Spotify’s “Loud & Clear” & Artist Compensation in 2024

par Michael Murtagh
Spotify’s “Loud & Clear” & Artist Compensation in 2024

2023 was a record year for Spotify payouts. The streaming giant paid out $9B to rights holders, which represents a three-fold increase when compared to figures from 6 years ago. Since its inception, Spotify has paid out more than $48B to rights holders. If we are talking about billions, do artists claim to be receiving pennies? How it is that a track that goes viral on TikTok, leading to 500k streams on Spotify can lead an artist to pocket maybe 750$? Let’s find out why below.

Spotity’s Loud & Clear is an annual report which explains the economics of music streaming and payouts on the platform. This year, Loud & Clear’s report is optimistic and reports record growth. In 2023, over 66000 artists received 10k$+ from streaming revenue. Spotify estimates that the average revenue of these artists, all sources included, amounts to around 4x the streaming revenue – or that streaming on average is 25% of their total revenue. According to a survey from the Musicians’ Union however, 92% of those surveyed say streaming is responsible for less than 5% of their income. This stands in stark contrast with Spotify’s assertion that streaming represents 25% of the average artist income.

Spotify’s optimism is not shared by everyone. In the wider industry, support for streaming reform has been growing. Since 2021, the UK government has maintained a timeline for major steps in the government’s programme of work on music streaming [1]. The involvement of the Department for Digital, Culture, Media & Sport (DCMS) in music streaming is, in no small part, due to the efforts of groups such as the Ivors Academy and the #BrokenRecord movement. The DCMS did not hold back, calling for a “complete reset” of streaming to address “pitiful returns” received by artists, songwriters and composers [2]. Artists’ frustration with Spotify’s low effective per-stream rate compared to its competitors has been growing, and their close relationship with major record labels (which has historically included large cash advances and control over some of Spotify’s advertising inventory [3]) continues to be scrutinized.

How can it be that the streaming industry seems healthier than ever, reporting record growth and opportunity across the board – yet the support for reform is growing more than ever? Let’s discuss this tension below.

Loud & Clear 2023: Record Growth, Diversity & Opportunity

Spotify reports that since 2017, the number of artists earning $1M+, $100k+ and $10k+ has tripled.

This good news does not only concern artists from the USA & UK however, of those 66000 artists earning more than $10k from streaming on Spotify, more than 50% are from markets where English is not the first language. In particular, the Spanish, Portuguese, German and Korean speaking markets are growing like never before. The odds for a diverse range of artists to succeed on the platform look better than ever.

Number of artists generating at least $1M+ vs $100k+ vs $10k+ has nearly tripled since 2017
Number of artists generating at least $1M+ vs $100k+ vs $10k+ has nearly tripled since 2017

Spotify insists that even the highest earners; the 1250 artists with $1M+ from streaming revenue in 2023, do not necessarily represent the world’s most well known hit makers. The platform insists that the majority are “unexpected” millionaires. 1000 of those artists did not have a single song in Spotify’s Global Top 50. Spotify notes that for an artist to receive $1M+ from streaming revenue, they usually have about 4-5M monthly listeners, or 20-25M monthly streams. A daunting task, but not impossible, they insist. Take the example of Lizzy McAlpine, a singer-songwriter whose success reached its apogée in 2023 following a series of successful releases which went viral on TikTok. The artist has accrued 12M monthly listeners in just 3 years, recently appearing on US household talkshows such as Jimmy Fallon. Spotify highlights that digital technology in the streaming age provides unparalleled opportunity for emerging artists.

More generally, the indie record labels seem to be performing better than ever too. They received a whopping $4.5B payout in 2023 – representing 50% of the revenue that Spotify paid out to rights holders. Over the last two years, over $4B was paid out to publishing rights holders – showing that songwriters and composers are supposedly receiving more money than ever, too. Spotify reports that the songwriters and composers are receiving 2x more in the streaming era than they did in the CD and physical sales era.

