If You're Going To Complain About Spotify Payments, At Least Understand A Little Economics First

from the fighting-against-the-future dept

In discussions of Taylor Swift pulling her music from Spotify because the service wouldn’t make the music available solely to paying subscribers, which pays higher royalty rates, and Aloe Blacc’s Wired op-ed calling for higher royalties for songwriters from streaming services (but see: Spirit Animal frontman Steve Cooper’s thoughtful piece in Business Insider on “why Spotify is not the enemy”), there are a few important economic realities being ignored.

Spotify currently pays about 70% of its revenue to rightsholders.  That typically goes to middlemen ? publishers for the musical work copyright, who then pay a portion to the songwriters, and record labels for the sound recording copyright, who then pay a portion to the musicians.

VC David Pakman (who testified in November 2012 before the House Judiciary IP Subcommittee about why the current music licensing scheme deters VC investment in new music services) recently analyzed data from middlemen in a few industries and found that many legacy middlemen are not earning the large share they take from creators in the digital age.  Record labels, for example, contributed a lot more value when they coordinated and financed studio time (which can now be done with a basic computer and Internet connection, and possibly a Kickstarter campaign), manufacturing records and CDs and got them to retailers (which is no longer the primary way of selling music), and marketing (which can be done online with free services).  Now, in the digital age, many of these services are no longer needed or performed.

In remarks last week at the Web Summit Conference in Dublin, Bono explained that rather than fighting against streaming, artists should be fighting for transparency:

Spotify is giving up 70% of all their revenues to rights owners.  But it’s just that people don’t know where the money is going because the record labels haven’t been transparent.

The rightsholder middlemen pay a far smaller share to creators than the substantial majority that the services pay, which depends on whether labels have direct deals with services, a digital aggregator/distributor, or whether artists own their rights, and on artists’ contracts with their label, as explained in Future of Music Coalition’s helpful infographics on how the money flows.

And yet artists appear to often blame the Internet services rather than the publishers and labels.  One potential reason for this is that the artists aren’t actually making the decisions; the publishers and labels are, because they own the rights and have the bargaining power.  But often it’s those contracts that are the reason they’re not getting paid enough, not the services.

Pakman’s data has Spotify currently paying about 70%.  But how much should they pay?  What is the right amount?  100%?  More than 100%?

Lost in many of these discussions is the reality that music sales and streams are not the only way to make money anymore.  Streaming services help artists find fans, which enables them to generate sales of goods, like concert ticket sales and other scarce resources.

Another important point is that consumers are going to spend different amounts on music.  Many of them are happy to spend nothing on recorded music, and it’s better for that to happen through ad-supported streaming sites like Spotify than through piracy.  (For some more thoughts on the economic theory behind this, including demand elasticity and whether an infringement is a lost sale, see this post.)

Rightsholders may have delayed the existence of services like Spotify, and may still want them to not exist (which would occur if they were required to pay out more than they take in).  But consumers want services like Spotify.  And they use them.  About 40% of Spotify’s more than 40 million users were listening to Taylor Swift before she pulled her music, which some estimates said comes out to $84,000 a week.

Services like Spotify aren’t just competing against digital sales on services like iTunes.  (Although in Europe, where Spotify launched first, Spotify is now generating more royalties for artists than iTunes, which comports with recent research finding that global streaming revenue will soon surpass physical sales.)  As DisCo has said in many posts (see, e.g., 1, 2, 3):  Giving consumers lawful affordable options for listening to what they want when they want it in a convenient format reduces piracy.

Reposted from the Disruptive Competition Project

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Comments on “If You're Going To Complain About Spotify Payments, At Least Understand A Little Economics First”

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Michael (profile) says:

Spotify is giving up 70% of all their revenues to rights owners. But it’s just that people don’t know where the money is going because the record labels haven’t been transparent.

Wait, Bono said something that makes sense and didn’t follow it up with “WE aren’t giving this to our fans, Apple is, THEY paid for it, we think you are all a bunch of freeloading losers and we hate you.”?

