Making Dollars: Clearing Up Spotify Payment Confusion

Thirty-tigers-logo(UPDATED) By David Macias, president of Nashville based label services company Thirty

Much of the recent discourse about the music business reminds me of listening to partisan political commentators talk about America. There are a lot of conspiracy theories and misguided notions that perpetuate the worst stereotypes about a group of people. I am writing to defend the honor of Spotify and the music business, or at least some of it, by looking at the facts about what Spotify pays the owners of recordings.

First of all, let me tell you that I run a company that distributes and markets albums, mostly for artists that have not signed deals with record companies, but own their own masters. We collect money for them and distribute it out to them (in addition to providing other services). So I actually know what artists get paid. I'm the one that writes their checks.

image from www.google.comAn artist shares some Spotify numbers

A recent article in Pitchfork by Damon Krukowski claims that indie artists gets paid .005 cents per stream, then goes on to show his math: $29.80 paid for 5,960 streams. That's .005 DOLLARS, not .005 cents. That's off by a multiple of 100. Many acts, such as Grizzly Bear, took that incorrect math and tweeted to their fan base with extrapolated, incorrect assumptions about what artists get paid, and I watched scads of people retweet that misinformation, with the inference that Spotify and/or other elements in the music industry are not dealing with artists fairly.

I understand that he is saying that he did not get paid even that, but that the songwriters for "Tugboat" were paid a total of $1.05, the amount that was on his BMI statement. BMI does not collect for owners of recordings; they only collect for owners of publishing copyrights and songwriters. Spotify has a Pandora-like radio player on their site, and that part of their service pays out in a similar fashion to Pandora. You cannot listen to "Tugboat" on demand through this service. The Digital Millennium Copyright Act (DMCA) governs those payments, and the publishing community fights hard to get that rate as high as they can. Pandora is currently paying over 50% of all their earned revenues to owners of the recordings, whereas they pay publishers and songwriters about one tenth of that. They are currently lobbying hard and issuing lawsuits to bring their rates down to owners of both recording and publishing copyrights, saying that they cannot run a radio business paying out over 60% of revenues, when their competitors at SiriusXM and terrestrial radio are paying much, much less than that for the use of music. But if you're saying that Pandora only paid 21 cents for the use of your composition, my guess is that you'll find another $2.10 or so on the combined Sound Exchange (who administers compensation for the owners of recording copyrights paid out by digital radio providers) label and artist statements, compensating the owner of the recording.

The on-demand part of Spotify, the one that most people use and love, is where the $.005 per stream is paid out to the owners of the recording. I'm not clear on who is representing those rights for Galaxie 500, but I would encourage Mr. Krukowski to speak to them. I believe that he will find his $.005 per stream there

I get that this is ponderous work, keeping up with all of these disparate income streams and keeping them all straight. But one of the things that I get frustrated about, one of the things that led me to pen this piece, is the thought that artists are just giving up, assuming that the system is rigged against them and trying to earn a living is futile. That is simply not the case. If you are an artist, and you want to make a living at this, resolve to learn the economics of the business. "The Man" is only "The Man" if we remain ignorant of the rights due us, and give over our power.

image from t3.gstatic.comOkay, back to fractions of cents…

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.

How Spotify spilts income

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.

image from www.google.comMatisyahu

You want an example? Let's look at the Matisyahu "Sunshine" single. Over the last quarter, that song has been streamed 291,391 times on Spotify, generating a total of $1569.11. When you consider that Spotify is still so new in the United States and will likely grow much larger, the potential scale of the revenues are truly exciting. And I'm excited that Matisyahu will retain the vast majority of that. That is an artist getting paid a decent amount for one song over just a three-month period. He has lots of other songs too. And that's just Spotify. He makes more money through iTunes, retail and other outlets.

My defense of the music business stops (maybe) at the financial relationship between artists and traditional record labels. I have no clue what the financial relationship between Grizzly Bear and their label is, but the reason the amount of money on their royalty statement, as it pertains to Spotify, might look so small could have to do with the split of money between their label and the band. Even that can be defended, given that labels often provide all of the risk capital, but just because an act isn't getting paid by their label, doesn't mean that Spotify isn't paying the owner of the recording a just amount. Many acts that own their recordings are, in fact, making money.

The music business is a harder slog than it used to be. Media is fragmented into a million pieces and it's very hard to achieve the ubiquity that acts used to be able to achieve, and thus sell what they used to sell. Piracy is still rampant. But there are acts that are doing very well, because they are paying attention to where the money goes, and not bellyaching, sans facts, about the music business. If Spotify is so bad for the music business, why are revenues for the recorded music business in Sweden up 30% (first half of the 2011 vs. the same time period in 2012), when in most other countries, it's down or flat? Spotify is responsible for roughly half of the music business revenues in Sweden.

"The music industry stuck their heads in the sand about the pros and cons
related to the digitization of music in the 1990s, conducted their
affairs in an atmosphere of fear and lack of understanding…"

I wasn't trying to be overtly provocative when I compared the discourse about this subject to the level of discourse on Fox News, but it is a comparison that I stand behind. Saying incendiary things that aren't based in fact is damaging. The music industry stuck their heads in the sand about the pros and cons related to the digitization of music in the 1990s, conducted their affairs in an atmosphere of fear and lack of understanding, and many bad decisions resulted. The power in the music industry is now shifting from labels to artists and managers. Now that we have more control, let's be careful not to make similar mistakes because we're approaching the discussion from that same vantage point of misinformation and fear.

"Companies like Spotify and Rdio are going to be an important part of how we all make our money in the future."