There are over 10M+ artists on Spotify with at least 1 track. 8M+ with less than 10 tracks, 5M with less than 100 total streams and finally 225k “emerging and professional” artists on the platform. Spotify says their aim is to help the progression of these emerging and professional artists. The opportunity for growth on Spotify is there, if you are consistent – Spotify reports that of the artists generating $10k+ in 2017, most are generating $50k+ today.

Spotify reports that of the artists generating $10k+ in 2017, most are generating $50k+ today.
Spotify reports that of the artists generating $10k+ in 2017, most are generating $50k+ today.

Apart from growth in terms of streams, Spotify also reports that in the streaming age, artists have more opportunities than ever. They report also that the 50000th artist in terms of revenue on the platform is generating $16.5k per year, this is 6 times more than in 2017. They compare streaming to record stores, record labels, radio etc. where the barrier to entry is much higher and it is therefore more difficult to succeed. Their point? That streaming has democratized the music industry, providing a platform for indie artists to enter the market without having to rely on established players like record labels. These days, for $40 a year, one can upload virtually unlimited amounts of music to Spotify and other streaming companies, thanks to low-cost distributors such as DistroKid.

Finally, they report that streaming is now responsible for 65% of the revenue generated in the recorded music industry and they reiterate that “2/3rds of every dollar on Spotify goes to rights holders”.

Beyond Loud & Clear: Criticisms of the Streaming Economy

These statistics are convincing, at a glance it seems like all is well in the world of streaming. Is that the whole story?

Curiously, this year’s Loud & Clear maintains a clear tone of optimism and opportunity. However, if we look beyond the statistics and look into the FAQs and the helpful videos explaining the flow of money in and out of Spotify, they are clearly aware of the criticisms around streaming and there is a palpable feeling of “not our fault” vis-a-vis the lack of fair artist compensation.

For example, in their video explaining the flow of money in and out of Spotify [7], they say that they pay the rights holder directly and however much filters down to the artist is ultimately in accordance with the artist’s contract with the rights holder – which they ‘make freely’ according to their own preferences. This is true, Spotify is not directly responsible for the measely 15% share an artist signed to a big label might receive. Whether or not they making these contracts “freely”, is up for debate however. Most small artists need big labels more than the big labels need them, thanks to a large roster of other artists and a catalog that has already established a path to profit for the labels. Small artists ultimately have little negotiating power with bigger record labels, whose influence in the music industry remains powerful. It’s possible to make it on your own, and perhaps now more than ever, but ultimately it is a big risk compared to the guaranteed exposure of working with a record label who have a network in place to garner guaranteed support for your music. This is especially true when considering popular music like Pop, Rap, Rock etc. Ultimately, the choice is between risking a miserable income and instability in the hopes of “making it on your own” vs. a more regular and reliable source of streams via working with a big label, the downside of course being the miserable share of royalties, which hasn’t changed since the CD era.

A typical employee working a 40 hour work week could in principle drop their stable income and job security to try and start a business to improve their living conditions, but when your life is on the line and you risk foregoing your mortgage repayments, your car loan and losing the means to support yourself and your children, can we really say they are “free” to determine the conditions of their employment? With no safety net to guarantee their ability to live a normal life, rent their own apartment, pay for their childrens’ schooling etc. it represents a bigger risk for artists to “try it out on your own” than to work with a more stable path to success (i.e record labels), even if it means you have to shoot yourself in the foot when it comes to royalty payments. In effect, the precarity involved with pursuing music as a full time career means it is almost certain that artists will end up effectively taking on 2 jobs until it becomes feasible to live from their work.

Spotify does not assume responsibility for the nitty-gritty of an artist’s contract with their rights holder, and rightly so, however the “not our fault” subtext which underlies Loud & Clear comes off as tone-deaf, especially given that Spotify’s existence is ultimately predicated upon the work of these artists. Recall that according to the Musician’s Union, 92% of artists told them that streaming was less than 5% of their income. Of the 225k artists that Spotify has deemed “emerging or professional”, only 10% make a good middle class income of $50k+, with around a 25% making $10k+, which is below the minimum wage for most western nations. Dave Clarke, a veteran in the techno scene said it best: “I’ve only met one artist that is making substantial income from streams, and that is Martin Garrix” [10].

