Tuesday, October 18, 2016

The Verge's Bad Math on Spotify Royalties

When an indie artist comes out with an album should you feel guilty for listening to the album on Spotify and not purchasing it on iTunes? Are you ripping your artist friends off? No. Hell no. Don't feel guilty. If you are are a premium Spotify listener you have NOTHING to feel bad about.


First I want to point out that we live in a special point in human history where a music artist can earn a passive income by selling their recorded music. This is a lot different than having to physically perform to earn an income which is what a majority of music artists have to do in order to earn anything.

In an article put out by the Verge the journalist does ridiculous things like look at contracts between Sony and Spotify. The artist royalties between Sony and their artists have very little to do with my argument here. Those artists have sold their rights. This is going to be about indie artists who put their music out on Spotify. She uses the "average payout" of .006 and .0084 to calculate how much money she's given the artist she listened to the most.

Here’s what that means for me. My top artist of the year was Built to Spill, whose songs (mostly from There's Nothing Wrong with Love) I streamed 267 times over the course of 2015. Using the upper limit of Spotify’s estimated payout, that would be 267 x .0084, which means I paid Built to Spill somewhere around $2.24 for an entire year of music. And that $2.24 is distributed among the music's "rights holders," which includes labels and publishers. So the band is getting even less than that. My most-streamed track of the year was The-Dream’s "That’s My Shit," and I’m sure Terius Nash appreciated the 27 pennies that earned him. I listened to 13,000 minutes of music on Spotify this year, which means I paid around one-tenth of a cent per minute. And I'm paying Spotify's $10 per month subscription fee; if I were relying on its free, ad-supported tier, the payout for artists would be even smaller.

The problem with this math (and it's a BIG problem) is that everyone this journalist referenced in the article has Spotify premium. This means that the payouts are significantly higher. They are probably 5-10 times higher depending on the listener. Each listen generates revenue and there is no set rate but 70% of all revenue that comes in to Spotify is remitted to rights holders. If you are a premium listener and you're listening to an album you are paying way more than non-premium listeners. Check out what Spotify has to say about the royalty rates.

Recently, these variables have led to an average “per stream” payout to rights holders of between $0.006 and $0.0084. This combines activity across our tiers of service. The effective average “per stream” payout generated by our Premium subscribers is considerably higher.
If you're paying $10.00 per month then $7.00 per month is going to rights holders. If those rights holders are artists who produce their own music then they will get 100% of the payout Spotify remits.

The journalist from the Verge who listened to "Built to Spill" 267 times likely paid that artist between $10-15 dollars. Let's assume that amount was $10.00. If that artists has 100 premium fans at that rate (which is not very many) that album would have earned $1,000 from Spotify.

This is payments per million listens of the average listener. 1 million premium listens is much higher. If an artist attracts 1 million premium listens then his payment will be 10k-20k (total estimation).

The song "Carry The Zero" by Built to Spill has roughly 3 million listens. That means the artist made 18k-25k on a single song. That is way more than YouTube.

So listen to "The Hugeness" album by The Hugeness.