially when you look at the huge profits. This is a shoplifter who pays for a chocolate bar with his/her pockets full of stolen goods off the shop shelves and sees that as somehow being honest. Hardly better than peer-to-peer dodgy file-sharing except that some corporate lawyers have found ways around the law.

    What would be interesting for Spotify to disclose would be how many of their shares are owned by the record labels themselves – something heavily rumoured in the business. That way they get profit-sharing but without having to pass any of the profits to performers and copyright owners.

  • George Johnson

    http://www.spotifyartists.com/site/wp-content/uploads/2013/10/Payments-per-1m.png

    This is an outright lie, terrestrial radio pays $1,000,000 dollars for 1,000,000 plays so $1 per play on average, JUST FOR THE PUBLISHING and here Spotify tries to claim it’s $41, nice try. Time to put Sean Parker and Daniel Ek in jail for good and shut these con-men song thieves down.

  • Frank B

    and no mention of the record labels take on advertising as a part owner of spotify. Thats the real story here. News flash. Labels can make money through their equity stake, ownership position in Spotify off of their cut of the ad revenue WITHOUT PAYING ROYALTIES. This is important because the idea that the record label can negotiate a royalty rate that is not in an artists favor and still make money is unprecedented. Used to be the record labels financial interest were linked with their artist. This is now the fox guarding the henhouse…

  • Ross Carlson

    I look at this news as a positive. More users on Spotify means more money for everyone. Artists should support Spotify’s growth, and emerging artist should consider avoiding record/publishing companies. read about it here:

  • Ross Carlson
  • Carla

    The problem is that their data is being assembled by Next Big Sound whose data is notoriously inaccurate.