Spotify's D.A. Wallach Explains How Spotify Pays Artists - hypebot

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David Dufresne

"We feel the metric of success should be based on how many people are listening to your music over a period of years, as opposed to looking at how many units are shipping in one week."

Explains well the biggest paradigm shift that is so hard for so many people to understand.

Maurice DeNoble

"The confusion is warranted – the interactive streaming payment model that Spotify, Rdio, MOG and Rhapsody use is less transparent than the permanent digital download model that iTunes employs, for example." If this is so, how can one make a valid case for placing product on the service? Haven't artists been vilifying the major labels for 40 years because the royalty payment systems were "less than transparent?" Did you believe because this is the internet these are "good guys," vs the traditional major label villains? The guys at Spotify like to spend big on their expense account dinners too. David Dufresne calls it a "paradigm shift," I perceive it to be a bad business model that devalues the copyright, pays artists a substandard wage, and as a profit center will ultimately prove to be unsustainable. Of course there is growth rate - it started at point zero backed by a massive advertising and PR campaign. I wish I had a penny for every time Myspace was called a "paradigm shift." This is nothing more than a bunch a tech heads trying to get rich off of your creativity and content. Wake up people!!! If a company executive has to spend 10 paragraphs to explain how his payment system works, you have a problem. Who runs this company anyway, Romney and Ryan?

Kevin

That this "paradigm shift" screws artists is obvious when you do the math. Or let Jesse Von Doom do it for you. http://blog.whatistodaysvegetable.com/post/25608389013/motherfuckingmath

Spotidj

"The larger Spotify gets, the larger the royalty rates should be."

Nope: The size of Spotify does not affect the per stream rate.

"The royalty rates we’ve paid out have been growing at an exponential rate"

Not true either. Over the last year the per stream rate did not grow at all. Check this graph of per stream rates over the last two years.

http://www.spotidj.com/blog/spotify-payout-q2-2012/

Hetal

D.A. is full of it. Major labels receive a much higher royalty rate from Spotify than indies do. On top of that, major labels' contracts with artists end up allocating nearly all of that revenue to the labels (and crumbs to the artists) to keep their pocketbooks happy. That's why they agreed to the streaming model in the first place.

http://www.guardian.co.uk/music/musicblog/2009/aug/17/major-labels-spotify

Marles

Hetal: That article you linked to says that the majors were able to buy shares of Spotify, not that they receive any greater royalty rate when it comes to streaming. Indeed, this ultimately means that they are profiting more from the service, but what DA says is factually accurate. And to your last point: of course majors aren't going to share profits fairly with artists; that has been true for ages - but you can't blame Spotify for that.

As an indie I hope that what DA says is true, but I for one will remain skeptical until these guys can show some actual, relevant data and a business model, rather than empty anecdotes and future promises.

Ellen Shipley

Spotify is hiding a very basic legal obligation that few artists, songwriters and the general public would know about. The 10.5% is mandated by the US government to be PAID DIRECTLY TO THE SONGWRITER OFF THE TOP BEFORE IT GOES TO THE RECORD COMPANIES OT HARRY FOX OR THE PRS'S!
Read about it....It's right there in the copyright laws.....Spotify gets around this, by claiming they cannot "find" the artist and post notice to that effect. Thereby, becausee of the fact that the Record Labels OWN Spotify, the money goes to them first, the PUblishers (Harry Fox), the PRS'....Then, some ridiculously low, insulting and illegal trickled down penny comes back to the composer, artist, etc....A songwriter an actully call SPOTIFY, and upon hearing his work played, he/she may demand to be pay the 10.5% share directly to them..You could not be with a PRO but you will have your money. Having written many hit songs that are streamed every day by Pandora Rhapsody, YOUTUBE< SPOTIFY......I can tell you I have NEVER seen a cent from Spotify. Maybe they cannot find my phone number....

J

"The larger Spotify gets, the larger the royalty rates should be."

I agree with Spotidj on this. There is no relationship between the royalty rates per stream and the size of Spotify. The only things that change what Spotify pays out per stream are the following:

1. User behavior in terms of streams per user. More streams per user means lower payout per stream, all else equal.

2. Mix between free and paid accounts. A higher % of accounts that are paid = higher per stream royalties, all else equal.

3. Price of paid accounts, or price of ads. If Spotify can charge more, then the royalty rates per stream will go up, all else equal.

Of the three things above, the only one that holds much hope is #2. People will not likely change their music consumption patterns over what they already do on Spotify, and I don't expect the trend on ad prices or music subscriptions to be headed up anytime soon. So it will really come down to whether or not Spotify can convert more people to paid subscriptions.

Good luck with that, given what Apple is about to do in this space.

Final comment: I don't think that Spotify does itself any favors by trotting out poor souls like this guys Wallach, who clearly doesn't have a grasp of how the math works vis a vis royalty rates. These claims that volume will change the royalty rates for the better are ignorant at best and disingenuous at worst. This is not a "we'll make it up in volume" model. I really wish they'd stop making this claim - it makes it nearly impossible to defend them without losing ones integrity in the process.

ttt

that's incomplete data. you don't know how consumption of other content is effecting your pro-rata share.

