I get asked this question at least once a day and the answer is hardly a one liner.
The confusion is understandable – the interactive streaming payment model used by among others Spotify, is less obvious than the digital download model from iTunes. Payments are variable, and payments are made to labels who distribute to their artists, which makes the whole thing even more complex.
Here at IndiGoBoom we pretty much believe that streaming is the future of music distribution. Sooner or later we think, streaming will be the only way people access music (and movies for that matter). So, if you want to be part of the business and understand progress instead of resisting it, you absolutely have to get your head around the fact that streaming services payouts or how much Spotify pays artists is directly dependent on a set of variables. This does not make the model suspicious or inherently evil. It simply takes a little more effort to see how it will work in the future and how it works today.
Here are the basics.
Spotify makes money in two ways. First through advertising to free users, who have access to Spotify only on computers and limited mobile access. The free service is ad supported, and works just about the same way as YouTube. Second, Spotify also generates revenue from selling subscriptions.
The money earned from these two streams is added together, and distributed back. 70% in royalties based on a share in accordance with the popularity of a song. So in other words, if one of your songs has been streamed 0.5% of the total number of streams in a month, you will get 0.5% of the of the royalties paid out to right holders. Spotify pays this out to whoever owns the music. There is no difference whether you are a major label artist or an indie. If you are going through IndiGoBoom, Spotify pays us, and and we pay you in accordance with our agreement. If you are signed to a label, Spotify pays the label, that pays the artist based on whatever deal the label has with the artist.
So why is there so much confusion about how Spotify pay artists, and a general concern from artists about the payments they are seeing?
Bear in mind that Spotify is still a relatively small company. They have millions of subscribers, and even more millions of active users, but in the bigger picture these are still small numbers. So comparing Spotify with iTunes is not really a fair comparison yet. IT soon will be at the rate they are growing however.
Second, people need to change from a per download mindset to a per play mindset when they think about royalties. Success on streaming services is based on how many people are listening to your music over many years as opposed to how many downloads you sell in a short period of time. Comparing Spotify earning with iTunes earnings over a two month period is not a fair comparison. Think many years ahead. If you have a track that people are listening to over time you will still be earning long after your download income has dried up. The time horizon is simply different than what people are used to now.
Third, it’s a confusing model since it is unfamiliar. There is no fixed play rate, and as Spotify grows, the royalty base expands, driving higher and higher royalty payments.
At this point Spotify is paying hundreds of millions of dollars in royalties to artists every year, they stream roughly one billion tracks to users per week and growing. We can certainly say that the percentage of streaming royalties IndiGoBoom pays out as opposed to the percentage of download royalties is growing at an exponential rate.
And now for the hard number per stream!
Obviously the number will vary depending on the percentage of free users listening to your music, but we have a pretty accurate calculation for you if you use Indigoboom. One thousand Streams will currently earn you in the area of 5.50 USD. If you also are the songwriter your collecting society will pay you per stream as well increasing the number per 1K streams with about 40%. Royalty payments from us to indie artists in the area of 10K USD per quarter are not unusual. And the best thing about streaming income is it generally just goes on and on and on once you have established yourself, got on a few playlists etc.