If You Want To Hate Spotify, Do It For The Right Reasons — Not Payout Rates
In the early days of Spotify (and other similar music streaming services), it was vaunted as a “solution to online music piracy”, as it offered an easier way to access music at an accessible price. The growth of the recorded music industry to this date can be tracked to the introduction of Spotify (and similar, if not as influential, services like Apple Music, Tidal and Deezer). Spotify is so popular to the point Google has iterated through various music services, finally settling on YouTube Music.
Alas, it’s popular, at least for musicians, to hate on Spotify. The common complaint is that the “per-stream payout is really small”. Despite Spotify clarifying that there is not an official per-stream rate, many people incorrectly vilify Spotify for their measly payouts. Add to that the dominance of Spotify as the number one music streaming service in the world, it’s really easy (and lazy) to paint Spotify as The Evil Hegemon.
Of course, it’s really not that simple — Spotify makes money through subscriptions and ads. That money is divvied up based on how much each song got streamed (hence no real per-stream rate), from the 70% share allocated for royalties. This money goes to the music labels and distributors, which then trickle down to the musicians themselves. So. The music labels and distributors receive and manage these royalty payouts, yet Spotify is the one guilty of not paying enough.
One post I saw yesterday stated that “Apple Music pays out double per-stream rates”. I am not so familiar with how Apple pays out royalties, but they will never, ever payout royalties at a loss. So it will be tied to how many subscribers the Apple Music service has, with a similar payout structure to, you guessed it, the music labels and distributors. But why would Apple seem to be paying more?
So far I think we can agree that Spotify is the largest music service in the world. The majority of musicians would want their music there. This in turn creates an oversupply of music. My educated guess is, the rate of growth of music supply on Spotify is much greater than the rate of growth of subscribers and the rate that they listen to music on the service. Even at a rate of listening 20 hours per week, it would not be as exponential as the growth of music available due to the relative ease of producing and distributing music to streaming services today.
Hence we have a pie of, say, $1million dollars, collected from subscriptions and ads, and a growing number of songs to divide it up towards based on plays. So if you consider that 100,000 tracks get uploaded daily, and assume that each track gets at least 2 listens, that would eat up a big part of the aforementioned pie and bring down payout rates if calculated per stream. Apple Music, on the other hand, referring to the claimed higher per-stream rate, might have a higher subscription price and less streams, leading to higher payouts per stream.
The big part of this equation rarely mentioned by those complaining about these abysmal per stream rates is how much actually goes to the music label or distributor before reaching the artist. Experience says, it’s a lot, some within reason, some not, depending on your perspective. But it’s easier to blame Spotify.
Running a streaming service is difficult and expensive. Believe me, I have had experience in it. They do make a lot of money, reporting €32 million operating income from €3.4 billion total revenue. Not much when you think about it — and I guarantee their largest costs would be payroll and cloud costs. Since there’s nothing to be done about cloud costs, they’re doing some layoffs to remain profitable. This is not something a company with extra money lying around would do (if they are overpaying their C-suite and top management, is another issue), so there’s really no extra money that can be pulled from Spotify for “higher per-stream royalties”. Go ask the music labels and distributors for it. But Spotify needs to change to maintain profitability.
Spotify’s flashy foray into podcasts is also another indicator that they want things to change. Differing from music, where royalties are paid out for every play, acqusition of podcast content is either virtually free, or on a title/IP basis like Netflix would acquire movies and series. [Arguably] great content will acquire more users for Spotify that listen to the podcast, decreasing the slices of pies that go to music plays, and hence enhancing profitability. It works on a different math equation than music.
So if I want to hate Spotify, what should I hate it for? Well, plenty of things, depends on what you don’t like about companies in general. But to hate it for low payouts is just lazy.
