How the Cash Flows in Spotify Streams

As a songwriter who is in the process of putting my first song on Spotify, my feeling at this point is that it is ok with me if people with less money pay less in royalties to me. Although I know that often people with money are often chintzy when it comes to paying for the goods and services they use.

http://www.wsj.com/articles/how-the-cash-flows-in-spotify-streams-1433376207

By Ethan Smith
Updated June 3, 2015

On Spotify, not all songs are created equal; sometimes not even the same song is created equal—at least when it comes to how its creators are compensated.

According to an analysis of data supplied by Spotify AB to music publishers, it takes five to seven plays of a song on the streaming service’s free “tier”— which makes its money from ads—to generate the same amount of royalties as a single play on Spotify Premium, which charges users $10 a month.

Last December, a single play on Spotify Premium was worth an average of about 0.68 of a cent in royalties, according to the analysis, conducted by Audiam, a company that helps music publishers collect digital royalties. In the same month, a single play on Spotify Free was worth an average of about 0.14 of a cent, about one-fifth the value on the subscription. (Royalties generally are due to record companies and music publishers; how they are shared with performers and songwriters depends on their contracts.)

Some in the music industry want Spotify to set stricter limits on the free tier, either by reserving certain music for paying subscribers, or by making people start paying after a certain number of months on the free service.

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The share of Spotify users paying for the Premium service fell last year, to 25% of its 60 million active users. A year earlier, the company told music companies, paying subscribers represented 28% of its users. The company says that ratio moves both up and down from month to month.

Even though free users outnumber paying subscribers by about three to one, the free tier generated only 9% of Spotify’s $1 billion-plus revenue last year; the rest came from subscription fees, according to a financial disclosure Spotify filed last month in Luxembourg.

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The two tiers generate roughly the same amount of total listening in any given month, according to data shared with publishers. (Subscribers—who presumably want to get their money’s worth—tend to listen to a lot more music than free users.)

[I would think another factor would be that people who listen a lot might find it worthwhile to pay in order not to have the ads.

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The previously undisclosed numbers help explain why some artists are unhappy with Spotify’s free tier. Most famously, Taylor Swift removed her music from all of Spotify last year when the company wouldn’t let her take it off the free tier. She kept her music on services such as Rdio, which doesn’t offer a free on-demand option.

“Ad-funded is not a sustainable business model” for on-demand music, Lucian Grainge, CEO of Vivendi SA’s Universal Music Group, said in a Journal interview last fall.

Tellingly, Apple Inc. ’s new music-streaming service won’t offer the kind of free, all-you-can-eat option that Spotify does.

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“The more people listen, the less their theoretical per-stream rate is,” Spotify’s head of communications, Jonathan Prince, says. “But the more people listen, the more likely they are to keep paying, which is what all of us, Spotify, rights holders and artists, should want.”