1. Loud & Clear, what is it?
Critique of the streaming industry has been brewing on social media this year. It suffices to just search #BrokenRecord on Twitter to see the pushback from frustrated artists and industry professionals against what they perceive to be an unfair and exploitative industry – streaming. Much of their critique is directed towards Spotify, the biggest player in the industry, who represent 20% of the revenue from the entire industry of recorded music in 2020. This is simply an enormous statistic.
The critique is not just coming from independent artists, but has even been reported from industry heavyweights like Mick Jagger, Ed O’Brien from Radiohead, Tom Jones and Nile Rodgers just to name a few. The pressure on government to respond to this movement culminated in a 6 month report from the UK government’s department of Digital, Media, Culture & Sport whose conclusions were much in line with the objectives of this movement, namely to address the measly share of royalties that filter down to artists from streaming platforms – UK based labels recorded revenue of about £736 million in 2020, with the artists responsible for creating the music receiving about 16% of that on average.
But does this injustice emanate from the streaming platforms themselves, or is it a problem from further down the filter? Loud & Clear lifts the veil.
Loud & Clear is an initiative recently launched by Spotify to shed some light on the economics of streaming. It’s an online platform, freely available to all, where you can view statistics on royalties, payouts, types of artists and the flow of money through Spotify. Spotify stated that they feel that they have “been too quiet on this issue” and would like to provide “a valuable foundation for constructive conversation” on the topic.
Read also: How to get more streams on Spotify without cheating?
2. How Money Enters Spotify?
To understand much of the statistics regarding streaming, we must understand the way that revenue is generated and how it leaves Spotify. Spotify’s two main sources of income are their free-tier which is funded by advertisements and their premium-tier which is funded by regular payments by users in the form of a subscription.
Spotify keep around 1/3rd of the amount generated on their platform, with the other 2/3rds being paid out as royalties to rights holders. This is an important point. Spotify does not always pay out directly to artists. Rather, they pay out to rights holders – who can be record labels, artists, distributors or other agencies. The rights holder of a recording is determined in a contract between an organization (label, distributor, publisher..) and an artist. For independent artists, who usually work without a label, Spotify will probably pay out to their distributor, with the distributor paying in turn to the artists. One can add in a record label to the mix, in which case they would also probably receive a payment from their distributor and then they would in turn pay out to artists in accordance with their agreement with the artist.
One can already imagine that this is another possible source of injustice, promoted by these third party agencies – unfair contracts between third party agencies and artists. Indeed, MPs criticized the three major record labels following the report for a lack of clarity and described one label head as “living in cloud cuckoo land” after suggesting that artists are happy with the current system. These three companies represent a share of 75% of the revenue in the UK recorded music industry and about 66% worldwide.
3. How Money Leaves Spotify?
$5 billion left Spotify and went to rights holders in 2020. The next question is, how does Spotify determine what proportion of the revenue gets paid out to each rights holder? Every month, in each of their key markets, Spotify calculates the total number of streams. Then they calculate, for all the artists streamed in that market, what percentage of the total number of streams they had. Accordingly, they pay out whatever that percentage may be of royalties to the corresponding rights holder.
For example, if an artists in Brazil is streamed 1 time out of every 1000 streams, they will received 1/1000 of every dollar of revenue for that market. This is called the “streamshare” system.
There are some potential issues with this system and has been widely criticized. For example, imagine you are from France and listen to house music. 95% of your streams are accounted for by artists like Kerri Chandler, Floorplan etc. Your listening habits are not reflected in Spotify’s payments to rights holder. 95% of your subscription does not go to Kerri Chandler or Floorplan, rather it gets put into the pool of revenue and then gets divvied up based on their streamshare system, with a sizeable portion of your subscription going to the top-streamed artists such as JUL or Damso.
Spotify claim that the research on user-centric models of payment, where your subscription is paid out in proportion to the amount of time you spend streaming particular artists, is not conclusive. Spotify addressed the issue via Loud & Clear, saying that “The research we’ve seen to date suggests that a shift to user-centric payments would not benefit artists as much as many may have originally hoped — a study from the National Music Centre (CNM) found that the change would result in “at most a few euros per year on average” for artists outside the top 10,000.” They also suggest that “broad industry alignment” is needed to implement a change. Deezer, the France-based Spotify competitor has already implemented the change to user-centric payments. It’s difficult to see what exactly Spotify mean by this, given that the change can come directly from them and the way they divide the revenue without the involvement of any third party. Perhaps they are worried about pressure from third party agencies fearful of losing money in the change. It also seems strange that Spotify, famed for how it has embraced the use of their data in its practices, hasn’t disclosed anything about internal simulations which could surely have been carried out, rather they quote research from a third party (who does not have access to the Spotify database) about their own platform.
4. Loud & Clear Statistics
The first interactive statistic that is presented on Loud & Clear is one which gives a fixed amount of revenue, and allows you to check the number of artists on the platform whose catalogues are generating that amount of revenue or above.
The statistics are graphed below. On the bottom of the graph we have the year, while the height of each bar represents the number of artists whose revenue exceeds the label of the bar. So the salmon colored bar means that in 2020, 184500 artists generated revenue above $1K. There are 2 graphs as the scale is quite different for both sets of results (just 840 artists have generated revenue above $1M, while 185,000 artists above $1K)
Source : Loud & Clear by Spotify
An obvious positive is that the number of artists whose catalogues are making more than $X is growing year on year, meaning more artists are starting to take home money year on year and perhaps that they are progressing on the platform (one can imagine that those who enter the $1M band probably would have come from the $500K band).
