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Does Spotify Make Cents for Creators?

By:Eddie Schwartz | Published:9/21/2012

There has been a lot written about Spotify in recent days. As of now Spotify operates in Europe and the US only, but there are very similar services in the works here in Canada, and the discussion below may well apply to them as well.

Some of the attention Spotify has received lately is because a growing number of independent record labels have stopped allowing Spotify to stream the music of their artists. The central complaint has been that the revenue stream from Spotify is so miniscule that it provides virtually no compensation for music creators and indie labels, while undermining sales of physical product such as CDs, which pay considerably more.

Spotify has responded by announcing that it has paid the music industry roughly $150 million over the 3 years it has been in business.

That may seem like a lot, but for those of us who write and perform music there is both much more to the story, and unfortunately, far less.

Let’s begin with the $150 million figure. Since that revenue was paid out over 3 years it averages $50 million a year. Keep in mind that although Spotify has only operated in Europe for most of that time, the music it streams originated with creators from all over the world, and so that $50 million must be split between creators and right holders in the US, Canada, France, Australia, the UK, Ireland, and many more countries around the world.

Now let’s compare revenue from other sources to get some perspective.

In Canada, our excellent performing rights society, SOCAN, collects about $250 million a year from radio, TV and other sources. BMI, ASCAP and SESAC, the US performing rights societies, collect an amount between $1 and $2 billion a year. Worldwide performance revenues are billions more. This all sounds like a great deal of money. But when it is divided among all the creators and right holders in the world it amounts to modest payouts to the vast majority. SOCAN’s average royalty payment to songwriters is in the area of $500 annually.

So the $50 million a year from Spotify when divided among the world’s creators and right holders amounts to payments that are far below other uses such as performing royalties, and in fact are microscopic for creators and right holders.

Some argue that this kind of comparison is unfair to Spotify because it is still relatively new and in time it will reach many millions more subscribers and pay a reasonable amount to those who write and perform the music.

Maybe. But after 3 years, Spotify has only 1.6 million paying subscribers in Europe, or less than one half of one percent of the population. That does not bode well for Spotify eventually reaching the size of audience that it would need to fairly compensate creators.

So the situation comes down to this: Music creators are being asked to subsidize a model that pays them very little now, and may never pay a reasonable royalty for the use of their work.

As we have seen with a number of independent record labels, some are just saying no.