How is gross pay calculated

Op-Ed: Spotify Payouts Revisited – How Much Does it Pay Now and How Much Should Artists Demand?

Spotify made big news again in mid-July when producer Nigel Godrich and Radiohead’s Thom Yorke pulled their music from the streaming service.

Their move was not without precedent. Just a few months earlier, Jeremy DeVine, head of the indie record label Temporary Residence Ltd, came on to our InputOutput podcast to discuss his plans to withhold new releases from Spotify. Earlier this week, The Huffington Post confirmed that several other independent artists planned to follow suit.

Ever since then, a misleading and hopelessly outdated infographic that I thought I’d never have to see again began resurfacing and making the rounds on social media. It claims that artists would need to rack up over 4,000,000 plays each month – more than 130,00 every day – just to make minimum wage.

How Much Does it Really Pay?

I’ve debunked this claim before (once in 2011 and once again in 2012 ) and it seems like it’s about that time of year once again.

It’s true that by any reasonable standards, Spotify payouts are not yet a sustainable replacement for record sales. But they are currently 10 – 50 times greater than what this old chart states.

In reality, we’re continuing to see average gross payouts just shy of a half-cent ($.005) per play for ad-supported streams, about three-quarters of a cent ($.0075) for “unlimited” streams, and around one-and-a-half cents ($0.015) for “premium” streams.

This means that if you self-released your music and only attracted listeners on the ad-supported service, you’d need about 230,000 spins each month – about 7,700 plays every day – in order to earn minimum wage for just one person. Bleak, perhaps, but a far cry from 4 million.

On the premium service, you’d need more like 77,000 plays a month – or 2,600 plays each day – to crack that same nut. Not every band in the world is going to attract this much attention, but for many of the good ones, it is an achievable goal.

Although this revenue share is far better than the $0.00 offered by pirate websites, it remains an unworkable replacement for recorded music sales. Even at $.015 per stream, you’d have to listen to your favorite artist’s song 46 times in order for them to earn the same $.70 they would have ended up getting if you had bought that song on iTunes.

(Do me a favor real quick, and check your iTunes library to see just how many songs you’ve listened to that many times! The answer tends to be “not that many” .)

Despite falling technology costs, musicians’ biggest expense in making music remains time. And costs there have not gone down as far as some might expect.

At this point, we haven’t even gotten into factoring in the additional costs faced by artists who have labels, managers or more than one member — Not to mention artists who have the expectation of making more than minimum wage off from one of their primary products!

Just as with iTunes or physical album sales, if you have a record label or management team, chances are you’ll owe them a portion of this revenue. Self-released artists with managers often expect to share 10% or 15% of their income. Traditionally, artists on big indie labels might share 50% of their recording revenue.  And if you’re on a major label? Numbers vary widely, but chances are your net take will be significantly less than 50%.

So: How Much is Enough?

The good news is that despite all of this, we’re not too far off. It may take some kicking and screaming and full-throated advocacy, but it’s feasible that in time artists could be looking at fair rates for music streaming – whether it’s from Spotify or an alternative service.

If we could get rates up to just $.02 per play, streaming would start to become a pretty fair deal artists. At that rate, you’d need a bit over 55,000 plays per month to crack minimum wage, or somewhere near 1,900 plays per day.

This sounds pretty reasonable to me – Especially when you account for the fact that even people who don’t like your record still end up kicking you some coin. (If someone listens to your song 10 seconds, hate it to pieces and write the most scathing Facebook review in the history of the universe, you’d still be getting paid.)

Get the rate up to $.03 per play, and streaming arguably becomes a better deal for musicians than iTunes ever was. At this rate, you’d just need 39,000 plays a month or 1,300 plays each day. What’s more, it would take just 23 plays to equal one iTunes download. And once again, even people who hate your song still end up contributing to these play counts.

Is Raising Rates Even Possible?

With high-profile indie artists beginning to pull out of the service? Maybe so. But wait: By now, you’ve probably heard that Spotify isn’t even profitable. How is it supposed to find that extra cash?

Well, the reality is that Spotify isn’t profitable because the company’s CEO, Daniel Ek, doesn’t yet want it to be profitable. “The question of when we’ll be profitable actually feels irrelevant,” he said just last year. “Our focus is all on growth.  That is priority one, two, three, four and five.”


it “The Amazon Approach”: Undercut everybody and become a near-monopolistic behemoth that the competition just can’t touch. Then start worrying about profit.)