So, who is actually benefitting from the growth of streaming? It seems like it is the major record labels, who represent 74% of the offering on Spotify. Meanwhile, small artists have had their income slashed by the takeover of the streaming giants, compared to the pre-streaming era [10].

Spotify are generally aware of the criticism around their effective ‘per-stream’ rate, which is lower than other platforms. They reply to this with several points, the first of which is that since in the age of streaming, users do not “pay per song”, so the notion of a “per-stream rate is not a ‘meaningful number to analyze’. [4] They explain this fact by saying the average subscriber on Spotify listens to more music than on other platforms. This means that, if we calculate an “effective” per-stream rate as total revenue divided by number of streams, that the number of streams will be larger on Spotify than on other platfoms, and therefore the effective rate will be lower. However, they are also the biggest player and have the biggest ad revenue and premium subscriber revenue in the business, higher than their competitors – so is this really an excuse?

Similarly, they highlight how Spotify is more popular in countries with lower prices, as Spotify is the streaming service which serves the largest number of markets. This means that their revenue-to-stream rate can look lower than competitors not focused on those markets. Interestingly, Apple Music, available in 167 markets as opposed to Spotify’s 180+ – pays the double of Spotify’s effective per-stream rate [5]. Is it really such a big factor then, if their direct competitor is also present in most markets in the world and can somehow pay out the double of Spotify’s effective per-stream rate?

Spotify defends its free ad-supported tier, stating it generates less revenue than the premium service but helps convert users who might otherwise turn to piracy. They emphasize that 60% of premium users started with the free tier, underscoring its role in their acquisition strategy, though the primary motivation remains business-driven rather than altruistic.

In the last few paragraphs, we discussed the effective per stream rate. It would be prudent to discuss, then, how Spotify actually distributes its revenue to rights holders – a system they call “streamshare”.

The Streamshare System

Spotify is not like Beatport, Bandcamp, iTunes, or a record store. Before streaming, users would typically pay a fixed price to acquire a piece of music. For 10$, you can get a CD with 8 songs. In the age of streaming, it is not like this. Spotify has two main methods of generating revenue, via subscription – users pay per month to have access to the catalog on Spotify, these are the so called “premium” users. The other source is ad revenue from the free tier. We can add up the revenue from these sources to get Spotify’s annual gross revenue. This money somehow has to be distributed to artists and other music industry professionals. How?

The Streamshare system is the answer. In the streamshare model, Spotify looks at, in each market, the proportion of the total number of streams an artist receives, and pays them the amount of revenue generated in that market in accordance with this proportion. If Drake is 30% of the streams in Brazil, 30% of the revenue generated in Brazil will be paid to Drake.

Critics argue Spotify’s revenue distribution model unfairly compensates artists, suggesting a user-centric approach where artists are paid based on individual user streams. Spotify acknowledges this but notes a study indicating minimal financial impact for most artists outside the top 10,000. While open to change, Spotify states industry-wide agreement is necessary, hinting at resistance from major record labels, whose share of revenue may be diluted by a user-centric model.

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The “Fake Streams” Problem

On the topic of Spotify’s revenue, in November of 2023 Spotify announced that they would no longer pay out royalties for tracks that generate less than 1000 streams. There are tens of millions of tracks that generate less than 1000 streams, which make around $0.03 per month on average. When considered in context with minimal withdrawal amounts from distributors and bank charges, this money will rarely ever actually end up in the hands of artists. Spotify has decided that this is an effective manner to deal with the “fraudulent steams” epidemic, whereby some bad actors generate a large volume of artificial streams on a large number of tracks they push to Spotify. In this way, if a bad actor uploads thousands of tracks to Spotify, each earning a few cents or euros per month in artificial streams, no longer will be able to benefit from the aggregated stream payouts because Spotify will stop paying them.

