September 19, 2014

Just How Much Do Indie Musicians Earn From Spotify?

Spotify royalty split

If you are an aspiring music artist / entrepreneur, you might have thought to make money through streaming music on platforms like Spotify.  But unless your music turns out to be a hit, the dollars earned will be minimal.

According to Spotify, the artist receives a payout somewhere between 6 tenths of a cent up to 8.4 tenths of a cent ($.006 and .0084) per “stream” of that artist’s music.

Spotify just launched a site with information just for music artists containing statistics and charts.  The new Spotify Artists site gives musicians analytics tools to track performance on Spotify, and their earnings.

It turns out, Spotify is paying out a lot of royalty dollars — over $1 billion since its inception, according to the company.  And $500 million of that has been during 2013 alone, due to the site’s explosive growth.

But at the rates they pay out per stream, the artists cashing in are likely to be those with giant hits.

Spotify says that it pays out nearly 70% to rights holders and retains 30% of revenues for the company.  Rights holders include everyone who has rights in a song. On the Spotify Explained section of its site, the company says:

Spotify pays royalties for all of the listening that occurs on our service by distributing nearly 70% of all the revenues that we receive back to rights holders. By ‘rights holders,’ we are referring to the owners of the music that is on Spotify: labels, publishers, distributors, and, through certain digital distributors, independent artists themselves.

Some musicians have complained and at least one, Thom Yorke, called for a boycott of Spotify.  The new website appears to be part of an effort to better explain to artists how Spotify calculates royalties and to tell its side of the story.  In a Wall Street Journal article, Spotify founder Daniel Ek weighed in:

Spotify co-founder Daniel Ek, in an interview this summer, said the complaints from artists ‘saddened’ him…..” Mr. Ek went on to say ‘The focus of the artist ought to be how to maximize the number of streams, because that, in turn, will be better long-term…but that’s hard for people to understand.’ He said ‘all they see is millions of streams and they see, you know, not millions of dollars in the end, but thousands of dollars, and they think that a million streams is compatible to a million downloads, which it obviously isn’t.’

Ek pointed out in the interview how some stars made more than $3 million each in the past year.  But clearly, that’s the exception not the norm.

However, according to the Spotify calculations, it’s not such a bad deal, because Spotify pays out more than twice what other sites such as YouTube pay to indie musicians, and much more than terrestrial radio pays.

indie musicians

The chart immediately above is from July 2013.  In it, Spotify picked certain music and, without revealing names, showed how much each earned.  It’s telling that a niche indie (independent) album made $3,300 for the month.  It was only the Spotify Top 10 album or a global hit that earned over $100,000 for the month.

Keep in mind, those numbers are not averages. They are not necessarily even typical.  They were examples that Spotify chose, without revealing their actual names.

What’s the bottom line? At a rate of 6 tenths of a cent to 8.4 tenths of a cent per stream, you’d need a huge audience on Spotify before you could quit your day job.

However, think of it this way:  Spotify is probably good exposure for most indie musicians.  Viewed as a marketing technique, being on Spotify could be worthwhile because it’s a platform to open up new audiences to your music.  Just set your revenue expectations appropriately.

More in: 10 Comments ▼

Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

10 Reactions

  1. Hi Anita,
    Here’s the basic problem with the whole scenario:

    “nearly 70% of all the revenues that we receive [go] back to rights holders. By ‘rights holders,’ we are referring to the owners of the music that is on Spotify: labels, publishers, distributors, and, through certain digital distributors, independent artists themselves.”

    The basic issue with the music business and most other legacy media industries still trying to figure out how to profit in the new digital age, has to do with bloat. Simply put, there are too many ways to cut the pie and too many of the “rights holders” mentioned in the earlier sentence have done little or nothing to deserve their percentage.

    In the old days, labels, publishers and distributors (the physical kind that actually made sure physical music CDs made it to retailers’ shelves) cut themselves in for the very logical reason that it was practically impossible for artists to market or sell their product to the public without their help. But in the light of recent developments, some of these arrangements should be revisited.

    Certainly, if a label or publisher were to provide most of the tools necessary to monetize products in the same way other digital publishers do (including hosting, web design, search and social media marketing etc.) they would be entitled to a share in the profits of the project.

    But with much digital infrastructure including Spotify, YouTube, Facebook, and even arguably Amazon and other digital retailers like Apple and Google, already providing much of the apparatus once needed to market, distribute and sell products, artists should certainly rethink how big a part other players need to have in the process. (Could a lean social media marketing and SEO firm drive just as many music downloads from iTunes and plays on YouTube or Spotify as a bloated music label or publisher, and without cutting itself in for a share of the profits?)

    If Seth Godin is correct, Pearl Jam is doing just fine selling their latest recordings directly to their fans from their website.

    Yes, it’s naive to believe an independent artist will be able to live off the royalties he or she makes on Spotify. But, on the other hand, the amount of money a music venture needs to make to succeed has been dramatically reduced. And those who do meet with success should be able to keep more of the profits.

    • Hi Shawn,

      I think a lot of indie musicians have discovered that they can drive sales — of various kinds — on their own and don’t need big labels behind them.

      My only point was that Spotify is probably good for marketing, but shouldn’t be your only revenue strategy, or you’ll starve!!!

      In our business we do a lot of things that are great for marketing exposure, but don’t drive big dollars. Viewed as marketing, some are home runs. Viewed as revenue sources, they are 3-strikes-you’re-out.

      – Anita

  2. I don’t think any artist should be looking at Spotify as their primary source of income. They’re likely doing concerts and other performances, selling albums directly or through iTunes, and various other streaming services. All of that added together should take care of them, not relying on one channel of distribution.

    I also agree with Shawn’s comment above. Too many people are getting pieces of the pie. Bands need to take control of their own distribution, production, etc. if they want to make more money.

  3. I think an artist should look at Spotify from the point of view of what it can do for him/her and work from there — not rely on it, but see it as part of a wider strategy in terms of exposure and income.

    The chart Spotify shows, I’d like to see an average or everything across the board. It seems a bit shady and controlling that they’ve chosen a particular section that serves them.

    • Ebele,

      I assume the figure is not that mindblowing – that’s why there’s no average published :)

      But seriously, from my own observation (need to be backed with proper research results, it seems) unless you are a “star” on a particular platform, such as Spotify or YouTube, you will only make pocket changes.

      Following the 80/20 rule, I predict that only 20% – even less – of Spotify musicians grab 80% of total revenue generated via Spotify, which means 80% of users only make 20% of total revenue. Sounds typical to me, unfortunately.

      • Yep, I suspect the figure isn’t mind-blowing either, but I’d rather see it. What they’ve chosen to not show says a lot more to me than what they’ve shown.

        I don’t think you necessarily have to be a ‘star’ to make it on YouTube (I don’t know about Spotify), but yes, you do have to get a considerable amount of hits to make a reasonable amount.

        re: the 80/20 rule – yeah, you could very well be right.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>



Compare your business to the industry - Try our new tool