Companies like Spotify and Rdio are going to be an important part of how we all make our money in the future, and we should be very careful about sowing the seeds of mistrust when they aren't warranted. I can understand people being uncomfortable with Spotify's penchant for privacy, and they could certainly help themselves by being a little more transparent and public about things. But if you're on a label, you should be asking your label how the accounting works when it comes to Spotify. Labels are often a lot less transparent than other participants on the value chain. Misinformation leads to artists keeping their music off of the service and fans canceling their subscriptions. The Spotify experience is a win for consumers and a win for the owners of the recordings. When the artist is the owner of their works, this business can absolutely be financially rewarding for them.

image from www.google.comTo Mr. Krukowski's assertion that Spotify and Pandora exist simply to attract capital:
technology companies often need capital to scale and grow, to pay for research and development, marketing costs that need to be spent before they ever attract a paying customer. The history of Sirius radio is a perfect example. How does one sell a satellite radio service before the investments are made in buying a satellite, hiring technicians to make them operate properly, spending money on lawyers to negotiate with music companies to retain the rights and ensuring that those compensatory relationships pass muster with federal regulators? Sirius was founded in 1990. They launched their service in 2002. They became profitable last year, and should remain so for some time, because they offer a great service. And aren't we all happy with those Sound Exchange checks we get?

Pandora is in exactly the same place as Sirius was. How in the world do they play song after song that I like, even when most of the time, I have never heard of the artist? They did it by spending an inordinate amount of time creating an algorithm that breaks down music into 400 categories in order to find other music that their customers might like. It took a lot of time and money to come up with that. Their business has not completely scaled yet. They are not yet making enough money to pay for the costs of running that business. If they never do, they will run out of options for capital procurement, I promise you. A presumption that capital investors are dupes, and that the companies receiving that capital don't care about making money and are somehow just into this for short term gain, is cynical in the extreme, impugning the intelligence and motives of all involved. I understand the inclination toward cynicism, given what this country has recently experienced vis-a-vis Wall Street, but I would remind readers that all the cool devices that you are enjoying, and all of the services and apps that you use, are the result of capital investment and (ultimately) successful product launches. Daniel Ek was 23 when he started Spotify. I'll forgive him if he didn't have enough spare change in his couch cushions and had to lean on investment capital while trying to make his compelling dream come true.

image from www.google.comOne more thing that I take exception to: the conflation of Spotify and Pandora.

They are two distinctly different services (Spotify's less popular Pandora-like service notwithstanding). They are similar in that two that bring you music through the same delivery systems (computers, your phone), but Spotify plays what you want, when you want it. As such, it's like having the ultimate, portable record collection at your disposal, so the appropriate compensation scheme for artists should be, and is, akin to a more traditional retail outlet. Pandora does not play exactly what you want, when you want it. The experience is akin to, and is attempting to replace your relationship with, traditional radio. Their compensation model to artists should be, and is, like that of SiriusXM.

To compare the two in terms of what they're paying out is a completely fallacious construct. When Mr. Krukowski complains about the amount that he got paid on his BMI statement for his song, what he should be comparing it to is how much he got paid for an equivalent number of spins at terrestrial radio on that same BMI statement. My guess is that he did not get 7900 spins on terrestrial radio; one of the great gifts of Pandora and other tech-based companies like them is that they give an opportunity for music to be heard that terrestrial radio has neither the bandwidth nor interest to play. Technology has been a boon to independent musicians. I would also like to ask what his compensation from Sound Exchange was, both as an artist and what his label made from those spins. Whatever it was, it was more than what was paid out by terrestrial radio, who pays no compensation to owners of recordings. If you want to protest THAT, I'll grab my pitchfork and meet you in the town square.

Also from Dave Macias: On The Eve Of The Internet Radio Freedom Act Hearings


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  1. Services like Spotify will come into their own when music lovers realise what an incredible asset it is. It’s mind boggling that I can listen to so much good music immediately. I love it! Oh and I’m a recording artist who also runs a record label.

  2. You listened to multiple songs 1400 times each? Do you only have 3 songs in your library? I’m 42 years old, have been a huge music fan virtually my whole life, have been obsessed with songs for long periods and even then, I can’t imagine that I’ve listened to any one song more than a few hundred times max– over the course of my whole life! I have used multiple itunes on various computers that have had re-installed OSs, so my itunes play count is not accurate, but even now, the top song has less than 20 plays, and I listen to music all day long while I work. This number is astounding to me.

  3. I was a little obsessed there for a minute, so yes. Anais is pretty great. It was a little surprising to me as well. And I did listen at work quite a bit, which resulted in a lot of repeated passive listening.

  4. Wow, very impressive indeed! Your obsession piqued my interest, so I checked out Anais– quite good!

  5. Wow.. Amazing article thank you David.. I am a part time artist that makes music in my spare time but also an Engineer recording & mixing others music everyday. When I read Damon K’s article last week I was already dubious about Spotify & the likes via other musicians & forums.. After reading Damon K’s article it really fired me up & it got me on the band wagon, a friend & I went semi head to head about it on FB. I just wanted to say bless you for putting this issue into perspective for me. Like anything that arises quickly in the new world we live in there is little immediate education on such topics which can turn to witch hunts in no time at all.. Facebook & Twitter etc.. are classic places where we can get on the Bandwagon, have our (most of the time) uneducated say where harm can be caused due to misinformation. Your article has inspired me to do a lot more research into the topic at hand & taught me a lesson to Think first, then learn more before stuffing my feet in my mouth with unfounded rants.. Thank you

  6. The hardest thing about the music industry is coming to grips with the amount of work it takes to eek out an actual career. Paying the bills via music is extremely difficult, which makes things like small checks from Pandora / Spotify feel extremely frustrating. We do need a change in attitude because the supply will almost always be greater than the demand when it comes to music (or anything that is seen as a “cool” occupation that doesn’t require a technical education).
    I do think there is a slight misunderstanding though when it comes to investment monies provided to services like Pandor and Spotify. It is a standard practice that when later investment rounds are raised that founders end up with lump sums, meaning that the investment doesn’t actually go into the business, but instead goes into the founders pockets. I’m not going to argue this unfair. Anyone that can build a company the investment world believes is worth 1 billion dollars deserves a bit of a financial pat on the back for sticking it out. Even if that company doesn’t turn a profit.
    That said, valuations don’t define actual market value and founders will try to raise money in the event that their company eventually fails. If you follow the Groupon IPO (Here is a decent analysis http://shortlogic.com/post/6142108636/groupon-ipo-pass-on-this-deal), you’ll notice that new investments were really meant to pay off old investors and founders.
    I sincerely hope that Spotify and Pandora find success and that success benefits musicians and the risk they take on to play music. My real hope is that eventually we won’t need iTunes, Spotify and/or Pandora to act as glorified hosting systems because it seems like too large a technical challenge to communicate where to download/stream a song.

