Spotify vs Artists - Is Spotify really the VILLAIN?

Spotify has faced quite a lot of heat from listeners and artists due to recent controversies. It lost $2B & its share price dropped by 25%. Let's find out why artists dislike Spotify!

23rd February 2022
2 min read

In a nutshell

Last year, Spotify paid $100M to get exclusive rights to Joe Rogan's podcast. Everything was going well, that's until Rogan came under fire for some remarks he had made in his videos.

Spotify faced major backlash for this, with artists like Neil young and Joni Mitchell boycotting the platform. It even lost $2B in market value & its shares dropped by 25%.

Amid this, a serious discussion about Spotify's compensation to artists took center stage. But, why do artists hate Spotify?
1) Spotify only pays a mere $0.003 per stream. Which one of the lowest among all platforms.
2) Only the top 2% of Spotify's 8M artists make more than $1k per year.

Here's how the royalty payment MATH is calculated:
Royalty Payout = (negotiated royalty rate %) x [Spotify's monthly revenue x (# of artist streams/total streams)]
Of this total payout value, only ~15 to 20% (depends on the artists contract) goes to the artist.

But, Spotify already pays 60 to 70% of its revenue as royalty, the problem is it rarely reaches the artists. But, in all of this, the fact remains that artists are still poorly paid and the payout system is clearly inefficient. So, there is a huge scope of improvement for Spotify.

Spotify has been through a very cinematic 'hero to villain' arc over the past few years.

Back in 2006, when the music industry was in a grim state, Spotify was a literal god-sent gift!

The industry was losing billions due to the surge in illegal music downloads. So, David Ek came up with a solution β€” a music streaming platform that compensates musicians while giving users access to a global catalog of music for free!

Sounds like the perfect solution, right? Fortune magazine, in 2019, even declared that "Spotify saved the music industry".

But, even though, you and I, as users, probably love Spotify, the artists who actually create music are not so thrilled. Now, with the recent controversies, the dispute has gotten more limelight as well as public outrage.

So, why exactly are people turning on Spotify? And is Spotify really a supervillain? Well, let's find out!

So how did Spotify get into trouble?

Last week, we discussed how Spotify is moving towards podcasts with the aim to become profitable. Following that decision, Spotify made a major purchase.

It spent a whopping $100M to acquire the exclusive rights to Joe Rogan's very famous podcast. The major attraction being Rogan's 11M listeners.

All was well until a few months back when Rogan came under fire for spreading Covid misinformation & using the n-word a bunch of times in his past videos.

This, of course, upset a lot of people, with many demanding Spotify to de-platform Rogan. Spotify, ultimately, didn't budge to the demands, so musicians like Neil Young & Joni Mitchell decided to boycott the platform altogether.

Amid all this, a long-standing discussion about Spotify's unfair compensation to artists took center stage.

Seeing one controversy after another, Spotify clearly hasn't had a great start to 2022. Spotify lost more than $2B in market value after Neil Young pulled his music from Spotify.

On top of that, its share price also took a real beating and dropped by 25%!

But why exactly do musicians dislike Spotify?

For starters, most musicians don't find Spotify to be a lucrative platform to host their music. Even when artists get millions of streams, the success rarely gets translated into actual dollars.

Let's get into the numbers. So, on average, Spotify pays 1/3rd of a cent for each stream. That is a mere $0.0034 for a single stream or $3 for 1000 streams. If you compare that with other streaming sites, Spotify actually has one of the lowest payouts per stream values.

Spotify vs artists

This is in spite of Spotify having the largest share of global users and making 20% of the global music streaming revenue.

But, wait, it gets worse. Of over 8M total artists on Spotify only 2% of users make more than $1k per year. So majorly, the top 1% of Spotify artists are the only ones making any revenue from the platform.

Some artists even state that lesser-known sites like Bandcamp make them more money compared to Spotify.

