Major Labels

Spotify Now The #2 Revenue Source For Major Labels After iTunes

105081According to a source close to the streaming giant, royalty payouts from Spotify now account for the number two source of revenue for the major labels. While Apple’s iTunes remains firmly in the number one slot by a wide margin, Spotify hopefuls (namely early investor Sean Parker) believe that the streaming giant will one day surpass iTunes: "If we continue growing at our current rate in terms of subscriptions and downloads, we’ll overtake iTunes in terms of contributions to the recorded music business in under two years," Parker said at this year’s SXSW.

As Business Insider learned yesterday, major labels have been seeing a significant source of their revenue come from Spotify, but still not nearly as much as they do from iTunes. Between the two, both iTunes and Spotify pay out roughly the same percentage of revenue to rights holders (iTunes pays out 70% of revenue to rights holders, while Spotify pays out roughly the same percentage of revenue in content costs). Parker’s assertion, while certainly bold, isn’t entirely unrealistic. Over 23 million people used Spotify last month alone and the service has already been a leading source of revenue for labels in several European countries.

But Parker may be (at least for now) comparing apples to oranges, as iTunes is primarily used as a digital music retailer, while Spotify is in the subscriptions and advertisement business, with the only common measurable ground between the two being revenue. However, in countries where there isn’t much of a download market (like Sweden or France for instance), Spotify could see a greater share of the pie than iTunes, and could potentially surpass Apple in terms of prominence.

In the United States however, where the download market is strong and growing, Spotify will unlikely surpass iTunes; especially as Apple holds the power to one day create a Spotify-like service of their own at any moment.

Should they so choose, Apple can easily convince millions of users to sign up to a new service, as it has already forged the landscape in a way that positions this new service on top no matter what rival services have accomplished. Apple will always be more integrated and cheaper than anyone else on the market will, and this is a reality everyone is waking up to. Apple owns the App Store (not to mention the iPod, iPhone, and iPad), and not once did it forget that.

Hisham Dahud is a Senior Analyst for Additionally, he is the head of Business Development for Fame House, LLC and an independent musician. Follow him on Twitter: @HishamDahud

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  1. Why should it be different than iTunes or album sale? Most musicians get a paid with a cut of the income no matter if its 1 cent or 20 bucks…

  2. I would like to see some numbers. I would be very surprised if a streaming service is number 2, behind Amazon for example.
    How would anyone really know without all the numbers in front of them?
    I would guess it’s BS. I don’t know why this site is so obsessed with just one mediocre streaming service but i wish they would quit it.
    I read something a while ago on here that said this site was all about helping independent musicians make a living – well Spotify is never going to do that.

  3. In the USA, Spotify is circa. 10% of Amazon in received revenues and Amazon’s are approximately 10% of iTunes’. The USA has to be more than 90% of global digital revenue.

  4. Unnamed sources, close to the streaming giant, close to the major labels. Where are the facts? Where are the figures? Don’t you guys realized when you are being “snowed” by a well organized PR campaign. Spotify’s only goal is to go public, so the 1% percenters like Sean Parker can get even richer. Why don’t some of you more vocal 99% percenters actually go talk directly to an indie artist and find out what they’re really making from Spotify? An unnamed source inside a major digital distribution told me they know Spotify is a revenue killer. Prediction, in five years iTunes will still be #1.

  5. funny thing about that post… there’s no actual number that spotify is paying labels and the source is unsubstantiated…
    so, currently I’m the #3 source of revenue to major labels…

  6. Maurice, I give datapoints all the time.
    Here’s the latest :
    Today’s accounting from the Harry Fox Agency who collect song (not recording) royalties :
    The Orchard $33.68 1QTR12
    28.72 4QTR11
    Ultimate Guitar 3.96
    Rhapsody 3.49 1QTR12
    Rhapsody 4.49 4QTR11
    Spotify 7.99 1QTR12
    Spotify 0.10 4QTR11
    In addition to the Fox Agency, we also receive money from Rightsflow (owned by Google) and Music Reports for similar usages.
    The Orchard are collecting for us from people like iTunes and Amazon, but 95% of our song royalties travel from our left pocket to our right pocket as we are also the record company.
    So even though The Orchard is only collecting on a tiny fraction on our paid downloads, the money dwarfs what is being collected from Spotify. What is truly pathetic is how Ultimate Guitar is generating 50% of the Spotify total.
    And somehow despite the death of the compact disc, our song (mechanical) royalties from physical sales still dwarfed digital 9 to 1.

