Behind the Curtain: Everything You’ve Ever Wanted to Know About Spotify’s Payouts to Artists Explained

Spotify has released an incredibly informative article explaining how they calculate payments to artists by providing a very detailed breakdown of the company’s financials. This is the transparency we’ve been asking for from Spotify for over two years now; finally we’ve got it.

Just a few of the many revelations contained therein:

• Spotify has 24 million global users, 18 million of which use the free tier and 6 million of which subscribe to the $9.99 premium tier (I guess the $4.99 option is not very popular)
• Spotify has now paid out over $1 Billion in royalties to date (and $500 Million in 2013 alone)
• The average U.S. music consumer spends $55 on music per year, compared to the $120 a premium Spotify subscriber pays. Adjusted to include those who spend nothing on music (including pirates) and those who use the Spotify free tier, the average U.S. music listener spends $25 on music per year while the average Spotify user pays $41.
• Spotify royalty payouts are calculated separately for streams generated by free users than they are for paying users. I.e. the money Spotify takes in from advertisements on its free tier goes solely towards paying out streams played on the free tier, while the subscription fees Spotify takes in from premium subscribers goes solely towards paying out royalties for streams played by premium subscribers. Two different money pools. The takeaway here is that the more people sign up for premium accounts, the more the per-stream payouts will increase on average and the more money will be paid out on the whole.
• Spotify pays out 70% to rights holders and keeps 30% for itself. The royalty process of how this is filtered down to the artists themselves is laid out in detail in the article.
• The reason there has been so much confusion in the past over Spotify’s “per stream” rate is because there is no set rate; it changes month to month as a function of a) the size of the overall money pot pending the above (# of overall subscribers, # of paid subscribers, amount of ad revenue coming in), and b) the artist’s percentage of streams out of the number of overall streams on the service. But the rights holders get 70% no matter what.
• Spotify pays out on average between $6,000 and $8,400 to a rights-holder for 1 million song streams, compared to around $3,000 on a “popular video streaming service” (which we can only guess is YouTube?), $1,300 to $1,500 on a “radio streaming service” (Pandora?) and $41 on U.S. terrestrial radio.
• Spotify has been very effective in decreasing rates of music piracy in the territories in which it’s available (according to linked third-party studies)

I’ve re-posted a few of the most informative charts from the article below, but you should really check out the whole piece for yourself. It’s fascinating, and it’ll take about five minutes of your time.

[via Metal Insider]