With a few minor tweaks, the company could easily pay out higher rates or even become profitable quite soon. They’d just have to give up their goal of growing to a market-dominating size as swiftly as possible.

There is a legitimate question as to whether some artists have a slightly better deal with their labels or with Spotify than others do. (People who have exceptionally great contracts usually don’t like to discuss the details too openly. Such is the nature of leverage.)

But with that aside, the fundamentals of Spotify’s business model aren’t that cryptic at all: Basically, the pay-per-stream is calculated as a percentage of gross revenues, divided by the total number of plays across the service. (This is done separately for the ad-supported and premium streams.)

Spotify actually claims to pay out 70% of gross revenue, which is right on par with iTunes. So the problem isn’t so much the split – rather it’s the company’s income. when compared with the total number of streams.

Fixing this simple problem would require either raising income or lowering the number of steams. To do this, Spotify’s options are: A) Put caps on how much listeners can stream, B) Raise subscription fees, C) Increase advertising rates or the frequency of ads, D) Eliminate or restrict the ad-supported model, or E) Some combination thereof. That’s pretty much it.

If they were smart, Spotify could get creative with these fundamental options. Back in 2012, I suggested that they let artists cap listening on their albums after a certain number of plays. Then, they could allow listeners to “unlock” unlimited listening of an album by “tipping” the artist, say $5.

Not only would this be an immediate source of revenue and a way for fans to directly support their favorite artists, but it would also significantly lower the number of streams in the pool, raising pay rates across the entire service!

If Spotify doesn’t adopt creative ideas like these, some other company will, and not too long from now, and they’ll be the ones to attract all of the best artists.

Does It Pay To Protest?

As a music fan, I love the Spotify service. It’s convenient, it sounds great , it’s an insanely good value for the listener, and if you subscribe to the premium service, its payout rates are fairly ethical  (although certainly still too low) at around $.015 per play.

“The music industry is being taken over by the back door. and if we don’t try and make it fair for new music producers and artists…then the art will suffer.” – Nigel Godrich

Still, I’m glad to see some of my favorite musicians boycotting the company. In a market economy, valuing your own work enough to say “No, you can’t have it for anything less than a fair rate” is one of the most surefire ways to keep others from devaluing it.

But if you’re going to make demands, it’s a good idea to know what you’re demanding.

If you want my opinion, I’d say hold out for $0.03 per play. Once you account for all the people who’d never buy your album but end up kicking you some coin anyway, that’s arguably as good of a return as music sales ever were – and possibly better.

But if it was me? Honestly, I’d probably settle for an increase to $0.02 on the premium service to start. (So long as I could limit or block listening on the ad-supported service.)

A 30% raise would be a huge step in the right direction, and a potentially easy battle to win: Simply raise basic subscription fees from $9.99 to $13.99. Or, just create a new, slightly more expensive product tier for the highest-frequency users. Do either of those things, and the service is already there. Done. And that’s without implementing a single creative idea.

Artists have subsidized Spotify’s growth for quite a few years now. Perhaps today, with countless legal alternatives to piracy priced cheaper and made more convenient than ever before, it’s about time we took off the training wheels.

Now that legal, convenient and affordable alternatives to piracy exist, why should new artists continue to subsidize Spotify?  The only “public assistance” that a huge company like Spotify should get is a concerted effort to crack down on illegal and exploitative pirate sites.

Collectively, pirate sites rake in millions in advertising and pay out $0. Realistically, if we really want legal streaming services to pay well, we’ll all have to work together to clamp down on those kinds of services. This would increase the viability of legal competition to Spotify, giving artists more streaming providers to choose from, and increasing payouts.

We live in a market economy, and it’s about time to let Spotify sink or swim as a real business.  If Spotify can be convinced to start putting greater limitations on the free service and begin paying out a fair and sustainable rate to artists, they’d certainly win me as a customer. As it stands now, that’s the only thing holding me back.

Justin Colletti is a Brooklyn-based producer/engineer, journalist and educator. He records and mixes all over NYC, masters at JLM, teaches at CUNY, is a regular contributor to  SonicScoop , and edits the music blog  Trust Me, I’m a Scientist.


Category: Bank

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