  7. I don’t see Apple necessarily having a subscription service. After all, they still have lots of work to do to fine tune iTunes Match. iOS6 will finally roll out streaming for mobile devices, something Spotify has always done, and well. And wasn’t Ping supposed to be THE music social media? Now it’s dead. I am unsure whether Apple would be good running a music subscription service — the other services are way ahead of them and run on Apple devices. Color me skeptical.

  8. Robbie I appreciate your candor and commitment to the facts. My problem is when Hypebot and others run a bold headline that is self-serving and maybe factually inaccurate. Unfortunately because many individuals don’t read the story, cannot separate fact from speculation, we as an industry become crippled by our ignorance. The decline of the music business has never been strictly downloading, it has been our inability to apply real world economics to our structure, and the lack of transparency. We have never been able to articulate to the greater public how labels and artists can and do work together to achieve mutual success.

  9. I agree, Spotify is definitely staging an aggressive pr campaign in support of their services. There has been a significant response from the music community as to their compensation model and their desire and or ability to pay a sustainable wage to artists.
    They continue to lean on the fact that they are a private company, for the time being, and do not have to disclose anything. More and more people are valuing the transparency of iTunes. The biggest question that remains unanswered from Spotify is their equity deals with the labels.
    Until there is full discloser people will have a trust issue with Spotify.
    As an aside, has anyone noticed the articles in Tech Dirt in support of Spotify? Does anyone share my “curiosity” about this unprecedented “position”?

  10. If Kim Megauploadmanic launches his music streaming service, all Apple has to do is sit back and watch the carnage between Godzilla and Mothra. Let’s not forget it is Apple with 100B as in “billion” in its bank account, not the beleaguered KM or Spotify. Apple has the hardware and software market cornered, so theirs is a game of patience. Do you really believe iPad and iPod sales will suffer if iTunes doesn’t offer a streaming service? The rumor Hypebot should be following is the one regarding the cash sinkhole they have created at Spotify. Can they go public before they go broke? And if they go public by that time will anyone care?

  11. Thanks for the article and the comments. I am writing a humble thesis on the music market and this is one the richest subject on the web.
    I would appreciate your feedback as I found you very expert on the subject.
    It’s known that Spotify, Deezer and Xbox music pay back an average rate of 72% to label when a member plays a song. I The problematis is : are freemium model profitable on a long term plan : are ads and memberships strategy enough to make money on the music market ? or are they just a “premium service” which only aim to increase the devices revenues of Apple, Microsoft and Google without expecting making money on music ?
    The revenues on streaming music are steady increasing since 2 years and VC have invested a lot in Spotify and Deezer. For now, Deezer and Spotify aren’t making money cause both of their net income are negative.
    Still, Spotify/Deezer are building a growing audience and expect to reach a critical number of paying number wich will cover the cost of the catalog (labels) and expenses on employees to innovate with killer features, market & sales externalities.
    Freemium model are focusing on growth : Spotify penetrated the U.S market while Deezer will penetrate BRIC countries. Today, the U.S market represents 50% of the streaming market share.
    Are Spotify/Deezer expecting to be bought out by a Major company such as Universal ? Financialy speaking Such investment (IPO) expect X10 return on investment
    For instance : a russian investor bought Warner music (Metallica, Franck Sinatra) and Len Blavatnik trhough his holding Access Industries and leveraged 130$USD.
    Spotify vs Deezer
    Spotify is actually overtaking Deezer by offering a better sound quality and more paying members.
    Figures are approx : Spotify 4 M paying Users and Deezer has 2 millions paying users.
    !!! Spotify received earlier VS and has “wisely” spent a lot of money on Employees to acquire competitive advantage and externalities : better interface quality, better sound quality, partnership with Music magazines, marketing.
    Also Spotify has Sean Parker who might have helped them a lot to undersantd the musical digital market in the U.S and to make the deal with U.S music label.

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