That One Guy (profile) says:

Re: Re: Re: only $84k per week...

Of course. Say an artist goes to their labels and asks them, ‘My music has been played a ton on [STREAMING SERVICE], yet I’m hardly seeing any money at all, where’s it all going?’

The label has two options there:

1. Lie, claiming that the streaming service is barely paying out, and getting the artist to blame the service.

2. Tell the truth, that the streaming service pays out fine, it’s just due to ‘creative accounting’ the artist’s share of the profits is miniscule by the time the money actually makes it to them, at which point the artist is angry at the label.

Not too hard to figure out why you’ve got artists angry at services like Spotify, when they should be angry at the labels instead.

John85851 (profile) says:

Re: Re: Re:2 only $84k per week...

And what happens when the artist thinks she’s owed more money? The label says it’s because Spotify isn’t paying their fair share and that the only way for the artist to make more money is to increase the amount from Spotify.
Or, here’s another solution: increase the amount from the label to the artist. Nope, that wouldn’t work since it would mean less money for the label. Better to have the blame on Spotify so artists don’t get angry with the labels.

Anonymous Coward says:


There are really two arguments being made here by artists. One that the mandatory free service devalues music by making it free. The second is that Spotify doesn’t pay enough, in part because they offer a free service.

The first point can be argued all day. The second actually holds a little water. Spotify’s free service is dragging dragging down the average per-stream royalty rate. The average price per play from a streaming service that doesn’t have a free tier, such as Rhapsody, seems to be floating at ~ $0.01 per play. Spotify’s per play royalties seem to be all over the place, but are averaging out at ~ $.005 according to many independent sources. Quite a bit lower. But on the flip side of that Spotify makes up substantially more plays than Rhapsody because the free service has brought in considerably more users. So the overall royalties from Spotify far exceed that of what Rhapsody pays.

The question becomes, should Spotify put some restrictions on their free service? Artists want to be allowed to restrict their music to only Premium customers. That is what artists like Taylor Swift seem to really want and Spotify is unwilling. They would also seem to like some restrictions on the free service to make more users migrate to paid plans. That would increase the average royalty rate, as paid subscribers bring in substantially more money than free users.

Anonymous Coward says:

Re: Re: Re:2 Spotify

Radio is mixed. Terrestrial radio doesn’t actually pay artists or labels anything in the US. They only pay songwriters/publishers. Internet radio pays both artists/labels as well as songwriters/publisher.

The labels/artists traditionally consider radio to be non-interactive and Spotify/Rhapsody/Rdio to be interactive because you can play any song you want. They consider interactive services to be competition to digital download sales and therefore expect a higher royalty rates from interactive services to compensate for lost download sales. There has been a lot of proven correlation between the decline in download sales and the rise in streaming.

JD says:

Re: Re: Re:3 Of course not

Of course they don’t pay as much.

If by “they” you mean “radio”. On per-listener basis, streaming services pay about an order of magnitude more than terrestrial radio.

See David Lowery — the misinformationist-in-chief of the crucify-streaming movement — and his own numbers:




One million Pandora listens = ~1 million listeners = $16
19,000 radio listens = ~950M listeners = $1000

Pandora paid him $16 per million listeners. Terrestrial radio paid him about $1.05 per million listeners.

(Terrestrial numbers assume about 50K people listening to a given station, using Richmond, Raleigh-Durham, and Oklahoma City in the Arbitron data set as “average” radio markets.)

PaulT (profile) says:

Re: Re: Re:2 Spotify

From what I’ve read, streaming services actually pay more of a per-listener basis. Things just get confused because radio stations pay for a single play to thousands or hundreds of thousands of listeners at once, while streaming pays for single listeners, so the figures for the latter look a lot smaller before you take everything into account.