  7. Thanks, David. Hope your article helps more musicians to get the info they need.
    I also wrote something as an “response” to Damon’s piece. It is mostly from a listener’s point of view, and I did some calculation (based on Galaxie 500’s last.fm stats) that they could make considerable money from streaming, even if they stay true to their indie attitude. Many new innovations today are making music discovery and social networking so much easier than before, and even indie music can reach a much wider audience.

  8. Ok, so why do we all have to guess and do our best to back into what Spotify is paying. Why can’t Spotify just print a chart on its website: here is how you get paid? Sounds simple enough.

  9. One thing that both Spotify and Pandora don’t do is have an accessable way of using their services for visually impaired folks like me. Neither service seem to be interested in helping that situation. We can access Pandora via a 3rd party app, butstill no luck with Spotify. Guess our money isn’t good enough for them huh? Great article, though, and I know you have nothing to do with either service, but just want to let everyone in the sighted community know about our continuous fight for use of these type of sights.

  10. Eric
    You’re on to something there.
    I think eventually we won’t have these glorified media delivery systems like Pandora and Spotify making money off of artists.
    Eventually, the artists will own the fans, instead of just owning the music.
    It’s not about a technical challenge, you can figure that out, it’s about these technical services making us think we need to use them in order to make a living.
    Sure, we’ll get paid, but how much is a true fan willing to pay, versus how much they are paying because Spotify & Pandora want to remain competitive?
    Spotify and Pandora are essentially keeping us locked in the same “dollar for a song” mentality that iTunes is.
    All of the above are getting in the way of true connection between artist and fan. Which could result in earning a living, off of just 1,000 or so fans, maybe less. We just aren’t looking in the right place.
    It’s because us artists are lazy and we don’t know how to parlay our music into money, we want someone else to take care of it. But every painter knows that they are also a businessman. Why are musicians the exception? We need to stop acting like victims.

  11. I think Galaxie 500 could keep their indie cred, and even establish MORE indie cred by being more independent and poking the box a little.
    What I mean is the future will be a bunch of little tribes huddled around their artist, helping them make a living.
    No marketing, no advertising, no systems or software. Just the artists and their fans.
    Artists need to parlay their position and become the tastemakers and connectors for their fans.
    Then we won’t need “users also bought this” systems. Because I care more about the artist I like and what he listens to, than some random guy.
    Or that’s what I believe.

  12. I think we all have to take what we can get if we continue to make ourselves beholden to some music distribution system that is competing with other systems and keeping the price down.
    The de-valuing of music is still happening.
    So stop participating in it, set your own price and find your fans and they’ll pay what it’s really worth. That’s the only system that is needed, I think!

  13. Thanks for this David.
    A succinct and well versed zap to the cancer of misinformation surrounding this issue.
    Given the omnipresence of knee-jerk, right-click, lazy journalism—this piece was a breath of factual fresh air.

  14. Fantastic article and one I will share with my students and artists. I’m stunned at the negativity around streaming services when a) it’s clearly what a lot of people want and b) they represent the legal side of the business trying to do right by artists.
    All artists (incl Beatles, Pink Floyd, Led Zeppelin, etc) holding their music off these services is, in my view, being badly advised and losing millions in potential revenue.

  15. David – of your total iTunes library how many songs have you played more than 200 times? ($1/ $.005). I am pretty big music lover with a huge iTunes collection and I have no more than 10 songs I have listened to 200 times.

  16. Spotify has agreements with confidentiality which tie them to disclose this kind of data, I guess mostly by companies from the old way of doing things to want to continue being opaque to artists. I guess Spotify expects people who know how it works, like David Macias, to explain but very few do. This is the best I have read so far.

  17. this is the most concise and clearest explanation. i was going to write a rebuttal to the pitchfork piece myself but now i don’t feel i have to. thanks for doing the math and i hope this gets distributed as widely as the pitchfork piece.

  18. Your article is interesting but clearly misleading.
    First, the average times you listen to your songs bought is not that huge number, but perhaps, what? 20, 30 times? It is clear that you will have a small number of songs that are your favorite and other that you almost never listen to after you bought them, but for the most, you will not listen to them 20-30 times. If we take that $0.0046$/stream (for different artist I know this amount has been much lower from $0.0015 to $0.0029) and an average of use of the songs of 25 times for your library, that would mean that a listener that before bought from itunes and migrate to spotify will generate just 16% of the previous incomes ( pretty straightforward: $0.0046*25/$0.7 ).
    And as I say, for other artists that the direct income (they own the copyright) is lower: $0.002/stream, a listener that migrates to spotify generates 7% of the previous income.
    So, yes, there is a CLEAR reason to be pissed off.
    Second, Spotify is a substitute of the sales. It should then compensate properly the copyright holders. Pandora is a streaming on line radio. It is not a substitute of the sales and as a matter of fact, they are a good promotional tool. People discover through it music they like and then buy it. So Pandora generates sales for the copyright holder not destruct them.
    Not the same case.
    Third, you talk about percentage of sales that spotify is giving to the copyright owners. But, then please take into account that spotify is giving away the music and a huge percentage of nothing is nothing. Imagine for a moment a car dealer gives 70% of the sales to the manufacturer and another one 40%. Would you say, wow, the 70% is better!! Well, that depends. If the first car dealer is selling the car bellow price, for $4,000, the manufacturer will get $2,800. The second car dealer, who is selling to the average market price $20.000 pays the manufacturer $8,000
    So, percentage is not all. Sure it is easier to sell very low price, even free… but if the car production cost is $5.000 your first dealer would make the car mafucturer go bankrupt. Sure, in the meantime, the dealer is earning easy money as he is selling dumping prices, which is pretty easier.
    I think the tech companies that have entered into the music space are driven by the greed of some owners that want to get rich as much and fast as possible and they are not interested in developing a sustainable space for all the people involved. Perhaps I am idealistic, but I think there is space to construct a business model that is fair to everyone. But, tech companies need to leave their urge to get rich at the cost of everyone else.

