The Spotify Calculation

Although I know this has likely been covered elsewhere on the internet, I felt I would like to ensure that I spread the word where possible, as after working through these calculations myself, I was quite shocked.

 

Despite Spotify’s claims that they are converting millions of ‘pirates’ into paying customers, and that they are reinvigorating the music industry and bringing it out of the piracy dark ages for me, the numbers simply don’t add up.

I am basing the following on this source, “straight from the horse’s mouth” as it were, and directly from Spotify.

Spotify claim that they do not consider a “per stream” rate as an accurate representation of how much they pay artists however, any artist intending to make an income from their music will understandably consider “how many people are given my music by Spotify” with “how much I get paid by Spotify” as important.

 

For many musicians a service which allows their music to be heard by as many people as possible can only be a good thing, and for this Spotify does a sterling job. However, bring money into the equation and whilst Spotify may offer greater exposure, they still make money from the artist’s music and have an equation to represent how much money an artist makes as a result:

Spotify Royalty Calculations

Spotify Royalty Calculations

I would like to address the significance of the above equation, and explain what it means to me.

1) Spotify Monthly Revenue

No one knows this for sure so given that this is the first part of the equation, any accurate calculations are a non-starter. According to this article, this could be $621m per year, if all revenue streams are taken into account, less if only revenue from paid subscribers.

 

2) Artist’s Spotify Streams / Total Spotify Streams

This instantly means even though an artist’s music is being provided to a listener, and even though Spotify is generating revenue from this, the amount you get paid depends on how many streams of every artist’s music are taking place each month on Spotify. To me, this poses popularity as a negative; your music is worth less if is not as popular. If an artist’s music constitutes 0.5% of the streams on Spotify in that territory, you get 0.5% of the royalty payments Spotify pays out that month as referred to in 3).

This is understandable as you don’t make Spotify as much money from advertising but I still find this questionable, and I can understand why the “per stream” rate is not accurate: because you don’t get paid for your streams as an artist – you get paid based on your popularity in the Spotify streaming universe.

 

3) 70% to Master Recording and Publishing Owners

This is to be expected and is an established part of the music industry (and beyond the scope of this post). Suffice to say, Spotify will no doubt be paying through the nose to stream mega-stars music (or more accurately mega-stars record label’s music). Songwriters will also see a portion of this, once their publisher has taken a cut (and if they have one).

 

4) Artist’s Royalty Rate

I’m not sure “multiplied” by artist’s royalty rate is appropriate here. As I mentioned previously, once the label and publisher have taken their cut, the songwriter is legally entitled to the remaining share. Although over simplifying to some extent, the ‘typical’ equation for calculating how much an artist would make from a sale of their music would only involve elements 3 and 4.

 

The numbers:

Spofity do give an example “per stream” rate in the official article linked to at the beginning of this article claimed to be based on anonymous but true data from July 2013.

From these figures, a “niche Indie album” earnt $3300 (£1968.50 at time of writing) which gave a per stream rate of $0.006 – $0.0084 / stream. If the source data is anonymous it could be argued that a range is unnecessary, and a figure could be given for each example album. The explanation in the article is that this is because variables (which are listed) are involved however, the dataset is taken from one specific month (July 2013). I am no statistician, but I an not afraid to say when I sense inaccuracy.

Could Spotify not have picked an example country to base statistics upon, does Spotify not know how many paid subscribers they had in July 2013 in the example locale, is Spotify not able to average currency exchange values over the course of a single month (because X-Rates can)? The one variable which Spotify would not necessarily have access to is the (anonymous) artists royalty rate? I do not think it is a stretch of the imagination to be able to extrapolate an anonymised average from publicly available data.

Let’s try some number crunching:

A median value between $0.006 – $0.0084 could be said to be $0.0072. Now I’d prefer these values in proper money, which is £0.00432 at the time or writing.

 

£1968.50 (the “niche Indie album” income example) / £0.00432 = 455,671 streams per month at our ‘median’ per stream rate. Is over 450,000 streams per month a realistic expectation for anything with the word “niche” in its title?

