Launched in 2008, Spotify was year after year reaching an undisputed space in the market and that, according to data released by the International Federation of the Phonographic Industry (IFPI), in 2020 it already represented more than 20% of all recorded music revenue in the world. With such high figures and numbers, one question remains and generates curiosity among users: how and how much does Spotify pay its artists?
A leader among music streaming services, Spotify is present in more than 230 countries, with music, podcasts and video content on its platform.
Currently, it is difficult to find any established singer or band that does not have their songs available on the service – although for different reasons, artists such as Taylor Swift (who later returned to Spotify) and, recently, Neil Young and Joni Mitchell, have removed your platform songs.
In fact, far beyond famous artists, Spotify is home to an extensive list of independent, niche and up-and-coming musicians, who form a plural and growing cadre. Something having organic Spotify promotion services generates even more curiosity in relation to the numbers billed by the company and paid to these professionals.
How Spotify payments work
This may come as a surprise to some people, but Spotify’s payment is never made directly to an artist. All platform royalties (amount paid to use and market a song), which in 2020 amounted to a total value of US$ 5 billion, are actually received by the song’s rights holders.
The rights holders are the companies that have the right to commercialize the music, ranging from record labels and distributors, when we are dealing with recording royalties, to publishers, management companies and agencies, when we are talking about composition royalties. In either case, the company has its own contract with the artist, with specific clauses that include how much he will take home due to his performance on Spotify.
This means that we can know how and how much Spotify pays in royalties to rights holders, but, on the other hand, we have no way of knowing the final value that each professional receives from these companies.
Where does the service money come from?
Monthly, Spotify then pays the rights holders the amount related to their performance on the platform, the so-called royalty of the music. But where does this money billed for the service come from?
Currently, Spotify makes money from two fronts: the first is its Premium Plan subscriptions which cost $9.99 per month. The second is the ads served in its Free Plan, which in 2021 had an increase of 75% compared to the previous year.
Two revenues that together generate the total value obtained by the platform, which, in turn, is separated into ⅔ to pay royalties and ⅓ to Spotify itself.
How much is paid to holders [streaming quotas]
Contrary to popular belief, there is no fixed amount per playback on Spotify. While the money received by rights holders is determined by the number of streams their singer-songwriters stream, there is no predetermined amount for each time the song is heard – but a calculation made on each of those plays.
To be more exact, this means that to calculate how much a holder will earn for the performance of a given artist, it is necessary to divide the amount of streams he obtained during that month by the total amount of reproductions of the platform. That is, what portion of the whole belongs to him.
It is based on this calculation that all owners who work with Spotify are paid monthly and then pay their artists following the dates and amounts stipulated in the contract.
How much does Spotify pay per stream
When understanding, however, how this account works, then the question arises of how to make this calculation without knowing the individual value of the stream on Spotify.
In case you’re confused, let’s work with an example: if there were 100 plays recorded in the month on Spotify and only one of them was by a certain singer, that artist will receive 1% of the total. But how to know how much this total is without quantifying how much a stream is worth?
To solve this problem, Spotify makes it clear that there is no point in having a fee per stream (after all, listeners themselves do not pay for each isolated song they listen to), but it is interesting for professionals who have songs on their platform to know how this reproduction is quantified so that the final account can be made.
So, to arrive at a “stream value”, what Spotify does is calculate the value of the stream revenue ratio, dividing the total size of the royalty fund (those ⅔ of the monthly revenue that we explained above) by the number total music plays. The result of this account would be the true “stream value”, which is used in the calculation to pay rights holders and later artists.