  19. “Much of the recent discourse about the music business reminds me of listening to partisan political commentators talk about America.”
    I couldn’t agree more, and thanks for keeping it going.
    This is an interesting article, but ultimately misses the bigger picture: For 100,000 years music was free. I mean, a few hundred years ago you could pay to witness a performance or buy sheet music, but for 100,000 years it was freely shared. In fact, music was made to be shared, that’s its purpose, to freely share your experiences, unifying society. So music’s natural state is free. And then you have recordings, which aren’t music, but more like a carefully and expensively composed photograph of music. For a century the music industry soiled the reputation of music with payola, corruption, price gouging, monopolies and ruthless exploitation of musicians. Today, technology has democratized all walks of the music industry, rendering the need for gatekeepers anachronistic because music production and distribution is accessible to all.
    The fact is access to music is approaching free (and in some cases already is). We need to starting thinking about a post-royalty future where music is accessed freely (at best, a utility or tax similar to Spotify’s subscription fee) because the fact remains the majority of musicians cannot make a living siphoning off this royalty pool that’s concentrated on the top 1% of musicians. Those who defend Spotify (which will probably never scale profitably despite your best wishes) are harkening back to a time that’s passed. The purpose of copyright is to promote the progress of the arts, not make musicians money (realistically, they have to sign over their rights to be exploited in order to do this anyway.)
    It’s going to be hard for people who grew up getting mailbox money to accept that real musicians want to be heard more than they want to be paid. Free access to music doesn’t mean no more payments, it means no more exploitation. It means a system of direct fan patronage. And yes, it means less money on average for the working musician, but it also means more music, more listeners, greater diversity, less artistic compromise for profit… I could go on and on. 10 years from now those of us still playing music will look back on Spotify and laugh at it like it was a rotary telephone.
    Am I the only person that feels this way? No, actually, most people on the planet feel this way. Most musicians certainly feel this way because 98% of musicians HAVE NEVER MADE A LIVING PLAYING MUSIC and those that have only last a few years before they have to do something else.
    So to hear all this Spotify defending, it makes me sick. There is no defense for the music industry, which most people don’t realize is 90% lawyers and accountants and 10% music, if that. So stop defending the music law industry and start talking about how we’re going to realistically sustain the business side of music as we head into the post-royalty, post-exploitation age of musical expression.

  20. Hi Natalia-
    You do bring up some good points. To the point about the total revenue generated being less when one only listens 25 times, that is true, but I would also argue that there are many times when consumption takes place on Spotify where it would not for other mediums because the consumer’s barrier to consumption is so small, that he or she will check out something that they would not have bought. I’ve done that more times than I could tell. Better for someone to have gotten 12.5 cents from me than nothing. For instance, I’d be curious to know how much money has been paid out to labels and artists from Pitchfork using Spotify as opposed to doing what they used to do, which was have to clear rights to use music. Now artists get paid something every time something gets streamed on Pitchfork.
    Secondly, I can’t answer to your point about people making less than $.005 because that hasn’t been my experience. But you could be right, and if so, I encourage people to share specific instances, so that we can all ask the questions that will allow us to get to the bottom of your assertion.
    Thirdly, your last point about Spotify giving away the music is wrong. They are collecting money from consumers and divvying up a specific percentage of that on a pro rata basis. Spotify is paying the same percentage to owners of recordings that iTunes, etc. are paying. It’s just a transactional relationship. To go back to my analogy in the article, it’s like saying water is free because you don’t pay anything when you get in the shower. That’s simply not the case. You get a bill at the end of the month, and people all along the value chain are compensated for their part in that shower.
    I do think that the business model that streaming represents is fair, although others can come to their own conclusions and act on those conclusions. And I don’t fault the tech industry for wanting to get rich. Although Bill Gates and Steve Jobs got rich, they also created products that greatly enhanced productivity and made our lives better (although that could be up for debate by some). Economics isn’t a zero sum game.
    But thanks for your thoughtful response. It’s through this type of dialogue that we can at least make the informed choices that are right for us.

  21. That’s a super article, Ulysses. Everyone do yourself a favor and click over and read this.

  22. For 100000 years food and shelter were also free, if you could find it.
    When that ceased to be the state of affairs, music also lost it’s “freedom”.
    There is no natural state for music, it always exists in the context of the societies we create.
    For the past few thousand years our societies haven’t been free in the economic sense, and they have never been free in terms of the amount of work needed to survive.
    And yes, the purpose of copyright is to promote the progress of the arts, but it is exactly through making the creators money that it does so.

  23. Natalia, I can confirm that artists sometimes get lower rates than $.005. It all depends on your digital distributor/aggregator and if your song was streamed by a Free, Unlimited , Mobile or Premium user. Over the past few years I have been collecting and studying Royalty Statements from several artists and aggregators.
    You can check them at http://www.spotidj.com/spotifyroyalties.htm
    David probably uses an aggregator that pays a fixed rate for all streams in a specific month. Zimbalam/Believe Digital does this. CDbaby has confusing statements with a set of rates that I still cannot explain.
    Have a look at the statement from Catapult. This aggregator has statements with about all the info you want to know. All streams with a breakdown per country and tier.
    The $.005 is good for a rule of thumb, it’s about the average rate for all tiers.

