Myth Dispensing: The Whole 'Spotify Barely Pays Artists' Story Is Bunk

from the can-we-stop-spreading-the-myth? dept

One of the key talking points that we've heard from the "haters" of the new music business models is the claim that Spotify pays next-to-nothing to artists. This is really based on a few stories, taken totally out of context, concerning a few artists who received relatively small checks from Spotify. David Lowery actually used this as a key point in his screed against young music fans and their supposedly "unethical" behavior: to him, even if you are listening to a legal, licensed service like Spotify, you're "unethical" because he's heard rumors that Spotify doesn't pay enough.

However, the more you look, the more you realize that Spotify actually pays out quite a lot. A few months ago, someone at one of the music collection societies told me about an analysis they had done concerning the amount of money paid per listen -- comparing Spotify to radio, iTunes and lots of other things. When you knock it down to a per listen basis, it turns out that Spotify pays a hell of a lot more than any of those other sources. It's just that it's incremental so it looks smaller. With iTunes, people pay per download, not per listen, so you basically upfront a certain amount of money and then no more money is ever paid for listening to those songs. With radio, there is (effectively) a per listen rate (outside the US if we're talking performances), but it's aggregated because it's effectively spread among all the listeners. So, Spotify makes it incremental, and it seems small. but when measured on a per listen basis, the amount is significantly higher (as in an order of magnitude) than other things. The other bit of confusion about this is that Spotify is still new, and it's growing. But start from a small base, and it's easy to be confused by small numbers.

However, the info is starting to get out. Evolver.fm has some interesting details, starting with a leaked report showing that the payouts from Spotify to labels (including indies) have been increasing massively. They also have an interview with Merlin's CEO (Merlin represents a bunch of indie labels, giving it a lot of clout in negotiations). And Merlin says the claims of Spotify not paying out are bogus:

Spotify’s payouts to Merlin’s 10,000-plus indie labels rose 250 percent from the year ending March 2011 to the year ending March 2012. More importantly, the revenue per user (RPU) “has grown significantly alongside the overall revenue growth and is currently the highest it has been since the launch of the service,” said Caldas. “We see consistent, ongoing growth on revenue per user, revenue per stream, and the total revenue the service brings.”

So what's the real issue? Well, as Merlin's CEO says, Spotify pays labels, not artists. And labels aren't always great about paying artists. That's not Spotify's fault. It's what you get when you sign up for a major label that demands your copyrights (you know, the kind of system that David Lowery insists is better). There's also the issue with the growth of the service. Again, Merlin's CEO points out that Spotify has been growing a lot (helped along by its adoption in the US), but payments do take some time, first from Spotify to labels and then from labels to artists (if the labels ever do pay). So what artists are seeing is payments from quite some time ago, not what's actually happening today.

Meanwhile, Hypebot has a great interview with D.A. Wallach, who is both half of the very successful band Chester French (who we've written about for their amazing ability to connect with fans and their cool ideas like encouraging fans to share their music), and also the "artist in residence" at Spotify -- where he helps present the artist's viewpoint, and act as a liaison with other artists. In the interview, he points out that about 70% of Spotify's revenue is being paid out to copyright holders at this point:

Anyone who doesn’t think we’re paying a fair cut hasn’t seen the numbers we pay out. By far the vast majority of the money we’re making goes back to the owners of the music – about 70%. When compared to iTunes, the average listener spends $60 dollars a year into the creative community, whereas Spotify Premium users spend $120 per year. As “the pie gets bigger” so to speak, so do the royalty payments. The growth of the platform is proportional to the royalty pay out and since inception we’ve already doubled the effective per play rate.

Of course, once again, the money is going to the labels, and it's the label's job to disperse it to the artists. But to use those small payments as evidence against the "new" system is wrong, since it's still the "old" labels hanging onto the money.

There are, still, some legitimate concerns about how Spotify splits up its proceeds between major labels and indies, since the majors have an equity stake. So there is a reasonable concern about fairness. But the claim that Spotify just doesn't pay very much to artists is simply unfounded.

Filed Under: chester french, d.a. wallach, david lowery, itunes
Companies: merlin, spotify