During the last decade, the music industry went through severe transformations and reached a specific turning point in 2019. The arise of independent music production that started around the 80’s met a major globalization of music streaming services. Spotify, Apple and all other DSPs are now in the center of a new and much more broadened way of music distribution. Before them, an artist would have significant expanses to distribute music. Certainly, back then there was a limited scope of those who could do so.
According to the Recording Industry Association of America (RIAA), in 2019 music streaming came to represent 80% of the US music market share. In 2010, that number was merely 7%, against 53% from physical distribution (CDs, Vinyls, DVDs, etc) and 38% from digital downloads. Nowadays, physical distribution and digital downloads shrunk to 9% each. In other words, in 2019 paid subscriptions almost completely took the place of album sales.
Music distribution, at a first glance, may seem to have become more democratic with the growth of streaming services. Nowadays, digital technology made making music a lot easier, and one can even distribute to Spotify for free. Basically, a new and independent artist can place himself in the center of the music market, where 80% of music consumers listen to music, and compete for plays and downloads.
However, for artists, some crucial questions should come up: more immediately, how much does Spotify pay per stream? And, mainly, how to navigate this new and complex landscape of digital royalties?
How much does Spotify pay per stream?
It’s become a consensus between artists that you should get your music on every platform you can. That’s because each platform has different payout rates and sometimes different paying methods. As of 2018, there are more than 200 active music services with streaming capabilities. From local players to major ones like Apple Music and Spotify, the market keeps growing. And Spotify is expected to continue as the biggest streaming service out there as of 2022. But also ranking one of the worst per-stream payout rate.
There are basically two main sources on the internet to answer that question. It’s important to keep in mind that it constantly changes, as the companies grow or decline. Digital Music News has the most complete and updated research made with information from a number of worldwide indie labels and artists. You can also cross-information with The Trichordist’s Streaming Price Bible, if you’re curious on how much variable the numbers can be.
Here are the numbers, for 2021:
- Spotify pays an average of US$ 0,003 to US$ 0,005 per stream (a third and a half of a penny, respectively)
- Napster is the king of streaming payouts with an average of US$ 0,019 per-stream
- Tidal is at second place with US$0,0125 per-stream rate
- Apple Music takes the third place with an average of US$ 0,00783 (and announced in April, 2021, that’s rising to US$ 0,01 per stream)
- Deezer is at fourth place with a US$0,0064 per-stream pay rate
- YouTube has a multi-channel payout system with at least 3 sources of royalties: YouTube Premium/YouTube Music stream (US$ 0,008), per-stream from the Official Artist’s channel (US$ 0,00164), and Content ID monetization (US$ 0,00087)
However, getting to those numbers is actually a rather tricky task. One could wonder, how does Spotify make the payment to artists?
Types of royalties that streaming platforms plays
Before answering how does Spotify actually pay the artists, let’s dive into a quick side-topic. Here you’ll understand which kind of royalties most streaming platforms actually pay to right’s holders. They are 3.
1. Mechanical Royalties
Mechanical royalties are paid to songwriters and their publishers. When it comes to physical distribution like CDs and other kinds of physical media, they are due to the right of mechanically reproducing the composition on that media. Streaming platforms must pay the same tribute for the same reason, since what they have “in hands” is the audio file of your music. And so, mechanical royalties are generated whenever a user chooses to play a song.
2. Public Performance Royalties
Performance rights are paid to songwriters and their publishers too, but for the right of publicly reproducing their compositions. Publicly here doesn’t imply an audience with more than one person. Streaming platforms pay this tribute because they provide a song to be publicly played by anyone, and, so, every streaming service needs to pay the corresponding tribute to provide a publicly reproduction of a song.
3. Royalties to recording owners
This is where most people are probably interested in. When asking “how much does Spotify pay per stream?”, you’re probably referring to this question. Mechanical and performance royalties are managed by each country’s copyright’s associations and organizations. However, to what regards recording owners, each streaming platform has their own deals.
Now, below, you’ll find more information on how does Spotify pay their artists – the recording owners. Keep in mind that Spotify’s model is pretty much the same as of most of the other platforms. They will usually only vary on the share the company takes and the share they pay the artists.
Spotify’s “pro rata” payment system
How streaming services pay their artists has been a significant topic of discussion nowadays. Most, such as Google Play and Napster, use the same method that Spotify applies. It’s a simple “pro rata” or “platform-centric” model. However, Tidal and Deezer have been developing a new payment method that is “user-centric”. It works rather differently and has aroused discussions around the topic.
The “pro rata” model consists of the platform gathering their different sources of revenue into one “pool” of money. Basically, a DSP profits from subscription fees and ads. All that revenue goes to one “pool” of money.
What Spotify does – and many other DSPs – is to collect 30% of all that revenue for themselves. And the other 70% goes to the artists. So, to answer how much does Spotify pay per stream: they take 70% of their revenue, multiply it the artist’s streams and the share of rights to each right’s holder and divide it all by the total amount of streams that happened inside the platform. That way, they come up with an average payout rate.
But if Spotify’s income is made of both subscription fees and ads played to free users, one might wonder how can that affect the total value of payout rates, right?
Free vs. Premium Users
This is where trying to understand how much does Spotify pay per-stream starts to get a little more complicated. If you think about how Spotify manages two versions of the app: one for premium users and one that is ad-supported for free users, you can conclude that they manage two different sources of revenue. Ergo, two pools of money. Going a little further, you can infer that these two pools also differ in revenue. For each one, there’s an average revenue per user (ARPU).
By the second quarter of 2021, Spotify claimed to have a total of 365 million users. Out of that, 172 million are premium users, and, for that effect, it’s calculated an ARPU of US$ 4,31. However, there are more 192 million free users that generate an ARPU of US$ 1,50. That way, it’s noticeable how the second pool of money, from the ad-supported version, is substantially smaller.
Furthermore, these numbers can merely be estimated for more than what they really are. It’s only taken into account the US$ 9,99 fee charged in the U.S. country. Spotify has at least 12 different prices for the premium subscriptions that are charged in other countries. In India, for example, a premium subscription is about US$ 1,7. To understand how that affects the payout rates, you’d have to go on a herculean mission and investigate at least 24 different pools of money. For each pricing, 12 of premium and 12 of free users.
And the question remais the same
Basically, your payout rate will be in constant change. There are a number of factors that affect it, since there are dozens of pools from where the payout rates are calculated. Keep in mind that it’ll always depend on who streams, from where it’s streamed and how much streams your music has.
Take into account that the per-stream payout rate is calculated over the whole income of the company and that free users stream as much as premium ones. That way, you can see that theres a big pool of free users’ revenue that dilute the one of the premium users. And so the payout rate per-stream goes even lower.
On top of that, consider that the 70% of the revenue that is dedicated to artists is divided by all streams that happened in the platform. Ergo, if you think of a scenario where the amount of users are stable but the amount of streams keeps growing, the payout rates actually go down. And that’s why you’ll always find different information on the web as for how much does Spotify pay per-stream and any other store.
Promoting your presence on Spotify and other DSPs is very important these days. The music market is going through a huge shift of paradigms, we’re almost 100% virtual tp what regards the recording industry. The income of digital service providers increase each year and and altogether reaches tens of billions of dollars. To get a share of it is our job. Join Magroove, distribute your music everywhere, get paid 100% of your royalties and let’s build up to make things better for all independent artists.