  24. Credit where it’s due, I’m elated that someone wrote a thoughtful piece about this, and I welcome debate on the issue of streaming revenue. That said, I have to call bullshit on a few points here:
    1. Assuming you do indeed have multiple songs in your iTunes that you have played 1400 times (or, roughly 4 times per day, every day, with no days off, for an entire year), that does not account for the hundreds or thousands of songs you have purchased and played less than 140 times (the number of streams it would take to equal the purchase of 1 download from iTunes/Amazon MP3). I’d venture to guess that even a cursory look at your iTunes (presuming you paid for all of it legitimately) songs and their play counts would paint a damning portrait of streaming revenues by comparison. You know this is true. There is absolutely no way that a human being can consume enough music via streaming to replace the revenue lost from MP3 purchases. Which brings me to…
    2. Streaming is simply not sustainable as a dominant format of music. Major record labels might have capital investments in Spotify, but those investments do not yield higher revenues to its artists. Spotify is undeniably seeking to more aggressively integrate music and pop culture by way of corporate sponsorships (partnerships with Coca-Cola, Campbell’s, etc.). These are strategic advancements made by Spotify, ultimately at the expense of the master rights holders of its content. Those rights holders are willingly participating in the systematic destruction of the independent music industry, paving the way for a system wherein only artists with some sort of direct corporate subsidy can continue to make a living.
    3. If streaming were ONLY drawing consumers who previously only pirated music illegally, then streaming revenues would be a Godsend. But you cannot say with a straight face that streaming is not also cannibalizing legitimate sales of CDs and MP3s. And for EVERY SINGLE MP3 sale lost, it takes 140 streams of to make up that revenue. Using your Matisyahu example of 291,000 streams, that same amount of revenue is made from 2,100 MP3 sales on iTunes. That is LESS THAN ONE PERCENT of the total number of Spotify streams. Are we supposed to believe that fewer than 2,100 people who streamed Matisyahu would have actually paid for it if not given the option to stream?
    We could do this math all day, every day (while listening to Anais Mitchell) and not once would an even remotely convincing case be made for streaming revenue replacing MP3, CD, or LP. True story: We make over 100x more profit from vinyl LP sales annually than all streaming services combined…and vinyl sales only account for 11% of our total units sold. In other words, streaming revenue is gravy at best. And since we’ve joined Spotify, our overall sales (and thus overall revenue) have declined nearly 30%, as our Spotify play counts stretch into the millions.

  25. All pretty interesting.
    Although it’s worth pointing out that you needed to use an absurd example of listening to a song 1400 times to equate the revenue of buying an i-tunes track with that of Spotify’s per stream payment.
    Though the transaction has ended when a track is purchased by a consumer, there is little chance of anything close to equivalent revenue from that same consumer streaming.

  26. I’m all for transparency and applaud this approach, but this statement worries me…
    “My guess is that he did not get 7900 spins on terrestrial radio”
    1 ‘spin’ on Pandora = An audience of 1
    1 ‘spin’ on Terrestrial = An audience of tens, if not hundreds of thousands?
    Whilst one service may be looking to replace the other, surely attempting to compare each ‘play for play’ runs the risk of being yet another fallacious argument in the mix?

  27. Hi Jeremy-
    All well taken, but here’s my thoughts on your points:
    I certainly didn’t mean to imply that the outlier that was Anais was representative of my overall listening habits, and therefore a representative sampling of what artists would get paid. I was just using that as an example, albeit an extreme one, of how the economics of streaming worked, and that they weren’t necessarily always going to be lesser than financially compared to the economics of downloads.
    Looking further down my list, it most certainly does drop off. You get down to around 100 plays around the 10th most played song, and by the 50th most played song, it’s around 25. In those instances, it would be less, but since I’ve switched most of my personal listening over to Spotify, I have listened to tons of music that I either didn’t know about (Purity Ring comes to mind – probably listened to the song Fineshrines in the 250-300 times range easily, Jessica Pratt getting close) or had interest in, but would not have purchased. I spend a ton of time on Pitchfork’s site listening to things I would not have bought. If I listen to something 25 times, then that results in 12.5 cents. If enough people find sufficient value in consuming music in this fashion, then the aggregate value of music goes up, and (hopefully) the artists are sharing in that bounty.
    My personal consumption of music overall has gone way up, because the barrier to consumption has gone way down. A lot of artists that would have never received anything from me are now getting something, even if its 12.5 cents. And I imagine that I’m not the only one that is now consuming in a similar fashion.
    As to whether this aggregate value argument is viable or not on the macro level, I can only look at the one market where Spotify is mature enough and has scaled sufficiently, that being Sweden. In Sweden, where somewhere between 12-13% of all people are Spotify subscribers, and where Spotify accounts for 50% of the revenues to the music business, gross revenues are way up. Over the first two quarters of this year compared to 2011, revenues are up over 30%. I don’t see how one can look at that and say that it’s having an economically detrimental effect. This isn’t just theory. This is cold, hard cash.
    If Spotify (or Rdio or MOG or a combination thereof) scales to the same percentage that it has in Sweden, then that would be 40m subscribers paying $10/month, which would be $4.8b in gross revenues. And that still leaves a lot of people buying at Amazon, WalMart and at iTunes, because they are more comfortable “buying” rather than “renting”.
    Overall revenues for prerecorded music last year, if I’m mistaken, were $6.8b. It’s not hard to imagine that that $4.8b, plus what continues to come in from all the other sources, would represent a marked increase in total revenues.
    And I could not disagree more than this is harmful to independent musicians, in fact, just the opposite. Access to media and distribution used to be control almost exclusively by the majors. That is not even close to being the case now. There are tons of mediums (blogs, internet radio, sites like Pitchfork) that now exist that allow you to find an audience. Sites like Pitchfork that are drawing a direct line between their advocacy and revenues by incorporating Spotify are an unbelievable benefit to independent musicians. We can only hope that more mediums (and brands) will incorporate music in the same way.
    My company’s revenues are up in 2012 are up over 30% for the third straight year, and we work exclusively with artists that own their own masters and labels that are 1-2 person operations and use us for back end services. If things were that stacked against independent artists, I don’t think this would be the case.
    Finally, Spotify is a tiny part of our revenues as well. It’s not because they’re not paying people fairly, but it’s because they’re still incredibly small here. With all the talk about them, you wouldn’t think that would be the case, but it is. It’s still a growing business.
    I’m convinced that the streaming model will be a benefit to the business and to artists, and you’re not. That’s okay. This is a healthy discussion. I was just motivated to jump in and fight back against what I felt was misinformation, because I think we have a baby that will grow up and take care of us, and I don’t want it smothered it in its crib. Clearly, you feel differently, but it’s through discussions like this that people can at least weigh out the issues. These are important issues to be sure. The future of our business, which very much includes fair compensation to creators, depends on getting it right.

  28. My point was less the value of the audience, and more that internet radio and satellite radio have increased the opportunities for exposure afforded independent acts because of the increased avenues of exposure, thus making 7900 plays possible, whereas without these technologies, Galaxie 500 would have gotten nowhere near the number of spins. But point taken on the value of each spin.