But, Spotify has always insisted that it is a marketplace for artists to make a living. So what happened to that?

Well, the answer lies in the royalty payment system that Spotify follows, which is frankly very complicated & the major reason behind the dissatisfaction.

Got it! So how does the royalty payment system work?

Well, here's the deal. Spotify doesn't directly pay artists and songwriters based on their individual streams. Instead, Spotify pays a share of its revenue to the "Rights Holders".

Now, who are these rights holders? Well, most artists sign contracts with record labels. Now according to the contract, the record label becomes the rights holder of their art. The artists are then compensated based on the terms of their agreement.

The exchange is purely between Spotify & the "Rights Holders". Here's how the royalty payment amount is calculated.

  1. Let's say Spotify has licensed Sony's recordings & Sony has signed a contract with artist X.
  2. Now, in their license agreement, Spotify promises to pay a share of its revenue made by Sony's recordings. Suppose in this case, the share is 60%.
  3. Now, suppose a total of 1000 streams contribute to the $100 revenue. Of these 1000 streams, 200 streams were for Sony's recording.
  4. So now, Sony basically contributes to 1/5th (200/1000) of the total streams. So, Sony will get 60% of the total revenue it contributed.
Spotify vs artists

Royalty payout = 60% (100 x 200/1000) = $12

Sounds complicated right? But it doesn't end here.

  • In total, Spotify pays $12 to Sony
  • Sony then gives a percentage of its revenue to the artists which differs according to the agreement between the artist and Sony. This amount can be as little as 15% of the record label's share. So in this case, the artist will get $1.8.

So, ultimately, all parties are essentially fighting for scraps unless they get multi-million streams each month!

But is Spotify really the devil here?

Let's quickly look at this from the perspective of Spotify.

  1. Firstly, Spotify is being accused of having very low per-stream payouts to artists. This is definitely true when you compare it to other sites. But, based on Spotify's agreement with record labels, it already pays back up to 60% to 70% of its revenue as royalty payments. Now, this is a sizeable part!
  2. This revenue rarely reaches the niche lesser-known artists because
    1. If they are under a huge record label like Sony or Universal, they are competing for cash with artists like Drake, Taylor Swift, Kanye, Adele, etc. These artists literally get millions of streams each week. So even though Sony gets a huge amount from Spotify, most of it goes to the big artists.
    2. If not for the competition, the record label will anyways take a majority sum of the royalty money.
  3. Now about the independent artists. These are the artists who own their own Master recordings, so, therefore, they are the true "Rights Holders" to their Masters. Such artists are at an advantage because they get to keep the majority share of their revenue.

Finally, many artists claim that even though they get millions of streams, their pockets have not seen any Spotify money. This is because a million streams on Spotify is not very much for the platform. According to the data, over 550,000 songs on Spotify have over million streams. So, the competition is fierce!

But why even get into this fierce competition, when there's no good payout?

Because Spotify is a great platform for artists to get more exposure. Discovering new artists on Spotify is also extremely simple. Many artists have seen their streams go up after being featured on Spotify's playlists.

Is there an alternative way?

You would agree by now that Spotify's situation is complicated, to say the least. And, adding to the confusion, big labels like Sony, Warner Music Group, and Universal all have a combined 18% stake in Spotify. So not only do they make money through their artist's music stream micro-payments, but they also make money via their ownership of Spotify.

Many people have suggested alternate payout methods to solve this problem. Let's look at a few of them:

  1. Increasing the size of the royalty pool, i.e. paying back up to 80-90% of revenue.
  2. Have a simple flat agreement with all labels instead of customized agreements.
  3. Switching to user-centric payment. That is, if you stream the music of artist X, your subscription payment amount only goes to artist X and is not split according to total streams.

Of course, all of these changes are easier said than done. Each of these will have a huge impact on Spotify's business or that of the record labels.

In all of this, the fact remains that artists are still paid poorly and that the payout system is inefficient. But it also means that there's a huge scope to solve this.


