spotify revenues, ideas about

There has been a lot of press about Spotify lately. More specifically about what Spotify pays to artists (or doesn’t). Taylor Swift pulled her album from the music service and some others preceded her or followed suit. I often hear from musician friends of mine, that they receive mere cents for a couple of thousand plays. And if that was their sole revenue, they would have to quit making music professionally.

Now, I compared Spotify to what artists receive in royalties when played on terrestrial radio, and that compares quite favorably. Radio stations royalty payouts are quite complicated, and depend on a lot of factors. But divided by number of listeners the revenue for the artist per track, of she is also the composer or text author is less than a thousandth of a cent.

When you feel that Spotify competes with album sales, their payout seems frivolous.

So what is Spotify? Does it sell music? Or is it a radio station of sorts. The answer is: Neither! It’s something new. Spotify customers often play specific tracks or specific artists. This is an important distinction to a traditional radio station, because people discover less music on Spotify compared to listening consciously to a good radio station.

“But nobody consciously listens to radio”, I hear you say. Hot adult contemporary and other formats have made pretty sure about that. So maybe Spotify is better, in that it really helps people discover new music? Could be!

It certainly doesn’t sell music. Even if you use the offline feature music gets stored in a container, and the minute you stop subscribing, you lose access to the music that is stored on your computer!

So how much should artist get paid for a service like that?

One way to calculate that would be:

• Take average album price (say 15€)
• Divide by number of tracks (let’s say 15)
• Divide by times listened to a song on average

The last point is tricky. How many times does the average consumer listen to the average track on the average CD? Certainly, a 14 year old, infatuated with her new boy superstar will listen to his hit a couple of thousand times. While lesser, so called “album tracks”, get probably skipped after 10 secs for 3-4 times.

But let’s develop 3 scenarios:

1. afficionado = 200 listens per track
2. regular guy = 70 listens per track
3. indifferent = 10 listens per track

So here would be our payouts:

1. 0,5 cent per play
2. 1,4 cent per play
3. 10 cent per play

Here is what spotify does pay: Between 0.6 and $0.84 cents per play. (link here, skip to: “Wait I thought…”) I’d say we’re pretty much in the ballpark for the afficionado scenario, which in my view models the listening behaviour for the average spotify user (young) pretty well.

So do artists make less money then when selling albums? Yes! Because with an album you sell a whole block of tracks in one transaction, and you get all the plays paid up front.

In my opinion artists should stop making albums. That’s just a thing of the past, when physical mediums necessitated this format. With the exception of very few artists, mostly an album is just a bunch of tracks nowadays. Producing only those that an artists finds really promising would reduce his production cost (although not in a linear fashion. producing one track doesn’t cost a fifteenth of an album). At the same time this allows artists to fully concentrate on their strongest tracks. But that is a different topic for a different post.

For now, I’m pretty surprised that Spotify seems to pay as much as I thought made sense it should.