  29. Indeed, if 40 Million people in the US eventually consumed music via streaming services while simultaneously having no adverse effect on album and track sales, then Spotify and Mog would be downright heroic. However, in order for it to reach that point, it would have to become the dominant format with which music is consumed, and at the rates they pay, the overall income from the actual recorded music would become negligible. The lion’s share of the income would then have to come from live ticket sales and sync licensing, which is all fine and good for the select few artists who don’t mind touring year-round, draw enough fans consistently to repeat the same markets multiple times during an album cycle, and are lucky enough to be plucked by music supervisors for high-paying syncs (the majority of which, as we know, typically go to legacy artists and pop stars with recognizable songs).
    At the end of the day, it’s all about whatever works for you and yours. To me, this model screams short-sightedness and will certainly reap reduced investments from record labels and force a lot more artists to shoulder a significantly greater portion of the costs it takes to actually produce and promote an album. This system, to me, bodes very poorly for about 98% of active artists over the next 3-5 years and beyond, which is why I do not support it. But if it works for you, and you believe in it, then by all means you should support and participate. Sometimes we make the right decision, and sometimes we make the decision right.
    All the best.

  30. Hi Bill- I’m interested to know more about this. How could Spotify or Pandora make their sites more accessible? This seems like an important and solvable problem.

  31. Brilliant work by Mr. Macias. This is where things stand today and the most successful bands will be the ones that are able to use streaming platforms as entry points to separate listeners from fans.

  32. I agree with what Natalia might be saying about the music being devalued. One thing I’ve always been confused about is why these analyses tend to emphasize per-stream values. Since there’s a finite revenue but infinite streaming, it seems more appropriate to go by the raw revenue (which will then be split among artists). Example: If everyone $10/month subscriber immediately started streaming every song 1400 times instead of 14 times, the artists won’t magically get 100 times more money — instead the music would just be devalued to $0.00005 per stream instead of $0.005 due to the finite revenue cap. (This is using engineering logic, with finances who knows, maybe they can magically pull extra revenue out of nowhere).
    In other words, I think a better and simpler decision basis might be: If you’re paying $10/month and $6 goes to the rights-holders, instead of counting up streams, ask yourself whether you’d have bought > $6 worth of music that month if you didn’t have the streaming service. If not, then keep streaming. If so, it seems more beneficial to buy the music.

  33. Hi Jeremy-
    I’ll draw your attention one last time to the current state of the music business in Sweden. If your supposition that Spotify becoming the dominant format in which music is consumed invariably leading to the overall income being negligible is correct, then why are revenues in Sweden up 30% as Spotify has grown dominant enough to be responsible for 50% of the total revenues there?
    Agreed, we should definitely follow our own instincts on this issue, but that statement does not hold water when run through the filter of real world experience.

  34. Hey SL-
    That’s an excellent point about the 1400 vs. 14 streams and the effect on revenue. What I’ll say to that is that as the number of users increases, listenership patterns will tend to gravitate toward some sort of statistical mean. That mean will tend to stay constant as more and more people join, so the rates will be probably be what the rates will be, assuming that the percentage of subscribers vs. the percentage of ad-supported listeners remain relatively static.
    I think what will have a larger effect on the revenues due artists is if the rate at which people convert from ad-supported free listening to paying for subscriptions changes. It’s hard to know for sure, but I’m pretty sure that more money is raised through subscription fees than through ad revenues on a per user basis. If it is, then as people pay more to subscribe than would be earned through ad-based listening, the pool of overall revenues would increase, thus artists make more.
    In Sweden, they do something that I wish that they would do here, which was that they give people a certain period of time to listen in the free, ad-based way, and after that trial period is up, you can only listen to a song five times and then never again until you subscribed. For people like me that listen to shit 1400 times, I would have to subscribe, which adds revenue to the overall pool to be split out pro rata to artists or labels.
    I’m sure that the reason that they haven’t done that here is that they are still too young and unestablished here and want to keep people sampling as much as they can, but at some point, hopefully they will do that. Come to think of it, that kind of sounds like Lala.

  35. Ah, I didn’t realize they used that model in Sweden! I agree, if they implement the limit on free streaming everywhere, then that would definitely help solve these problems for the most part.

  36. I am not certain if anyone posting really has content on Spotify and the other digital vendors, but I can tell you as one who controls 4000 plus recordings including a number of hit singles, Spotify is killing the earnings potential of those tracks. I don’t need a chart from someone without “skin in the game,”to explain to me the wonderful virtues of this service, it is all there in the monthly checks. It is killing my business, killing the livelihood of my clients/artists (95% who receive 50% or more in a royalties from each stream and/or download), and certainly the earnings reported to publishers. Plus it vastly increases the time and expense that goes into analysing and reporting royalty payments. I have now pulled all content from Spotify and suggest others do the same. As with Pandora, their business model is broken, it will ultimately prove unprofitable (but not before the owners and staff stuff their pockets with investor $$$$) and join the ranks of Artistdirect, Myspace etc and all the other highly touted music sites.

  37. I don’t have the money to buy music, and I used to pirate, but even then, I rarely listened to music. With Spotify, I listen to music (on Spotify) for hours a day, while doing homework, while at school in the lab, on the bus etc. If not for spotify, must people in my generation would never had taken to listening to any music besides the mainstream radio, and maybe a few big rock bands. I find myself listening now to such a diverse collection of music that I never would have paid for through CD’s or iTunes.

  38. streaming vs download math is not really a same-game comparison, as desire for ownership and access aren’t positioned in the same place in consumer’s mind and actions. Don’t need big data to see that nowadays when consumer express desire to own content (when and if that occur), he already had some degree of access to the same content. And that pre-ownership access is generally very poorly monetized compared to what spotify promise in terms of scale.
    Ownership is premium, it deals with the top of you’re potential-fan’s pyramid, the loyal people who keep a library of your work. Streaming is concived to monetize the base of the pyramid from the first time the type you in a search bar.