That One Guy (profile) says:

Re: Spotify

The ‘free’ side of the service already includes ads, and if an artist(or more likely their label) wants to start dictating just how Spotify should work, then hey, there’s the door, try not to let it hit you too hard on the way out.

The labels are already getting the vast majority of the money that Spotify makes, asking for more money, and more control at this point is nothing more than sheer greed.

Anonymous Coward says:

Re: Re: Spotify

I wouldn’t say it is as much about “greed” as it is “business as usual.” The two are always going to fight for their own best interests. It’s not very different than what the labels and Apple have done repeatedly throughout history. Spotify Free used to be restricted to 10 hours in most countries, along with limitations on how many times you could listen to an individual song. Free listening on mobile devices was non-existent. Spotify and the labels have come a long ways since then. They will no doubt argue about which direction to go next, especially with many of the labels being shareholders.

It’s worth noting that the latest trend of disputes have been between Spotify and independent labels/artists. The majors and other services have been keeping pretty quiet. Spotify has traditionally (and naturally) been less cooperative with smaller labels than with the majors. A dispute like this has been a long time coming.

Anonymous Coward says:

Re: Re: Re: Spotify

Spotify Free used to be restricted to 10 hours in most countries, along with limitations on how many times you could listen to an individual song

I used Spotify for a long time a few years ago (most of the music I listened to I already owned on CD) but when they brought the rules in that you are speaking of I stopped using it and went back to listening to the music the old fashioned way (iPod).

So before the idiotic rules the artist not only got money when I originally bought the album but also every time I listened on Spotify. After Spotify implemented these restrictions they and the artist get no more additional money as a result of my listening because I already own the CD.

In addition to this effect I also no longer discover similar artists using the service.

So it is a loose loose situation for an artist to leave the service or for you to impose restrictions on the free service.

tqk (profile) says:

Re: Re: Re:2 Spotify

… I stopped using it and went back to listening to the music the old fashioned way (iPod).

I’ve just got to say … Hmm, now what was it I was going to say? Damned senility. Oh yeah, we used to actually sit down in chairs with real performers playing their instruments right in front of us. You could even strike up a conversation with them between sets, or throw things at them if they stank.

Some of you kids must desperately want us old farts to just climb into that pine box already, coming up with statements like that.

So it is a loose loose situation for an artist …

You’ve a loose manner of spelling which may cause some to lose the point of what you’re attempting to convey. Keep on that course and you’ll be back to the Tower of Babel soon. O rly? Chyaa! brb.

PaulT (profile) says:

Re: Re: Re: Spotify

Indeed. But, one supplier doesn’t get to dictate the business of that business. If all but a handful are happy with the terms, then the business operates whether or not that supplier’s happy or whether or not they leave.

As someone who’s subscribed to Spotify since they launched in my country of residence (well before they were allowed to service the US), Taylor Swift’s presence on the service doesn’t bother me one way or the other. However, her demands would make the service infinitely less useful. I’m with Spotify all the way here – and as a paying customer, I hope my opinion counts as much as someone who’s annoyed that she left.

CrushU (profile) says:

Re: Spotify

That would increase the average royalty rate, as paid subscribers bring in substantially more money than free users.

Except that the second paragraph you wrote above actually disproves this. Rhapsody doesn’t have free users, and brings in less money than Spotify. Looks like free users DO bring in more money.

Just not by themselves. 😉

Joe says:

Re: Spotify

I have been thinking about this. I think the free tier is necessary to bring in users to reach that critical mass they’re aiming for. If they let artists restrict their music to the payed tier, that’s what all the well known artists would do, and the payed tier would not really be a good representation of the actual Spotify service. Instead it would just be full of underground artists looking for exposure.

The whole idea with Spotify is to convert as many people into paying customers as possible. They don’t want people staying on the free tier any more than artists do. Therefore, I think artists would be better off trying to convince their fans to become paying Spotify users, rather than preaching that Spotify is evil.

Whoever says:

Artists -- not rare?