What’s surprising is just how few artists there are making a living wage from streaming when you do a closer analysis. Let’s take the group of artists whose catalogue generates over $50K. In the best of cases, the artist is independent and just has to pay a cut of this $50K to their distributor (the agency that put their music on Spotify) which in this day and age is often little given the rise of easy to use online distributors like DistroKid. We can imagine a much worse and more common case, where a record label will take 50% directly (this is a very common rate, with major record labels often taking even higher rates of 70-80%), not to mention the amount to be deducted for the involvement of potential distributors, publishers etc. As quoted above, artists on average in the UK took home just 16% of the revenue generated in the recorded music industry, so clearly there are even worse situations imaginable. Imagine the 16% scenario. This would correspond to about $8000 per annum for those in the $50K band. In the 100K+ group, it would be $16000. There are just 7800 artists generating $100K+ on Spotify, or about 0.1% of all artists on Spotify.
To put this into more context we can use the next tool available to us on Loud & Clear. It allows you to get an estimate as to where an artist will lie in the top-N of artists given a monthly listener count. So for example, 750000 monthly listeners would put you in the top 9000 artists on Spotify according to Loud & Clear. Presumably then, given what was discussed above, this would generate about $100K before being divided up amongst the various agencies involved in the recording (the label, the artist, the distributor etc.). That’s a very large number of monthly listeners, hardly achievable for most independent artists. There are over 8 million artists on Spotify. To hope to achieve a living wage from the platform is to be in the top 9000 artists out of 8 million, and in some cases, this corresponds to just under the minimum wage being filtered down to the artist. Quite a shocking statistic.
Now imagine the case for bands, where the artists split has to be further subdivided among band members. Seems hopeless. But who is responsible? From our back-of-the-envelope calculations here, it seems like it may actually, to some extent, lie out of Spotify’s hands and with third parties such as record labels.
5. The different types of artists on Spotify – according to Loud & Clear
Loud & Clear also presents us with several typical types of profiles on Spotify, and gives the average revenue generated by each type of profile. We have “The Established“, or those artists who are consistent with their releases, coming in the top 50000 artists for 3 years running. Their average number of monthly listeners is about 600K and the average revenue generated by them is $94K per annum. There’s about 34000 of them.
We also have other profiles, such as “The Specialist“, being an artist with more than 25000 monthly listeners and with 90% of their music falling in niche genres such as soundtrack, easy listening, religious, children’s music, classical music. They can expect $36900 per annum and have on average 214K monthly listeners.
This analysis is interesting, and shows some other ways to succeed on the platform which are not just the “sign to a big label and top the charts” idea.
In the age of streaming, it’s hard to make a living. That much we can say has been established and can be easily seen thanks to Loud & Clear. Is Spotify totally responsible? No. They have had a huge impact on the music industry in general, deterring piracy and, along with their competitors, lifting the music industry out of an all time low in 2014 ($14B total revenue in the industry) to figures near its peak in 1999 at $25B. They democratized the music industry by lowering the barriers for entry. No longer does an artist require a big budget and a record label to get their foot in the door, they can take their career into their own hands. 90% of monthly streams on Spotify come from 57000 artists. This is a number which has quadrupled in 6 years, meaning that the platform is becoming more diverse, with a larger number of new artists accounting for the playtime on the platform. That being said, it says nothing about what proportion of those artists are independent. We can only hope that their share is increasing too.
However, there could be improvements on their behalf to improve equality and the revenue paid out to artists. Some obvious things to try would be a user-centric payment system or perhaps a price increase. They comment that a price increase has already been carried out in some markets, and that since “60% of our premium tier users were once free-tier” a price hike is a “fine balance” as they don’t wish to drive new customers away from becoming subscribers.
Some critics have remarked that Spotify, as a platform, can be remarkably similar to radio in the sense that there are selections of music which are pre-selected (the Daily Mixes for example) which the user engages with in much the same way they do when they listen to radio. They select the radio station (or on Spotify, the playlist) and the music selected is broadcasted to them. In this way, these critics argue that Spotify should have to pay in the same way as other broadcasters, they should have to use an equitable remuneration system; a system whereby any time an artist’s music is broadcast (in a public performance, broadcasted on radio..) it must be compensated with a payment to a collection society (such as BMI, ASCAP, PLL etc.) who then will pass the payment down to the artist. This system puts some more power in the hands of artists, as it is the collection society who can negotiate the equitable remuneration rate with the broadcasters. Currently, artists have effectively no power to negotiate their payments from streaming platforms. Streaming platforms are not obliged by law to use such a system, but at some point it’s hard to see why they are not. It’s difficult to deny the similarity to radio that Spotify can have, especially given their new features such as the Daily Drive (a mix of news briefings and music), which for all intents and purposes is basically radio. Spotify states their commitment to helping artists achieve success on their platform and claims that they “are maximizing overall revenue” and therefore payouts to rights holders. This issue is not addressed on Loud & Clear directly.
One thing is for certain, that if artists are to be fairly remunerated for their work, then it is not just the streaming platforms who have to change their policy, but also record labels and other third party agencies. As long as artists can only expect a 13-20% split of royalties from major record labels (reminder: they represent about 66% of the revenue in the music industry), it’s hard to pin the blame on Spotify alone. Given that the 3 biggest major labels (Sony, Universal, Warner) own about a 13% share in Spotify, it’s hard to see them not lobbying against any policy which will reduce the value that Spotify represents to them.
Is streaming fair? Not exactly, but it’s not just the streaming platforms who have to change if artists are to be fairly compensated.
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