While most of us don ’t pass up the opportunity to appreciate music, very few outside of the business are actually aware of how drastically music consumption over the last twenty years has changed, much less how revenue and royalties actually work.
Compared to massive popular digital platforms such as iTunes and Pandora (not to mention traditional radio stations), Spotify is still relatively small. In November 2015, the online streaming platform reached a grand total of 75 million
active users, 20 million of whom paid a subscription in order to access the conveniently ad-free Spotify Premium at $9.99 per month.
In spite of its seemingly humble beginnings, Spotify is essentially changing the landscape of the business and ushering in a music industry renaissance that many thought would never arrive. Since 1997, the ease and convenience of digital downloads have drained the vast majority of revenue for artists.
The model of the Spotify platform, which starts users out on an ad-based tier before pushing them to upgrade to Premium, is a simple one: regenerate the lost value of music and encourage even casual fans to start paying for their favourite artists ’ work.
If people only have to pay one flat monthly rate to access a lot of music, Spotify CEO Daniel Ek theorized, they will be less likely to pirate music illegally, convert YouTube videos to mp3 files, or find other creative loopholes to avoid paying for music.
Although Spotify still has room to grow, it has singlehandedly succeeded at offering more than $3 billion USD in royalties to artists in 58 countries worldwide. There is some debate about whether or not artists are still paid enough , but Spotify has certainly taken strides to compensate musicians at least somewhat fairly.
Many people mistakenly believe that Spotify “pays per stream,” which isn’t exactly true. What Spotify does is distribute approximately 70% of revenues to “rights holders”—record labels, distributors, music publishers, and sometimes artists themselves.
In short, the more people stream your music on Spotify, the more royalties every rights holder earn s. This gives labels and distributors incentive to aggressively promote their new artists, such as those signed to Funktasy Records. But there are some myths about how Spotify works that persist amongst new artists and fans alike, and many people misunderstand exactly what “rights holder” means.
Even though Spotify offers up a significant chunk of revenues (they keep the other 30%), that 70% is further distributed to every rights holder. This means that if your label or distributor holds the majority of the rights, then you, the artist, is unlikely to see anything more than a very small royalty cheque.
The relationship between Spotify and rights holders can be confusing. Spotify ’s official website describes it this way: “Our current payment agreements lead us to distribute (~)approximately 70% of our gross revenues to master recording and publishing rights (both mechanical reproduction and performance) holders.”
They go on to explain that the precise division of the revenues to each type of rights holder varies by country. In Canada, the government mandates royalty rates, and many artists believe they are being shortchanged by the current rate of 8.3 cents.
The industry still unfairly manipulates artists in a lot of ways. At the end of the day, everyone just wants to earn a living. Spotify, admittedly, is not the ideal platform, even for very highly paid artists. But there is definitely a way to take advantage of it, especially if you self-publish.
Whether you ’re a performer or songwriter, the more you know about how Spotify’s revenue streams work, the more likely you are to actually profit off your music—and not give all your hard-earned money away to a third-party. If you are a fan of an artist on the Funktasy roster, consider this information the next time you stream their music on Spotify.