You'll love these articles too!
HubSpot's SEO strategy to get 13M monthly organic traffic!
HubSpot's SEO strategy to get 13M monthly organic traffic!
ONDC Explained : How this UPI-like network will break the rule of e-commerce monopolies in India?
ONDC Explained : How this UPI-like network will break the rule of e-commerce monopolies in India?
How Zerodha grew to 6.5M daily active users, with ZERO VC money?
How Zerodha grew to 6.5M daily active users, with ZERO VC money?

HubSpot's SEO strategy to get 13M monthly organic traffic!

HubSpot NAILS all parts of SEO!
Their startup gets 13M monthly traffic & ranks for 4.8M keywords! 🀯
Focus ➝ Topics > Keywords
Here's how you can buildd your site's topical authority!

But, what is topical authority?
Having topical authority means that you are considered an expert in that topic's field.
Meaning, Google will trust you to answer these search queries appropriately.
So, when you publish a blog under this topic you'll be automatically ranked at the top.

How do you gain topical authority?
Ans => You gain topical authority when you provide good quality content on an entire breadth of search queries under a given topic!
Here's how you can approach this:

1) First, choose your target topic.
2) Research all the possible sub-topics under the target topic.

For example,
Target Topic -> content marketing
Subtopics -> content strategy, content trends, etc

3) Next, internally link all the main topic & sub-topic pages together.
4) This signals the search engine that these topics are related.
5) Finally, gaining external links from websites that already have authority on the target topic can give you a great push.

Hubspot implements this by using the Hub and Spoke model. Here the Hub is the main topic page which connects to Spokes, that is the sub-topics covered under that topic.
Example pages:
1) SEO
2) Content Marketing
3) Blogging

ONDC Explained : How this UPI-like network will break the rule of e-commerce monopolies in India?

ONDC = Open Network for Digital Commerce
Is a government of India initiative to connect all the e-commerce players into one network.
Retail market = $1tr
Online retail market = $55bn, 5% of total market
ONDC wants to expand this beyond 5%.

How is ONDC similar to UPI? Well, ONDC is built on the success of UPI.
UPI is a network => banks + sellers + users. It is then plugged into
- payment platforms - GPay, PhonePe
- apps! - Paytm, Swiggy
ONDC similarly connects different e-commerce players into one network.

But, how is it different from the general platform model? Well, let’s compare the two models:
A) Platform model
Suppose, you use a platform like Amazon to buy a product online.
USER = You
SELLER = Retailer selling his product on Amazon

Here, the USER is connected with the SELLER via Amazon, a PLATFORM. So, all the steps like
- Discovering the product
- Order placement
- Shipping and Delivery
are fulfilled by Amazon.
So, this interaction happens in isolation and is enabled by a platform.

B) ONDC model ONDC breaks this platform dependency by creating a network that will onboard different players like
➝ Platforms - Amazon, Flipkart, Paytm, Swiggy
➝ Sellers - Retail stores and restaurants present on platforms
➝ Logistics - Dunzo, Goodwill

Now, once all these e-commerce players are onboarded on the network, ONDC does 2 things:
1) Unbundles their functions
2) Enables interoperability
Confusing, right? Let me explain in more detail.

In the previous example Amazon was performing a few different functions:
1. Brings the user
2. Onboards the seller
3. Connects them
4. Handles all the order details
5. Delivers the product

Now with ONDC, all these functions
➝ Unbundled - different parties fulfil different steps
➝ Interoperability - these parties all work together
So for example,
- function 1 (get users) ➝ Amazon
- functions 2, 3, 4 (onboarding seller & handling the order) ➝ local retailer on say, E-Samudaay
- function 5 (delivery) ➝ Dunzo

So, ONDC is essentially a protocol that can be plugged into any network and not a super app. With ONDC government of India aims to expand the e-commerce market and reduce dependency and power of large players like Amazon and Flipkart