Despite its popularity among listeners, it’s questionable whether the streaming-music model is good for the businesses that rely on it, much less the artists who contribute the actual songs. Pandora is struggling to become profitable, while Rhapsody slashed its workforce earlier this year; Grooveshark managed to survive multiple copyright lawsuits but faces a crowded marketplace that may kill it even more efficiently than hordes of enemy attorneys. Meanwhile, Spotify races to grow revenues in the face of significant expenses.
If that wasn’t complicated enough, Apple and Google have both introduced their own streaming-music platforms—and unlike the Pandoras and Spotifys of the world, those tech behemoths can subsidize their streaming efforts with cash from other, immensely profitable business operations. Despite their brand recognition, however, it’s questionable whether Apple or Google can squeeze significant profits from their respective streaming platforms (and neither company is likely to break out that financial data anytime soon).
These corporate money woes, though, are nothing compared to what the actual musicians face when it comes to streaming-music royalties. “By my calculation it would take songwriting royalties for roughly 312,000 plays on Pandora to earn us the profit of one—one—LP sale,” Damon Krukowski of the band Galaxie 500 wrote in a much-circulated Pitchfork article in November 2012. “On Spotify, one LP is equivalent to 47,680 plays.” That same year, the band Grizzly Bear Tweeted that 10,000 plays on Spotify netted them around $10 in hard currency.
Spotify wants to change the perception that it’s killing artists’ ability to make a living off music. “We have succeeded in growing revenues for artists and labels in every country where we operate, and have now paid out over $1 Billion USD in royalties to-date ($500 million of which we paid in 2013 alone),” the company wrote in a recent posting on its Website. “We have proudly achieved these payouts despite having relatively few users compared to radio, iTunes or Pandora, and as we continue to grow we expect that we will generate many billions more in royalties.”
By switching users from “poorly monetized” channels such as piracy to somewhat-more-monetized ones such as legal streaming, Spotify argues, it’s doing the music industry as a whole a huge favor. “The average amount of money spent by US adults on music is $25, whereas the average Spotify user is worth $41 (our total revenue divided by our total # of users),” that posting continued. “Simply put, a Spotify customer is 1.6x more financially valuable than the average adult non-Spotify US music consumer.”
How much of that cash actually reaches the rights-holders? Spotify insists they earn between $0.006 and $0.0084 per stream, on average, and that a niche indie album on the service could earn an artist roughly $3,300 per month (a global hit album, on the other hand, would rack up $425,000 per month). It believes those numbers will only grow along with Spotify’s user base. (Side note: Spotify claims it factors in how much artists actually earn after label or publisher deductions.)
But let’s say an artist earns $0.0084 per stream; it would still take 400,000 “plays” per month in order to reach that indie-album threshold of approximately $3,300. (At $0.006 per stream, it would take 550,000 streams to reach that baseline.) If Spotify’s “specific payment figures” with regard to albums are correct, that means either a.) its subscribers are listening to a lot of music on repeat or b.) a lot of subscribers are sampling lots and lots of new bands and musicians every week.
Those calculations are rough, of course, but even if they’re relatively ballpark, they end up supporting artists’ grousing that streaming music doesn’t pay them nearly enough. But squeezed between labels and publishers that demand lots of money for licensing rights, and in-house expenses such as salaries and infrastructure, companies such as Spotify may have little choice but to keep the current payment model for the time being.