The problem for many artists is that their skills just are not that rare. What is rare is that someone becomes famous. Hence, artists have next to zero negotiating power when signing with a major label, unless they are already famous.

The result is that most artists get very poor deals out of labels. Furthermore, labels want control which they get under traditional distribution methods (including radio, where payola is alive and well). With streaming by independent sites like Spotify, labels lose control, so they do their utmost to make streaming a poor deal for artists (and everyone else at the same time).

art guerrilla (profile) says:

Re: Artists -- not rare?

thank you…
really, WE ALL have talent and abilities in all kinds of areas… used to be, many of us sang and played an instrument, etc; now, we’re too busy making enough money to pay the bills that we have precious little free time to indulge in our avocations…

that we are not driven to give up everything else and spend our time perfecting our art, is due to the fact that:
A. i would bet 90% of artists who are trying to make it, are NOT supporting families on their income… MOST people simply could NOT indulge their ‘dream’ at the expense of putting bread on the table for the rugrats…
B. someone has to shovel the shit, we can’t ALL be pampered artistes…
(to that end, a british study once showed that our compensation for various professions is absolutely topsy-turvy: the LEAST valuable members of society, are bank presidents, arbitrage brokers, etc who contribute the LEAST to society, and wouldn’t be missed in a million years…but perversely enough, they are paid the most…
the MOST valuable members of society, are those who swab the halls of hospitals and make sure you aren’t drowning in a sea of shit or trash, but they are paid the least and denigrated the most… upside-down world at work…)

no, EVERY artiste currently making a living with their art could die tomorrow, and we would have a million others JUST AS TALENTED to fill in the holes the next day…

oh, as an aside apropos of not much, did you know that in denmark the STARTING wage for burger flippers at McDonalds is equivalent to $20/hour ? ? ? huh, funny that…

Groaker (profile) says:

Artists have pretty much made their money from concert tours. Even some major artists, who have been popular for decades, have claimed they never got a dime from sales of both vinyl and CDs. It has been reputed that the labels nickel and dime artists so that the artists still have a negative balance on the making of an album.

The only use the industry served was some upfront capital to make the album, and publicity. It is said that for an artist to even attempt to audit an albums finances starts at a cost around $50K. I used to have a neighbour, a VP at a major label, who would not deny most of the nuggets I dug up elsewhere.

Now this buggywhip industry is struggling to stay in the game with computers, cheap electronics and software. But because there is so much money involved, they will not go quietly into the night.

Aaron Wolf (profile) says:

Re: Stop calling sharing "piracy"

Here’s how powerful the propaganda is:

You wrote “Giving consumers lawful affordable options for listening to what they want when they want it in a convenient format reduces piracy.”

Now read it truthfully: “Giving consumers lawful affordable options for listening to what they want when they want it in a convenient format reduces SHARING.”


Re: Re: Re: Stop calling sharing "piracy"

I agree. Now please share everything in your wallet with me. Thanks!

I will gladly share all the items that have a marginal production cost of $0.

Creative property is an artificial construct intended to further a social good. It’s not a virtual land grab or some sort of property or a natural right.

tqk (profile) says:

Re: Re: Stop calling sharing "piracy"

I will agree using the word piracy for this is wrong. It’s demonization. Nothing was stolen. They still have the original. The worst that was done is cheat the rightsholder out of a royalty payment. The fact that rightsholders have skewed the deal so horribly in their favor muddies the waters a lot. If I bought an LP record, they and the artist have been paid. I should own a right to my copy. That’s not the case now. They want to sell a per device licence, or worse.

However, sharing implies two parties agreeing willingly as in bartering. This is hardly what rightsholders are doing here. They believe they’re being robbed with no say in the matter until they can find you and sue.

In truth, both sides are being robbed in different ways. I advocate boycotting, or buying directly from artists who offer reasonable deals with which both buyer and seller are satisfied.

That One Guy (profile) says:

Re: Re: Re:2 Stop calling sharing "piracy"

It’s using a loaded term.

