Author: Mauricio Chandler, Graphics: Acasia Ginnakouros
The BRB Bottomline:
Spotify just paid out $7 billion to artists—yet creators on the music streaming platform continue to find themselves struggling to make ends meet in a post-COVID economy.
Spotify is a brand synonymous with the most prominent musical artists in the world. With over 400 million worldwide users and $2.86 billion of revenue in the fourth quarter of 2021, it is safe to say that the music app has become a global leader in audio streaming services and has had a profound impact on the music industry as a whole. While Spotify continues growing its brand and capturing more of the greater market share for streaming music, there have been growing concerns over artist payment and the underexposure of lesser-known musicians on the app. The backlash surrounding artist rights on Spotify has been present since the app’s introduction to the United States marketplace in 2011. This apprehension has gradually increased throughout the 2010s but most recently spiked due to financial hardships caused by the COVID-19 pandemic.
In order to grasp the full scope of criticism behind Spotify’s morally questionable strategies to optimize profit, it is important first to understand the corporation’s business model and the factors that contribute to the app’s multi-billion dollar valuation. The overall generation of revenue on the app is sourced from two user platforms, one free and another subscription-based. Free services are monetized by ad revenue, while subscription profits are reimplemented into creating an environment in which artists allegedly have an “opportunity to live off their art.”
Spotify supplies its catalog of music primarily through the formulation of contracts with record labels. These types of contracts often streamline the exposure of signed artists and create large profit margins for labels. Individual artists are often apprehensive about this system, and rightfully so. While established music conglomerates and Spotify control a large portion of the profits, independent artists are left to sustain the production of their music exclusively through per-stream royalty rates. As of 2022, these rates are hovering between .0033 and .0054 cents per stream. In other words, an independent artist would need around 300 listens to generate just $1 off of a song created off their hard work.
Stream rates that are as low as a fraction of a penny are a mark of insult for many artists whose niche bodies of work are often only appreciated by a smaller handful of music streamers. Furthermore, stream numbers are not always indicative of a musician’s entire fan base, and many artist coalitions have argued that the payouts they are receiving through music streaming apps are not sufficient to support the continued production of their music. This phenomenon has ultimately culminated in movements pushing for the reform of streaming app payment systems and the music economy as a whole.
Where’s the Money
According to The New York Times, Spotify has taken steps toward righting its wrongs. In 2020, the corporation paid out $7 billion to artists producing music on their platform. However, this measure was not met with approval, with artists pointing to the distribution of these funds as the more pressing issue—rather than the sum of money itself. Spotify uses a means of royalty distribution referred to as the pro-rata system; this method essentially allocates artists’ pay through the proportion of total streams on the platform attributable to them. In other words, an artist’s share of the revenue is calculated by dividing the total money collected from subscriptions and ads by their total streams. Essentially, if The Weeknd receives 5% of all streams in a month, he would receive 5% of each user’s money—even from those who have not listened to his music.
This payment system is at the core of artists’ complaints about Spotify. As creators with more notoriety receive advantages that compound their success, smaller artists attempting to cultivate their bases of support are often left with the short end of the stick—both with regard to profit and popularity.
The Smaller Artist
Picture a scenario in which you want to listen to some music; however, you’d rather not listen to the same playlist you’ve exhausted over the past year. Trusting the wisdom of the Spotify algorithm, you turn to an advertised playlist claiming to be engineered to your music tastes. This trend of personalized playlists for streamers has become increasingly prevalent on online streaming platforms. Coined “playlisting,” Spotify’s practice of placing songs on curated lists has drawn heat for creating more buzz for established artists and leaving less room for smaller artists to expand their fan bases. As listeners become more partial to custom music suggestions, the spotlight is dimmed on smaller creators, as Spotify’s algorithms provide the new music, artists, and genres necessary to satiate users’ evolving music needs. Tailored playlists are the result of extensive research and meticulous algorithms developed by Spotify, with these recommendations manufactured to align with the specific music tastes of users. Unfortunately, those recommendations tend to only be from artists that are already established. As such, recent dialogue surrounding the under-exposure of smaller-scale artists has placed partial blame on the implementation of these targeted playlists.
As an app primarily focused on advertising and boosting its mainstream creators, Spotify has made it increasingly difficult for smaller artists to compete with them on even footing for streams. Coupled with an uneven distribution of pay, the under-exposure of lesser-known artists has caused friction within the Spotify community and even exacerbated financial difficulties for many artists throughout the pandemic.
Loud and Clear
Despite complaints against its payment methods and streaming rate methodology, Spotify has remained headstrong in the treatment of creators on its platform. While the effects of the pro-rata system are looked down upon by many artists in the industry, Spotify maintains that the system encourages an inclusive market that rewards success and allows for those that work the hardest to gain notoriety and artistic standing. Amidst controversy, the music conglomerate released a financial report detailing the amount paid out to artists in the last fiscal year. Titled “Loud and Clear,” the report aimed to provide transparency and mitigate the negative narratives surrounding payment methods and the overall treatment of artists on the app.
“Loud and Clear” has been successful in many aspects. Transparency has allowed creators to view the way that money moves throughout the streaming service. However, many smaller creators believe that the “Loud and Clear” report has not addressed the main issues regarding artist satisfaction. While corporate transparency has been a step in the right direction, many independent creators are advocating for unprecedented changes within the streaming economy and the music industry as a whole. “Loud and Clear” sheds light on the level of involvement that record labels have in the earnings of individual artists. For artists both large and small, friction with record labels has always been a recurring issue, with online financial interactions between Spotify and record labels adding to this age-old tension. Rather than paying artists directly, the streaming service elects to first pay rights holders as intermediaries, who then pay artists with the money earned on the app.
What About Labels?
Streaming revenue tends to increase when artists become involved with major record labels. Terms of agreement often dictate cuts in profits for artists distributing content through Spotify’s platform. But even for artists signed to major record labels, the profit cuts they receive usually benefits the record companies more than the artist themselves. Although larger individual revenue is associated with record label signings in the music industry, a majority of artists on Spotify continue to receive their main sources of income through the pro-rata system. As the value of stream royalties remains at fractions of a penny, independent artists are often left to fend for themselves when it comes to the sustained production of their art and maintenance of their livelihoods.
Room for Change
Despite the lack of an organized artist coalition or reform movement, the consideration of artists’ rights and the accommodation of increased funds for individual creators have become increasingly notable across various music streaming services. SoundCloud, a competitor to Spotify, recently moved to a user-centric payment model in which an individual user’s money goes to artists they listen to rather than more established, label-supported creators. The user-centric model provides a semblance of hope to struggling artists and appears to be a more equitable method of money distribution; this payment method could potentially be utilized by Spotify and other music streaming conglomerates in the future.
- Creators on Spotify are paid through a pro-rata system that allocates streaming royalties based on the percentage of total streams.
- Fraction of a penny per stream rates often exacerbate difficult financial situations for artists.
- Spotify has attempted to mitigate the effects of artists’ concerns by increasing the number of streaming payouts.
- Major label conglomerates can contribute to the underexposure of smaller artists and ultimately lack of pay.
- Alternative methods of payment, including the user-centric model, are beginning to gain traction in the music streaming industry.