  39. Yes, but think of the youngest generation who will only listen to songs via these digital services; high-quality, timeless songs will get played many, many times for many, many years (say 4 times a month x 12 months x 30 years is $7). iTunes and these services have only been around for 10-15 years, and for most users, there is still decades more time for increase plays, as well as full migration from physical media.

  40. In regards to #1, there are going to be a much larger pool of people willing to stream song X via Spotify than are going to be willing to even plop down $0.99 to buy the song, since there is no incremental cost to stream song X for the consumer. For every 140 people willing to stream the song once, you’ve made as much as one iTunes sale. From these 140 people, we’re assuming none would buy the iTunes download, so it is essentially incremental revenue to the artist.
    For those who might have purchased the song download previously, but choose instead to stream the song, one can infer that these users are much more engaged with the content and therefore will probably listen to the song more than 140 times over their lifetime via the streaming services, leading to more revenue for the artist vs. if the user had just purchased the iTunes download.
    This math is why the model seems to work from my perspective, and becomes more attractive as the services like Spotify reach users who currently spend nothing on music, aka scale.

  41. Spotify and Pandora will just be another promotional channel for artists. If these services are smart, they will start figuring out how to drive revenue to merchandise or shows and start taking a percentage of those revenues as well, which will in turn add more capital to grow their offerings and scale their user base.

  42. The point about incremental revenue is key – if a user streams a song once the artist is getting something > $0, which in a world without a streaming music service, the same user would have never potentially listened to that song via any other channel that would generate revenue directly to the content creator.
    Now imagine that same person streams 50 songs a month in that same fashion, and then image these numbers with 100MMs or billions of users. These numbers become quite meaningful when it comes to revenue

  43. True, but consider all the people who would never pay for the iTunes download but will stream the songs via Spotify, as well as the fact that the service has millions of these users. We can’t assume that without Spotify, everyone would purchase these songs as a digital download instead.

  44. I think there are a lot of assumptions being made here that really have not been investigated by either side. The overarching theme is that both authors are music fans. That seems like an odd statement – a fan of music instead of a fan of a particular music. But there are tons of people out there for whom music doesn’t mean that much. Here are the assumptions I think you need to investigate before jumping to conclusions:
    1. What percentage of music consumers use a Pandora-like service? I think it’s lower than you think.
    2. Of those who use such a service, what is the average time per day music is streamed? I think this is MUCH lower than you assume – I really do not think most users stream all day at work, whether by choice or by the nature of their activities at work/home/etc.
    3. How many times does the average music consumer listen to a single track? Might need to parse this out into groups, say of obscure tracks, mildly popular tracks, and hits.
    4. After a song has faded in popularity (e.g. a year later), how many times does an average person go back to listen to it? I think this is also way lower than you are assuming.
    5. Of those who stream from these services, how many purchase an track on average? Streaming and purchasing is of course a win-win for everyone.
    6. Of those who stream from these services and do not purchase the track, how many would have purchased it? Difficult to measure, but extremely important to the argument.
    Essentially, given a realistic profile of the average American consumer of music, is it correct to say they will listen to the streamed track enough to break even with their probability of buying it?
    I think this author is over-estimating the impact of music to an average person. For every person I meet with whom I have long deep conversations about music, there are 5 who look at us and say, “Y’all take music way more seriously.” And I’d say for every person who hears something new and races out to find more information, there is at least 1 if not more who doesn’t remember anything about it a minute later. For folks with voracious and eclectic musical appetites, streaming services are great. For those who really just use music as a way to form bonds with others, streaming isn’t that big of a deal.

  45. We are a UK based band who has tried very hard to retain our ownership over our music rights. We are not on iTunes are any other download site. we are not signed to any label, major or otherwise, and certainly not on any streaming site except Myspace and Youtube and yet our latest release which we sell directly to our fans exclusively through our website (or so we thought) has recently become available for free streaming on Spotify. If you have experience the same treatment, don’t give away your band name or identity when you answer, as Spotify would most likely delete any evidence before they could be caught ‘holding your wallet’. You can email me at mike @ mansonlegal dot net

  46. David,
    I read your article with much interest. I was nearly convinced that you were legitimate, until you were caught with your proverbial pants down. I hadn’t even considered doing the math until someone else pointed out the glaring exaggerations. 1400 plays on even ONE SONG may seem common usage to you, but to use that gross exaggeration as an EXAMPLE of the norm smells like a pile of Spotify compost. I challenge you to find 10 other listeners who can independently verify that they have listened to ONE SONG 1400 times (without a prior lobotomy). Your math stinks. Your credentials, who knows. You sound legitimate, even sincere. But the numbers point to a lie. A LIE.
    I am currently being “paid” by Spotify for my music. I can never be sure the RATE of pay, or if it will amount to anything more than a penny or two. Yes, the RATE of pay per stream is a VARIABLE. I have sometimes been “paid” as little as nine hundredths of a CENT, in decimal format, $0.0009 for some of my streams. The rate varies each time. I cannot figure out why a song will be paid one rate one time and the SAME SONG will will be paid a different rate two or three days later. Or, yeah, the two or three days? That’s because they stretch out the reporting to avoid those partial cents adding up to a penny. When I examine the statements, the settlement date is the SAME. So Spotify manipulates when they pay, how much they pay, and likely, given MY experience, whether they pay. I tried to get rid of them, but CDBaby told me, “You want digital distribution, it’s ALL or NONE.” So, you take your Spotify and put those thieves and their compsny where the sun don’t shine.

  47. The only proof I have that Spotify is ripping me off is the statements they send me. That is incontrovertible. I have statements showing varying rates for the same song, varying rates for different days, and ZERO-BALANCE statements, meaning they paid me a rate so low that it resulted in less than ONE PENNY being paid to me, which, of course, was rounded off to ZERO. PROOF ENOUGH?!?

