A tight Spotify: Is there a better way to make music streaming sites pay?

It takes millions of plays for artists to earn big sums of money from the sites

Depending on how poetic you're feeling, you might describe music as a gift, a best friend, a sanctuary, or a universal language that unites us all. Its emotional worth is undeniable, but figuring out its financial worth has, since the rise of digital media, become a conundrum. Easily shared, enthusiastically copied and covertly distributed, digital music has distorted traditional economic patterns into shapes that the music business has had huge difficulty interpreting.

Spotify, originally founded in Sweden by Daniel Ek in 2006, was one attempt to bridge that gap between unprecedented demand and reluctant supply that had caused music piracy to spiral out of control; its model of free, advertisement-funded streaming on-demand (with monthly subscriptions for loyal users) was hailed as a master stroke.

Until, that is, the first royalty statements started appearing. In November 2009, a startled music industry heard that Lady Gaga had received a mere $167 for a million Spotify plays; the company quickly responded that these sums were misleading – but, crucially, it wouldn't provide more-accurate figures. Its royalty rates continue to be obfuscated by non-disclosure agreements, while the amounts ending up in artists' pockets are eroded further by harsh clauses in their recording contracts – some of which were signed in a pre-broadband era when the word "streaming" was understood only in the context of colds and flu.

Spotify's income comes from two sources: four million subscribers who pay either 4.99 or 9.99 (dollars, euros or pounds) per month, and advertisers who pay to reach the 11 million who use the service for free. According to sources close to the company, around 70 per cent of that income (a proportion that's estimated to reach $360m in 2012) is paid out in proportion to the number of plays of each song.

The majority goes to record labels, or aggregators representing record labels, who in turn pay artists; the remainder goes to performance-collection societies, who pay publishers, who in turn pay songwriters. But the only figures made public regarding these payments come from independent musicians who have put their statements online. These indicate that a per-play payment lies between $0.002 and $0.006; in other words, 1,000 streams net between $2 and $6.

Sounds tiny? It has led to sustained rumbles of irritation, with bands such as The Black Keys and Grizzly Bear voicing annoyance and some independent labels pulling catalogues from the service in protest. Last week, Jana Hunter from the Baltimore-based band Lower Dens added her own voice to the refrain of discontent in a blog post about Spotify: "Music shouldn't be free," she wrote. "It shouldn't even be cheap… If consumers don't think about this and don't pursue a course that's different, music will continue to suffer."

Competing subscription services such as Deezer, Rdio and the now-Tesco-owned we7 are gaining users, and YouTube eclipses them all in terms of providing music on-demand (while paying artists far less than Spotify does). But it's Daniel Ek's baby that provokes the most wrath. "Is Spotify fair?" is the perennial question, and the answers tend to be lengthy. "No one yet understands the depths of the economics," says Charles Caldas, the chief executive of Merlin, a body that has negotiated terms with Spotify for thousands of independent record labels, "but this is a fundamental change in the way that music is consumed.

So there needs to be a change in the way that the consumption of music is measured, too." Caldas is referring to the dogged pursuit among Spotify's detractors of calculating those per-play payments – a metric that supporters of the service say is unhelpful. "Stop staring at the rate per stream," writes Hans Handgraaf on his blog at spotidj.com. "The more important part is the number of users and the effect that has on the number of streams."

In one sense Handgraaf is right: if two services, both charging $10 a month, report 1,000 streams and 500 streams respectively of one song, the former will pay the artist half the rate per stream of the latter. But many artists regard repeated listens on Spotify as a lost sales opportunity – also known as cannibalisation – and it's a fear that's led to noted absences from the service of music by Adele, Coldplay and others. Cannibalisation clearly happens daily; anyone using Spotify can provide anecdotal evidence of their own failure to buy the records they've been streaming.

But Sachin Doshi, Spotify's head of development and analysis, urges artists to see the bigger picture. "We know on a macro level that Spotify is not only not damaging sales, it's creating an audience of people who can easily listen to a record, fall in love with a band, go to their shows and so on." Caldas agrees. "I haven't had one label come to me with proof of cannibalisation."

This enthusiasm for Spotify among the major labels (Universal, Sony and Warner) causes further consternation among independent artists.

The majors' agreements with Spotify include an equity stake in the firm ("It's the way they do business these days," Doshi says, "to prevent start-ups building value off their back"), and accusations inevitably follow that Spotify is in the pocket of multinationals, and that major-label artists get a better deal than smaller ones (not that we'll get to see the figures). Steve Lawson, a solo artist and prominent voice on the subject of online-business models, removed his music from Spotify a few months ago in protest at this opacity.

"They're not telling anyone what they're paying," he said during a New Music Strategies podcast. "I know exactly what iTunes pays per track for everybody, so why should it be different for Spotify?" Lawson stresses that his gripe isn't people listening for free: "Free listening is the best gift to artists that there is. I don't make music to make money, I make music because I can't not make music. I just want to know how the amount I'm paid fits into Spotify's plan, and if Spotify doesn't think I should know, that's fine – I just won't use it."