Spotidj

I don't see what you mean. Can you maybe explain?

Steve

As the number of users and revenue grows so do the number of streams which reduces the per stream payout. I am a premium subscriber and would prefer if my subscription fee were divided between the artists I listen to on a percentage basis.

For instance, If I pay $10 per month, and $7 is distributed and I listen to 500 three minute songs or 25 hours a month, which is probably more than I currently use. My per stream payout to my artists would be 1.4 cents per stream, going directly to the artists I choose rather than getting diluted in the revenue pool.

From Spotify's perspective, they are still taking the 30% cut so this should not matter to them, there must be other interests influencing this. With the current setup, my $7 gets pooled and goes to support Bieber, Drake and Katy Perry and whoever else tops the charts. That is fine if thats who you listen to but it causes the long tail to subsidize the current major label machine.

I am a fan of a streaming model that someone proposed online that is something like this: listens for 2 cents per stream, 70% goes to the artist 30% to the website distributor(although I think 30% is a lot for what they do, itunes included), no royalty pool divided by all, just payouts to the artist. Also after 100 streams, the fan owns the music, similar to financing your music purchase you pay a little more over time, $2.00 to be exact, or if you want it now, pay the itunes rate of $.99 to $1.29.

There are still some questions left from this interview:

1. How do the streaming services treat partial listens, 10 seconds, 30 seconds a minute, what is a listen? Does this further dilute the streaming rate.

2. Why do they not link to purchasing the track if they dont believe Spotify cannibalizes track sales, this would only lead to more revenue for Spotify.

3. Why are the ad rates on free listens less than regular radio, meaning if you want it free, you have to deal with ads. Regular radio has shown that people will tolerate a lot of ads in exchange for free access. The more ads they show, the more revenue they generate, thereby increasing the per stream payout and their own profit. It would also drive subscription rates up.

Hetal

Well -- on top of the shares -- considering that Spotify has never revealed what the royalty rate % they've negotiated with major labels, I don't think it's too far off to assume it's far higher than the flat rate for most indie labels.

Steven

Spotify doesnt always pay per stream, they also pay a percentage of advertising revenues compared to your overall Spotify share. Thus, the bigger they are.. they more the advertising pool will be.

alex

The numbers here seems slightly confusing.

In November 2011, it was said that Spotify had 2.5 million subscribers, and now it's being said they have 4 million. Just looking at that time (the last 10 months) and assuming a uniform monthly growth (of 166666 subscribers per month), and assuming the subscription level is the lowest value currency (dollars) - I'm calculating 70% of revenue for that period to be $227.5m.

If we were to take into account currency, with UK subscribers paying 60% more, and advertising revenue, and of course the previous 3 years' revenues since the company started, I would expect this number to be substantially higher.

So how is it that they've paid out around $200m in the whole lifetime of the company? Am I missing something here?

Robert

I agree Ellen. I have two records on Spotify and I have never seen a dime from them. My songs are played thousands of times a month on internet radio. I get peanuts from Pandora for that (in royalties), but absolutely zilch from Spotify. In my opinion, these kinds of businesses should be shut down. They are making money off of content providers, most of whom are not being paid for their content.

Robert

I have two records on Spotify and I have never seen a dime from them. My songs are played thousands of times a month on internet radio. I get peanuts from Pandora for that (in royalties), but absolutely zilch from Spotify. In my opinion, these kinds of businesses should be shut down. They are making money off of content providers, most of whom are not being paid for their content.

jake

Key word being assume.

Kenneth Tyler

Can someone please explain the "revenue pool" and how it works? If unsigned artists get their fair percentage based off streams, how does that lower their "per stream rate" as compared to major label artists?

Why do I feel like Spotify is lying through their teeth?

Jeremy Ulrey

"How do the streaming services treat partial listens, 10 seconds, 30 seconds a minute, what is a listen?"

I've noticed that a song doesn't register on my Last.fm playlist unless I've scrobbled at least half the track. That could be based on Last.fm's own metrics but it seems a likely compromise for Spotify as well: they can't justify 100% because people often skip the last few seconds of a song if there's a lengthy fade, but at the same time they can't reasonably be expected to pay full royalties on every song that a listener skims over for a few seconds either.

Jeremy Ulrey

I think one thing that seems to go unspoken here is that, while Spotify is absolutely obligated to disclose numbers to either the artists themselves or at least their intermediaries, they have ZERO obligation to disclose those numbers to the mass public. That they choose to do so even in vague, "runaround" type verbiage is more a matter of placating the court of public opinion than it is about satisfying any legal obligation on their part. You don't expect the Tiger Mart down the street to disclose their margin of profit on a gallon of gas, why would you expect Spotify to identify the dollar amount on that check they cut to Slayer last month?

Which is not to say that they're not indeed failing in their duties to the artists, but these are two entirely different "problems" that seem to get falsely conflated.

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