‘File sharing’, ‘copyright infringement’ and ‘piracy’ may all be describing the same thing, but the emotions intended to be invoked by a given word/phrase are quite different, ranging from positive, neutral(ish), to negative respectively.

When ‘pirates’ start looting ships at sea and claiming the cargo, then I’ll agree that ‘piracy’ is an accurate term for it, but until that happens the correct term would be ‘copyright infringement’.

Andyroo says:


Spotify has helped many artists make a hell of a lot of money, more so than anything the publishers have used to make them money, I suspect that within the next few years , from what i have read Spotify will be the biggest money earner for artists or their publishers, it is just a matter of artists demanding all/more income from streaming services like spotify, as the industry says it is not a lot of money for a hard working artist, so instead of taking 5 million of her income from Spoitfy a year and only giving her 1 million maybe the artists should start demanding at least a 50 percent share of income from spotify.

One thing i like is that Spotify is gaining more and more power over publishers and their artists, not to make more money and pay less but to stop them bitching and moaning and just remove their music until they stop with the lies.

KeillRandor (profile) says:


Unfortunately very few people truly understand economics anymore, and corporations are a large reason for that – for they can exploit such a lack of understanding, (especially the banks).

The symptoms of this problem can be seen and found EVERYWHERE. It’s a large part of the problem with regulating the internet etc., aswell as the root cause of the financial problems we’ve been having.

Another large symptom, especially in the USA, is that a lot of people – (mainly those who just voted for Republicans) – do not understand that the primary role of government is economic regulation – (of the productive use of land and all that is based upon it). All of the other powers and roles of government only matter because of this.

Pragmatic says:

Re: Re: Economics

I’m not sure about that. Libertarians and free market enthusiasts in general seem to have based their philosophies on best case scenarios with variables such as natural disasters and human behaviors left out of the equation.

Result: shock and dismay when things went wrong and the market plumb forgot to correct itself.

I’m Irish and the Potato Famines are very much in living memory. Seriously, any chance you get, go there and see it for yourselves. Reminders are everywhere.

When a decimated population is seen as a good result because it resulted in less competition for work and housing, that is all kinds of wrong. And may I remind you all, we’ve got nowhere to emigrate to now?

There is no such thing as a free market. It’s not free at all.

tqk (profile) says:

Re: Re: Re: Economics

Libertarians and free market enthusiasts in general seem to have based their philosophies on best case scenarios with variables such as natural disasters and human behaviors left out of the equation.

Perhaps the same thing, but I’d put it another way. We overestimate the value to ordinary people of such things as right vs. wrong, honour and justice, and the long game. Those are archaic concepts these days. Instead, what are prized today are expediency, pragmatism/practicality, and cheap. Ask Sam Walton, or any institutional investor.

Anonymous Coward says:

Re: Economics

Property allocation is a function of government. In nature everyone owns everything equally. So if we are to have a government allocating resources we should ensure it allocates them in the public interest of everyone in a way that’s fair to everyone.

To everyone his needs from everyone his abilities

From each according to his abilities to each according to his contribution

Capitalism doesn’t necessarily concern itself so much with giving people according to their contribution. But underlying capitalism is the government allocation of resources. and in nature everyone is equally entitled to property. So in a sense capitalism isn’t the lack of government it’s just another way the government allocates resources. and we should ensure that resources are allocated justly no matter what system is in use. So in a sense the failure of capitalism to allocate resources justly shouldn’t necessarily only be compared to socialism or communism but it should also be compared to anarchy and a lack of government. Without government people wouldn’t be able to exploit weaknesses in how government allocates resources to receive more than their contribution. So if we are going to have government we should ensure that it attempts to allocate resources justly.

