Spotify, the on-demand music streaming service, has been under increasing fire from musicians who say it’s hurting the record industry. Radiohead frontman Thom Yorke pulled some of his solo work from the service earlier this year and said that the streaming service hardly pays new artists. Other artists such as Aimee Mann and the Black Keys have purposefully kept new releases off of the service for fear it would cannibalize sales. Though Spotify has long said it is beneficial to artists, musicians remain skeptical.
Now the startup is making an aggressive push to prove that it can make artists money. The company has launched a new Spotify Artists page which explains its business model and how royalties are distributed in extreme detail. Spotify has paid out $500 million in royalties to rights holders so far in 2013 and $1 billion total since 2009, about 70 percent of its total revenue. These rights holders, typically music labels and publishers, then pay artists a portion of the royalties, an amount that varies depending on individual record contracts.
Spotify doesn’t pay on a “per song stream” model, exactly: the total royalty pie is split among all rights holders based on the percentage of total Spotify streams their songs garner. But the company estimates that the average song generates between $0.006 and $0.0084 per stream in royalties. This may seem like a pittance, but Spotify’s data shows that the numbers add up, at least for big artists. The company says the biggest album on the service each month typically generates more than $400,000 in royalties. A “current global star,” who Spotify chose not to disclose, generated more than $3 million in royalty payments between August 2012 and July 2013. Spotify expects these figures to increase dramatically as its revenue increases but the number of artists splitting the money remains more or less the same.
Some back-of-the-napkin math using Spotify’s listenership data and these royalty figures provides a sense for how much money the hottest songs in music are making for artists and labels right now. Here are the 10 most popular songs on Spotify the week before Thanksgiving, with an estimate of how much money they’ve generated in royalties since they were released:
1. The Monster / Eminem / 35.1 million streams / $210,000 – $294,000
2. Timber / Pitbull / 32.0 million streams / $192,000 – $269,000
3. Lorde / Royals / 65.3 million streams / $392,000 – $549,000
4. OneRepublic / Counting Stars / 57.7 million streams / $346,000 – $484,000
5. Avicii / Hey Brother / 46.5 million streams / $279,000 – $391,000
6. Miley Cyrus / Wrecking Ball / 60.4 million streams / $363,000 – $508,000
7. Katy Perry / Roar / 64.6 million streams / $388,000 – $543,000
8. Avicii / Wake Me Up / 152.1 million streams / $913,000 – $1.3 million
9. Drake / Hold On, We’re Going Home /47.1 million streams / $283,000 – $396,000
10. Ellie Goulding / Burn / 53.8 million streams / $323,000 – $452,000
Note that these are the total royalty payments split between record labels, music publishers, songwriters and artists. It’s not clear exactly how much money goes to artists, but in older distribution formats, like CDs and iTunes downloads, artists often pocketed less than 10 percent of the retail price.
The picture is obviously not as rosy as these numbers would indicate for smaller acts. Spotify says a band with a “niche indie album” generated $3,300 in royalty payments in July, while a classic rock album earned $17,000.
The disclosures may help Spotify convince more acts to put their music on the service. But the company, which is not profitable, faces an ever-growing number of music streaming competitors, soon to include YouTube. Spotify may generate big dollars for artists one day, but it will have to convince a fractured listening audience that its platform is worth paying for.