Spotify's value is estimated to be in the region of $4bn, with Daniel Ek's wealth having catapulted him into a Sunday Times music-business rich-list. Impoverished musicians will see these figures and continue to demand to know the whereabouts of the money they supposedly deserve; economists will shrug and talk of the harsh realities of digital music. In reality, Spotify has yet to turn a profit, thanks to its large number of free users; the British research firm Enders Analysis recently estimated that any profits Spotify makes from subscribers are almost entirely cancelled out by losses incurred by entertaining freeloaders.

But there's cause for cautious optimism about the firm's future, with subscriptions quickly rising; a 60 per cent increase in subscription revenue in the UK last year may follow in the US in 2013, when the service introduces curbs on the free-for-all American listeners enjoy. Overall revenue to artists will grow, potentially eclipsing iTunes by the middle of the decade. But whether those revenues are fair will still be an issue as puzzling and absorbing as that of the value of music itself.

Update: "A spokesperson from Spotify wishes to stress that no announcement has been made regarding whether limits on listening may be introduced on its free service in the US."

Arts and Entertainment
Stewart Lee (Gavin Evans)

comedy

Arts and Entertainment
No half measures: ‘The Secret Life of the Pub’

Grace Dent on TV The Secret Life of the Pub is sexist, ageist and a breath of fresh air

Arts and Entertainment
Art on their sleeves: before downloads and streaming, enthusiasts used to flick through racks of albums in their local record shops
musicFor Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Arts and Entertainment
Serial suspect: the property heir charged with first-degree murder, Robert Durst
TV review
Arts and Entertainment
Igarashi in her

Art Megumi Igarashi criticises Japan's 'backwards' attitude to women's sexual expression

Have you tried new the Independent Digital Edition apps?
Arts and Entertainment

ebooksNow available in paperback
Arts and Entertainment

ebooks
Arts and Entertainment
It's all in the genes: John Simm working in tandem with David Threlfall in 'Code of a Killer'

TV review
Arts and Entertainment
Far Right and Proud: Reggies Yates' Extreme Russia

TV review
Arts and Entertainment
Kanye West was mobbed in Armenia after jumping into a lake

music
Arts and Entertainment
The show suffers from its own appeal, being so good as to create an appetite in its viewers that is difficult to sate in a ten episode series

Game of Thrones reviewFirst look at season five contains some spoilers
Arts and Entertainment
Judi Dench and Kevin Spacey on the Red Carpet for 2015's Olivier Awards

Ray Davies' Sunny Afternoon scoops the most awards

Theatre
Arts and Entertainment
Proving his metal: Ross Poldark (played by Aidan Turner in the BBC series) epitomises the risk-taking spirit of 18th-century mine owners

Poldark review
Arts and Entertainment
Eddie Redmayne is reportedly favourite to play Newt Scamander in Fantastic Beasts and Where to Find Them

film
Arts and Entertainment
Tom Hardy stars in dystopian action thriller Mad Max: Fury Road

film
Arts and Entertainment
Josh, 22, made his first million from the game MinoMonsters

Grace Dent

Channel 4 show proves there's no app for happiness
News
Disgraced Top Gear presenter Jeremy Clarkson
people
Arts and Entertainment
Game face: Zoë Kravitz, Bruce Greenwood and Ethan Hawke in ‘Good Kill’

film review

Arts and Entertainment
Living like there’s no tomorrow: Jon Hamm as Don Draper in the final season of ‘Mad Men’

TV review

Arts and Entertainment
Yaphett Kotto with Julius W Harris and Jane Seymour in 1973 Bond movie Live and Let Die

film
Arts and Entertainment

art
Arts and Entertainment

film
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?

ES Rentals

    Independent Dating
    and  

    By clicking 'Search' you
    are agreeing to our
    Terms of Use.

    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
    Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

    UK's Major Tum to blast off on a spice odyssey

    Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
    John Harrison's 'longitude' clock sets new record - 300 years on

    ‘Longitude’ clock sets new record - 300 years on

    Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
    Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

    Let the propaganda wars begin - again

    'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
    Why Japan's incredible long-distance runners will never win the London Marathon

    Japan's incredible long-distance runners

    Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
    Why does Tom Drury remain the greatest writer you've never heard of?

    Tom Drury: The quiet American

    His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
    You should judge a person by how they peel a potato

    You should judge a person by how they peel a potato

    Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
    Beige is back: The drab car colours of the 1970s are proving popular again

    Beige to the future

    Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
    Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

    Bill Granger cooks with fresh cheeses

    More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
    Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

    Shay Given: 'This FA Cup run has been wonderful'

    The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
    Timeless drama of Championship race in league of its own - Michael Calvin

    Michael Calvin's Last Word

    Timeless drama of Championship race in league of its own