A potentially effective strategy, however, Spotify’s hardline approach to fake streams has caused some controversy. Notably, the part where they announced that they will fine distributors who are responsible for allowing fake tracks to be pushed to Spotify. This has led to some cases where, in response to a menacing fake stream alert from Spotify, a distributor has removed the entire catalogue of some artists who were accused of fake streams. Of course, no flagging system is perfect and there will always be false positives, unfortunately for some, this means having your livelihood flushed down the drain as your distributor wipes clean your catalog from Spotify due to a potentially false fraudulent stream alert [6]. Spotify, have publically stated that they did not instruct the distributor to remove the catalog, they simply notified them of abnormal streaming activity.

In short, indie artists should be careful about services which promise to report a “guaranteed boost in streams”.

| Read also: How to get more Spotify streams?

The Music Metadata Problem & Publishers

Publishing represents the interests of songwriters and composers. It is related to the collection of mechanical, performance, sync and other royalties, which in turn is then filtered down until it ends up in the hands of songwriters – except when it doesn’t. Publishing represents about 25% of the annual payout of Spotify, so it’s not negligible in terms of their revenue.

As Spotify succintly outlines in their “how does the money flow” video about publishing [7], the way that revenue generated on the platform is distributed to songwriters is complicated. If the revenue is generated in the same market as the songwriter, Spotify will pay out the rights holder according to the streamshare system (which includes payments to collection societies like ASCAP). This, in principle, will go to the songwriter in accordance with their agreement with the rights holder. In other markets, the revenue will first go through an “international” collection society, which will then pay the relevant sub-international entity (e.g some agglomeration of collection societies in the US), which then themselves will pay the relevant collection society who pays the publisher.

In other words, it is a giant mess. In each step of this complicated chain, there is a chance of missing metadata between partners – however, if there’s no metadata indicated a songwriter or performer’s involvement with a composition, they won’t be paid! In fact, this is a massive problem named the “digital metadata problem” – many songwriters are not actually fairly compensated because their involvement in a piece of music is simply not registered, or is incorrectly registered with some entity in the web of entities that money is supposed to flow through before it gets to the hands of the songwriter. In fact, this was one of the first topics addressed by the UK government’s timeline above. [8]

Spotify has committed in their “how the money flows” publishing video to engage with its partners to improve the collection of metadata. They have also created in-app features like “written by” playlists to showcase songwriters and performers, who otherwise are hidden in the background e.g in the song credits. This is certainly a positive step, but broad industry alignment is needed to resolve this issue.

| Read also: How to pitch to Spotify playlists?

Spotify’s Financial Situation

Spotify’s “blitzscaling” strategy only assures their success with scale, which required them to partner early on with record labels like Sony Music in backdoor deals (including large cash advances in the millions) to host their catalog, which would in turn drive a large amount of new user acquisition who were looking for the most popular music in the world. To acquire these new users, the pricing had to be attractive. Their original goal was to be a solution in the age of piracy, but to do so, it was essential to be taken under the wing of large labels who have a lot to offer Spotify’s catalogue.

Today, Spotify’s margins are razor thin – they pay out over 2/3rd of their revenue to rights holders. Their margin is a sombre 25-27%, depending on the year. You don’t need to be an economist to realize that, when factoring in other overheads like R&D, marketing etc. that there is not much room to make a profit there. In 18 years of business, they just posted their first profit in Q4 2023 following layoffs and price increases. Despite this, investor confidence has shaken over the past few years, resulting in a loss of 70% of their stock value since its all time high.

What does this mean? It seems that even if Spotify’s ultimate goal was to compensate as many artists as possible with a living wage, their very existence makes it extremely difficult to do so. This is due to their delicate financial situation and reliance on major record labels, so they are constrained heavily by shareholder pressure to behave in a way that will not devalue their stock. As the “blitzscaling” comes to a close, they must focus more and more on profitability.