In fact the above principles are the whole idea behind tax brackets. It’s called the backwards bending labor supply curve. People should receive according to their contribution and those that make a lot of money will naturally desire to contribute less. So we tax them more to allocate some of their money towards others that will contribute more given that additional money. After all society doesn’t owe you any more than what you contribute and if we have a governmental system that allocates more money to those that contribute less such a system is unjust (I would say with the exception of those who are incapable of contributing due to being handicap or just too old. To that extent I wouldn’t necessarily mind having government provide them their needs).

So if you own property and you rent it out for more money than what you pay in taxes and you make a lot of money off of it but you contribute nothing back then that is arguably a social failure. That’s not to say there is anything wrong with owning property and renting it out just that we should understand that such a situation is only possible because of the existence of government allocating such property. and, at least to some extent, we should ensure that the laws are designed to encourage property being allocated to those according to their contributions.

KeillRandor (profile) says:

Re: Re: Economics

There is a good reason why what we now call countries, farming, government and civilization all date from a similar period in time – they all exist in relation to each other.

Local, small-scale economics of such matters is fairly simple, but of course it has never truly existed on such a scale, from probably even before that time.

Allocation is what happens when regulation fails. (The two are NOT the same – and so most of your post exists in the wrong context!)

People competing against each other economically has always existed – but what has happened, is instead of government managing such competition and using it for the nations benefit, they have instead been co-opted by the most powerful individuals and corporations, at which point the government will fail to do its most basic job.

Corporations are an artificial creation, created at the behest of governments, to enable and allow for greater economic behaviour. Without regulation, however, such entities become very problematic. Likewise banks, etc..

Unfortunately, what is happening in the US, (especially), is that a lot of people are being conned into thinking that such regulation is NOT what government should do at all – which is one of the main reasons the economy is in the state it’s in – which is why so many individual people and corporations are able to take and hold so much money away from the rest of society, instead of using for everyone’s benefit.

Anonymous Coward says:

The expertise exhibited by commenters here concerning the music industry is heartwarming. Never realized so many were experts on how the industry sustains itself financially, and the constant flow of constructive input on what needs to be done for it to flourish.

More heartwarming, however, is reading articles and analyses by persons who are longstanding members of the industry in all capacities, and who are able to analyze data in such a way to point out why the above experts are long on rhetoric and short on facts.

It is a name rarely mentioned here, but Trichordist is a good place to start to begin educating oneself on a complex industry and why much of what passes here as insight is not particularly helpful. The Illusion of More (and, mind you, these are just two among many run be persons who seem to actually understand the industry with a high degree of granularity) appears to be another quite useful source of information.

Anonymous Coward says:

Re: Re: Re:

The author of this article is barely out of high school and appears to have virtually no experience within the music industry, including broadcasting, performance, and distribution, and yet you seem determined to accept what she says at face value to the exclusion of others who are in fact intimately familiar with all aspects of the industry.

Small wonder you are yawning. Actually taking the time to peel back all the layers of a very complex industry to understand what it entails is a difficult and laborious task. Much easier to let someone else do the heavy lifting for you, even if that person does not appear to have any serious bona fides.

PaulT (profile) says:

Re: Re: Re: Re:

Nice false assumption you have there. No wonder you like that site, as full of false assumptions and outright lies as it is. It’s author has been here many times, and he’s been proven wrong many times, usually just disappearing when the weight of people calling him out on his false claims becomes too much to divert with a pithy personal attack.

I’m yawning because that’s the “source” that everyone trying to defend these kinds of moves seems to point to, and it’s very tiresome having to debunk all the bullshit posted there.

But, feel free to point out why the discussions here are wrong, not just go “this guy over here tells me what i want to hear” as if the “facts” there are somehow new or unconsidered elsewhere.

As I always say on these kinds of discussions – let’s talk about facts. Feel free to present them. Just don’t be surprised when people don’t accept them at face value. Is the author of this article perfect and beyond reproach? of course not. But you have to present an actual counterpoint, not whine that they don’t fit into whatever pigeonhole you think is the right one. Address the points, not the person – and be armed with verifiable real-life data if you want people to believe you.

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