 

Let try this another way:

The minimum wage in the UK for someone over the age of 21, at the time of writing is £6.31. An average working week is considered to be 37.5 hours. This gives a weekly income of £236.62, and £946.48 per month.

 

This means that in order to earn the UK minimum wage in the UK from your music on Spoitfy an artists has to have their music streamed 54,773 times per week, or 219,092 times per month!

 

This does not take into account an artist’s publishing and mechanical royalty income. This is specific to each artist and is defined by the deal they agreed with their record label (if they are signed), and the deal they agreed with their publisher (if they have one). This essentially takes into account a certain proportion of the “70% to Master Recording and Publishing owners” element referred to as point 3) in the equation coming back as an income to the artist however, the exact proportion of this income varies per artist and depends whether they have a publisher.

As an approximation, an artist’s record label may take 20-50% of the income the label receives from Spotify, and a publisher may take 10-50% of this same income stream. Let’s take a best case scenario using the lowest of these two values (representing the artist or their manager having negotiated the most favourable deal for them in each case). This would mean that the artist’s label would take 20% of the income from Spotify and their publisher would take a further 10%.

 

All of these percentages don’t mean anything unless there are some figures attached!

NOTE: Whilst trying to find figures to use, the main issue with this equation is revealed: certain aspects are very difficult if not impossible to find out, namely Spotify’s total monthly revenue and total monthly Spotify streams!

 

I have made a google spreadsheet to try some numbers for size but at the end of the day, I give up. Sorry, but I do. I genuinely feel that unless you have direct access to Spotify’s income and streaming statistics, there is no way to know what to expect until you get a royalty statement.

 

Here’s the spreadsheet link, it is a WORK OF FICTION. Feel free to take a copy and have a poke around.

https://docs.google.com/spreadsheets/d/1VrIazbEyagfT1ve8PWTVbtBK0erS7haQ2oB_JLOoH7k/edit?usp=sharing

On that note, a figure of $0.0072 is overly generous and also potentially inaccurate as the next “inception-like” layer of complexity is revealed; it seems that Spotify pays different rates depending on the type of customer account which it is streaming to! This means that there are at least 3 (if not more) different rates: free customer, “Unlimited” customer and “Premium” customer, with an average payout of $0.0053 between them.

 

However much Spotify may claim to dislike per-stream calculations – the only way anyone but them can apparently attempt to work out how much money they are likely to earn is using them, and the figures from actual artists (linked to below, please do read to make sure I haven’t got the wrong end of the proverbial stick) are less than claimed as their official per-stream example.

 

Real-world examples:

http://www.spotidj.com/blog/more-data-on-spotify-payments/

http://www.spotidj.com/blog/streams-and-payments/

http://thetrichordist.com/2012/04/23/streaming-price-index-123111/

http://geetarchurchy.wordpress.com/2011/11/19/spotify-royalties-statistics/ – This one is even lower!

http://www.spin.com/articles/spotify-details-royalty-payouts-cents/

 

 

 

Further reading:

http://evolver.fm/2012/12/06/doing-the-math-spotify-revenue-should-reach-1-billion-next-year/

http://musically.com/2013/03/13/spotify-hits-6m-subscribers-and-hints-at-post-pc-priorities/

http://entertainment.howstuffworks.com/music-royalties6.htm

http://entertainment.howstuffworks.com/recording-contract2.htm

http://www.spin.com/articles/nigel-godrich-thom-yorke-atoms-for-peace-leave-spotify/

http://arstechnica.com/business/2013/12/new-spotify-report-debunks-per-stream-payments-for-artists/

 

 

References:

http://www.spotifyartists.com/spotify-explained/

https://www.gov.uk/national-minimum-wage-rates

https://indigoboom.com/what-does-spotify-pay-artists/

http://www.soundonsound.com/sos/dec05/articles/allaboutpublishing.htm

http://www.musicweek.com/news/read/streaming-value-shoots-up-in-2013-but-album-and-singles-sales-dip-bpi-stats/057146

 

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