Artist Compensation: What Spotify Isn’t Telling You

Elizabeth Soucy

Have you ever thought about writing your own song?

What about publishing it? 

What if I told you that if you do publish your new track, you are likely to see little to no compensation for the streams you receive? Streaming has changed everything about the way we consume our favorite media. It’s easier than ever to distribute your own music without the aid of a record label. This doesn’t mean there isn’t a new gatekeeping body to oversee the ins and outs of the audio streaming industry. Big Tech is here to stay, and they have lots of tricks up their sleeve to get the most value out of every track you upload to the digital service provider (DSP) of your choice.

There’s no questioning the fact that the music industry is oversaturated with content creators. We all have a local SoundCloud rapper or two, and home studio equipment means anyone can create professional quality music. We even have more digital streaming platforms, which means there are more ways to share your completed tracks! But does more of everything mean that digital releases have less value now than ever before? Not necessarily. 

To fully understand the factors which contribute to DSP artist compensation, you first need to know where the money is going now. Audio streaming currently makes 56.1 % of music industry revenue. Despite making the largest portion of music industry sales, artists rarely see notable return on investment from their DSP releases.

To generally breakdown the value of the ’stream’, an artist may only earn $ 0.003 – $ 0.01 per listen. This figure assumes you’re consuming your media on a DSP which actually pays artists per stream and not based on a pro-rata scale (the most common pay out model).

Weighted Average Per-Stream Payout Rate, by Platform, USD

(This model was pulled before Deezer introduced it’s user centric payment system (UCPS))

Many small artists have been willing to accept sub-par compensation from major DSPs like Spotify, Apple Music, and Deezer under a guise of accruing value via exposure to the industry. In fact, this week twenty top DSPs were forced to pay back a historic amount of unmatched royalties which were overdue to a number of artists and record labels. This is certainly a monumental win for the creators of the industry, but it doesn’t even begin to unravel the steady devaluation of music and media distributed by front-running DSPs.

Let’s address the elephant in the room. Pro-rata compensation. In layman’s terms, pro-rata artist compensation is the practice of proportionally paying artists in the amount of their DSP market share. This model of paying the most prominent artists larger proportions of streaming revenue, means that the small artists who need the direction support of their listeners most are unable to

receive it. If you are responsible for less than one percent of the streams on Spotify, you will make less than one percent of the licensing and royalty revenue during the current sales quarter. Even if your fans stream your song non stop all day, you are likely to receive less compensation than if you earned a fraction of a cent per stream. Anton Gourman from Deezer explains this issue very clearly at 14 minutes and 5 seconds of his interview with the music business podcast.

This isn’t to say that all digital service providers are bad…

In the interest of fairness, we should address the notion that it takes money for DSPs to keep the lights on. Audio streaming is one of the largest contributors to the recent growth of the music industry. According to Spotify, they have paid more than 25 billion dollars to date to music rights holders since the company launched. Spotify was also one of the first groundbreaking DSPs which allowed artists to upload their music to a professional streaming platform without having record label representation.

As far as breaking barriers to entry and accessibility to music, audio streaming has been a dream come true. The DSPs of the 21st century have also been instrumental in lowering music piracy which is an accomplishment in itself. Some artist compensation is far better than none at all, but the time has come for major DSPs like Spotify to readjust their artist compensation models.

The COVID-19 pandemic has also been a major factor in re-evaluating the value of digital music and streaming. Where most small musicians relied on touring and merchandising to support themselves, the pandemic has meaningfully diminished  these revenue streams. In fact, at the beginning of the pandemic in March 2020, artists petitioned to raise royalty rates in lieu of the stop to live performances and other time honored musician income sources. Spotify responded by proposing artists pay Spotify to promote their material for more visibility and streams instead. Needless to say, the audio streaming industry missed the mark on supporting their creators through the pandemic.

Enter Deezer. As far as direct action is concerned Deezer hit the nail on the head with their new user-centric payment system (UCPS). UCPS seems to be the most artist friendly streaming model that has been introduced to the music industry yet. UCPS operates by giving the revenue from your listening subscription only to the artists you listen to.

Why should Justin Bieber get 5% of my subscription if I only listen to Taylor Swift?

While Deezer’s UCPS satisfies the direct action that many artist are asking for, it happens to also be the best way to support the small artists you love with virtually no change to your own consumer behavior. Check out this link to see how UCPS functions.

If the music industry has learned anything as of late, it’s that streaming is not going anywhere, but predatory business and tech trends are on their way out. Intention and understanding of the compensation practices of each DSP is critical in the process of releasing new tracks. There are still plenty of ways for the market leaders to holistically support the direction which the music industry is growing in, but until then the best way as always to support your favorite small artists may be found offline or at one of Traklife’s own Homemade Sessions!

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