Unfortunately for artists, most actions Spotify could take to improve their compensation face significant challenges as they could harm Spotify’s finances or upset shareholders:

  • Increasing payouts seems unfeasible due to Spotify’s already slim margins.
  • User-centric pricing would lower the revenue for major labels, jeopardizing Spotify’s crucial relationships with them.
  • Promoting more diverse and niche music on popular playlists could also upset major labels. From 2018-2022, majors accounted for nearly 70% of the tracks added to ‘New Music Friday’ – 30% for UMG and 19% apiece for Sony Music and WMG. [13]
  • Raising prices is risky because it could lead to user churn, which is closely monitored by investors concerned about Spotify’s financial health. Price rices in 2023 have been implemented with caution.

Ultimately, Spotify’s existence relies on keeping the major labels happy, keeping their pricing attractive to users and continuing their massive growth to overcome their tight margins. Unfortunately, this growth has only come with a reduction in the effective per-stream rate [11], in other words, the more Spotify scales, it seems that things have been getting worse for most artists.

Conclusion

The main problem is, as Spotify points out, the contracts rights holders have with their artists. For big labels, these contracts are based on royalty rates that haven’t changed since the era of physical media, and generally offer artists a measely share of the revenue. 15-20% would be a common figure. So on one hand, Spotify are not directly the ones responsible for the epidemic of miserable pay that musicians are currently living through.

However, Spotify’s impact on artist earnings is undeniable. From their own statistics, only 25% of “emerging and professional” artists are making $10k+ per year, and even less actually make a living wage. 10% make $50k+. This is the top tier of artists, and only 10% of them can live a decent middle class lifestyle from streaming. British singer-songwriter Shah noted “I was financially crippled” [12] following the collapse of the live music industry during COVID, leaving the artist to rely on streaming revenue to support her career. As we saw before, 92% of musicians surveyed told the Musicians Union that they earn less than 5% of earnings from Spotify. Spotify’s transformation of the streaming industry into the largest earner in the music industry leaves artists with little choice but to avail of their services, but to their peril, Spotify’s growth only comes with falling per-stream rates.

In a tough economic climate and a with an obligation to improve their margins on the path to higher profitability, Spotify’s ability to work for fairer compensation for all artists; who are the backbone of their product, seems limited.


[1] https://www.gov.uk/guidance/the-governments-work-on-music-streaming
[2] https://ivorsacademy.com/campaign/keep-music-alive/
[3] https://www.salon.com/2015/06/02/spotifys_secret_big_label_deals_when_even_lady_gaga_cant_get_a_fair_shake_transparency_is_musics_only_hope/
[4] https://loudandclear.byspotify.com/faq/#spotify-pay-per-stream
[5] https://www.theverge.com/2021/4/16/22387453/apple-music-artist-payment-rate-per-stream-vs-spotify
[6] https://www.digitalmusicnews.com/2024/02/16/music-streaming-fraud-artist-takedown/
[7] https://loudandclear.byspotify.com/process/
[8] https://www.gov.uk/government/publications/uk-industry-agreement-on-music-streaming-metadata
[9] https://economictimes.indiatimes.com/markets/stocks/earnings/spotify-q1-results-gross-profit-crosses-1-billion-euros-for-first-time/articleshow/109536394.cms?from=mdr
[10] https://www.thenewsmovement.com/articles/do-artists-get-paid-enough-from-music-streaming
[11] https://thetrichordist.com/2018/01/15/2017-streaming-price-bible-spotify-per-stream-rates-drop-9-apple-music-gains-marketshare-of-both-plays-and-overall-revenue/
[12] https://www.nytimes.com/2021/05/07/arts/music/streaming-music-payments.html
[13] https://musically.com/2022/04/29/study-explores-major-and-indie-shares-of-top-spotify-playlists/

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