Who makes money from Spotify?

Money - Photo Credit Pictures of Money (Flickr)
Money - Photo Credit Pictures of Money (Flickr)

At the beginning of 2013 the International Federation for the Phonographic Industry announced an increase of the global music sales by 0.3% in 2012, it doesn’t feel much but it was the first increase in 13 years. Major studies found that this increase is due to a substantial drop of the music piracy. Nowadays, new alternatives like streaming services such as Spotify are real means to help counter music piracy, but who makes money from it?

Spotify is a streaming service, launched in 2007, which allows the consumer to pay for music in any way they want to. Listeners can make use of the service for free but with advertisements or they can subscribe to one of two plans of €4.99 and €9.99 and which will enable uninterrupted listening and, in the premium model, synchronisation with mobile devices.

However, in the end of October 2013 Foals’ front-man Yannis Philipakis criticized the way Spotify was paying the artists “It’s like going to a restaurant when the chef and all the waiting staff have worked their asses off, and you leave coppers as a tip, and you don’t even pay the bill. That’s basically what Spotify’s like, I think.”

Since then, many artists raised their voices against Spotify: Taylor Swift, Thom Yorke, Patrick Carney and in a clever way Vulfpeck. The band released an album called Sleepify which consists of ten tracks of silence. They used the royalties they got from this album to fund their tour before the album was taken out of Spotify’s library.

Actually, the way the artists are paid by the service are still blurry. The official statement is that Spotify pays royalties to the right holders which are, most of the time, labels. They are in charge to redistribute the money. However, labels aren’t always great at paying artists, and they gain only a very little portion of what Spotify actually earns. Only 70% of the revenue Spotify receives is paid to the right holders. It may sound like a lot, but that 70% is divided between many individual artists, producers and labels. For example in 2007, Lady Gaga received only $167 from Spotify for one million play on her single ‘Poker Face’.

Moreover, the four biggest labels (Sony, UMG, Warner and EMI) and the independent label group Merlin own 18% of the company. Which means they don’t only make money from the streaming of their music, but also from Spotify’s revenue. If Spotify stays in business and makes profits, that’s more money for the major label.

I asked Noel O’Brien a young artist from Tipperary about his thougths on the streaming service: “I think that either way, people are going to stream and download music for free so it’s great that there is an app that presents the music in good quality… “, he said, “Spotify has it’s advantages for letting people sample an album or piece of music before buying it which is good and allows those interested to then purchase it.” 

On the issue of royalties he said: “The fact is, musicians have been getting ripped off in many ways that are far more important than the minuscule amount of revenue they would receive from spottily and even if they did, a large percentage of it would be given to their label. On top of that, it would only be the popular artists that would benefit from it once again.” He added that “ at the end of the day, the major labels and corporations have the funds and connections that indie artists don’t.

Here are a few other young artists interviewed on the subject of streaming services:

Spotify, for the consumer is a great new way of consuming music legally and for a low price. Moreover it includes a big social part which enables listeners to create playlists and share them with their friends. Spotify is a service in time with our music consumption. It has earned a huge popularity and could be an important factor in the recovery of the music industry. However, its redistribution model faces the same problems than the traditional music industry, labels are paid first and new music producers and artists are left behind.

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