  48. The author of this piece jumps on Damon Krukowski of Galaxie 500 for what was actually a typo and falsely calls it “incorrect assumptions,” The following math was figured with the correct number (5,960 plays equals $29.80) and Damon’s result is correct, so there is no false assumption. The typo in the original article has been fixed but this article has not been corrected.
    The author’s use of an extremely high number of streams is also disingenuous and certainly doesn’t apply to independent musicians. According to his own figures, the number for the other 99% of musicians is closer to an average of 26 plays, or $0.13 for an independent artist like Galaxie 500, a lot less than a $1 single. And the tired old myth is dragged out that the internet makes up for its low rates by giving a band more fans is shown to be false by his own figures, otherwise the average should be 200 plays.
    There are now 45% fewer independent musicians than they were in 2002 (US Bureau of Labor Statistics)
    2011 – http://www.bls.gov/iag/tgs/iag711.htm
    2002 – http://www.bls.gov/oes/2003/may/oes272042.htm (covers most of 2002).
    It cannot be honesty said that “Technology has been a boon for independent musicians.”
    This article doesn’t clear anything up, it’s like it’s from the paid big tech denial industry that wants to cover up for internet companies that are taking independent musician’s livelihood for themselves.

  49. According to my Last.fm, who only scrobbles when I’m listening to music online, I have several single tracks that are closing up to a thousand plays. And I’ve only been scrobbling for a little over two years, as well as offline (which doesn’t get scrobbled.).. So it’s not impossible to listen to a song over a thousand times.

  50. Shame on you for defending companies that pay next to nothing. We’ve been hearing all about ‘exciting’ developments inflivted upon the music industry for fifteen years and it’s still baloney. Now half of us are gone. The only people reaping the rewards of these new schemes are the technologists.

  51. In reading through the article and comments I’m struck by a reoccurring itch that relates to simple supply and demand…

    We are in an era of digital gluttony: We have unprecedented access to unprecedented volume which, if I’m not mistaken, should naturally manifest itself in exactly the scenarios we’re seeing now; More for less.

    As an artist with working experience at a major label I can say, without hesitation, that the economics of music (dare I say the Arts, in general) have ALWAYS been skewed so that the artist feels cheated – some label contracts more notoriously so than others. Music business 101 will tell you to KEEP YOUR PUBLISHING AND YOUR MASTERS AND GO ON TOUR (Thank you FZ!). Artists who partner with labels, managers, publishers, etc, begin slicing up the revenue pie in some very major chunks.

    Years of subpar $20 CDs paved the way for piracy, now it’s as good as free. My $3 subscription to Pandora and free (ad-based) radio from Spotify make up 90% of my listening, the rest being broken up by KCRW and iTunes – I haven’t listened to radio (terrestrial OR satellite) in YEARS. I also haven’t pirated music in about the same time. I hear a song I like, I tap the ~99¢ buy it button and BOOM! I’ve been exposed to more new music than ever – simply because the playing field now allows for greater reach of independent artists.

    So, again – supply and demand… The public has the most to gain in that Labels AND Artists are being forced into thinking up new creative ways to connect with their audiences – the 12-song ~12-18 month release cycle and the CD are all vestigial remnants of a time gone by and anyone still talking about CDs and ‘spins’ is living in the past. The big artist bubble has popped, and the independent artist renaissance is well underway.

    Take the Independent Artist back 10 years; How were they fairing then? It shouldn’t be a surprise to anyone that when a paradigm shifts, noses will get bumped – But I, for one, am happy to see artists succeed – independent of major record label entanglements. So with this flood comes the acute realization that “Holy sh*t – I actually have to be really, really great to rise above the noise!”

    Perhaps oversimplified and anecdotal, this just feels like a competition of creativity – complete with niche market, grassroots, no-resting-on-your-laurels, this-isn’t-the-90s, bloody noses.

  52. “Now half of us are gone” – What does that mean? “Us” meaning the record label people?
    I was at Virgin/EMI when they had to shutter the company because Ray Cooper, Ashley Newton, and Nancy Berry threw one too many $150K Grammy party and released one too many sh*t record and ran it into the ground…
    Good riddance.

  53. Or “Us” as in the 45% fewer independent artists as alluded to in the US Bureau of Labor Statistics link?
    Those stats are dubious (if not laughable) – It’s correlation vs causation – there is clearly not a ~50% diminished population of musicians – independent or otherwise…

  54. There are a couple of misconception about the nature and state of distribution and what artists are making from sales via their distributors (at least some distro co’s) . I would also point out that every major digital only distributor is seeking a relationship with a physical distributor since those pesky record stores didn’t close down and people are still attracted to both tactile objects and in the case of music — better sounding music. Also the information given to member of NARM from Parks and Associates about ownership of IP bears out why Starbucks is selling CD’s in their stores. IMHO artists and labels need to start seeking data and not basing their careers on opinions that don’t reflect reality.

  55. Did you actually read the article? Do you have ANY basis in saying that Spotify and their streaming brethren pay next to nothing? Because they pay 70% of the proceeds to rights holders. Quite a bit more than next to nothing, I would say. I am so tired of these kinds of arguments when they’re made with nothing other than passing negative generalization that aren’t backed up by one single fact, and in fact, are stubbornly ignoring the facts.
    I’m not a technologist, and I’m not an apologist for technology. Besides, there’s nothing for them to apologize for. I’m a small business person who doesn’t have the luxury of not doing my homework and thinking through what makes sense for the artists that I work with.
    If you have any real justification based on any facts about the business, I would love to hear it.

  56. Good point, Ediger. I saw that report and thought, “they must not have come to my town….we’re chock-a-block with bands, artists, etc.” Music may not be the primary way that they make their living (which is what I suspect they’re measuring), but there are more artists making music, getting it up through TuneCore, through companies like mine and finding other ways to their fans. I remember, back in the days when I worked for majors, going to a NARM presentation by Soundscan in 1999 where they told us that a shocking 43K albums scanned one copy, and how could the market possibly deal with all of this music? Now that number is over 150K. There is more music in the market and more mediums through which to expose it, whatever you want to say about its quality.

  57. Jeremy, while your arguments about the loss of revenue in steaming vs. mp3/vinyl et. al. may be true in a strictly monetary sense, you are ignoring the fact that listeners LIKE streaming, and are LESS INCLINED to buy physical product. So, right or wrong, you are simply railing against the sun coming up in the east tomorrow. This IS the new paradigm, at least for now, and rather than complain about people not buying CDs, LPs, or mp3s, find a way top make the new business model work for you.

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