The Spotify Myth

Debunking the Myth that Spotify Unfairly Compensates Artists for their Music

Spotify unfairly compensates artists for streaming their music. If you are on social media in 2023, or have been at any point for the past 10 years, I can almost guarantee you have heard this myth in one version or another. It may have taken the form of a meme citing multiple artists and their vehement opposition to the platform. It may have been as simple as a post sharing a news article with the headline “artists make only $0.004 per stream on average” paired with an angry caption. This month, the Myth has come back again with a vengeance in response to the current news cycle regarding Spotify’s decision to stop royalty payments for songs that don’t reach 1,000 streams annually.¹ The truth is, Spotify almost certainly pays the best rate it possibly can to artists. Moreover, if Spotify (and other comparable streaming services) didn’t exist, artists would most certainly be making less money than they are currently, not more. Due to the fact that music streaming services show no sign of going away any time soon, it is crucial to dispense with the myth that they are greedily underpaying artists, and instead focus the conversation on the real issues artists face in the modern industry landscape.

PART I: $0.99 vs $0.004 and the False Equivocation of Streaming to Ownership

It is easy to understand why this particular myth is so pervasive. Back in 2008, when iTunes dominated the music market, consumers regularly paid 99 cents to purchase one song, and $9.99 for a full length album.² So ten years later, when consumers found out artists were only making about half a penny per stream that number intuitively felt low. However, this comparison is truly apples to oranges.

From Vinyl LPs in the 1970s to Digital Downloads in the 2010s, the previous 40 years of music consumption operated on an ownership model. In 2008, when you spent 99 cents for a song on iTunes, you weren’t spending that money to listen to said song one time, but rather an unlimited amount of times for the rest of your life. In 2008 the ownership model was still dominant, but this was also the year that the streaming platform Spotify was launched. With this launch it was only a matter of time before the subscription model would completely supplant the ownership model, and by 2016 subscriptions would account for the plurality of all music revenue (see Fig. 1).

To understand the depth and implications of this revolutionary change from ownership to subscription, I will use my own story as an example. Back in 2005, when I was just 10 years old, I absolutely loved listening to new music. Every so often my parents would take me to the record store, and if I was lucky, they would buy me a CD which ran anywhere from $10 to $20. At this time, the 10 to 15 songs on that one CD may have been the only new music I was able to hear that month. That means if I wanted to hear 10 new songs, my parents would have to cough up 10 whole dollars. Fast forward to 2023, and I commonly listen to more than 10 new songs every single day as references for my recording business. Conservatively, thats 300 new songs I am listening to every month, all for the price of 1 Spotify subscription: $10.

(Figure 1)

PART II: $10 per Month Only Makes Artists Half a Penny Per Stream

With all of this in mind, it is clear to see how quickly $10 can get stretched thin when spreading it out across an unlimited library of music. How thin exactly? An average of $0.004 per stream to be precise. In fact we don’t need blind trust in Spotify to reach this estimate, just a few pieces of data, a couple reasonable assumptions, and some basic calculations.

To determine what the fair payment for 1 stream should be, we only need two pieces of information:

1. The Monthly Subscription Rate

2. The Number of Songs An Average User Streams to Per Month

The first part is simple, $10 per month.³ The second number is slightly more difficult to find, and requires a certain degree of estimation. Unfortunately, I was unable to find any specific data on the average number of songs users listen to per month. However, according to multiple sources citing Spotify user data, the average Spotify user consumes approximately 140 minutes of music per day on the platform.⁴⁵ If we multiply this across an average of 30 days per month, we arrive at 4200 minutes of music consumed per month.

From here, it becomes necessary to make an educated guess regarding how many minutes of music constitutes the average stream. While this specific data is not readily available, I was able to find that 48.6% of all unique streams do not account for the entire length of the song.⁶ In fact, 35% of songs are skipped within the first 30 seconds of the stream. Using a data set provided by Forbes we can roughly estimate that songs are typically streamed for an average of 1 minute and 42 seconds. If we divide 4200 (average minutes consumed per month) by 1.7 (average minutes streamed per song) we arrive at an estimate of 2470 songs streamed per month.

Now, to determine what Spotify’s fair payout per stream should be on average, we need only to divide $10 (the monthly subscription cost) by 2470 (the average amount of songs streamed per month), and arrive at $0.004. It is therefore reasonable to assume that, based on the cost of the subscription and average amount of music consumed with that subscription, artists are fairly compensated by the company.

PART III: Streaming Royalties Might Be Low, but the Alternative is Much Worse

Understanding that streaming payouts are almost definitely fair based on the price of the service does part of the work in debunking the Spotify myth. However, this presupposes that artists ought to release their music onto streaming services in the first place. Why not boycott streaming services all together and force consumers to purchase songs in some format and make a return to the ownership model? The answer to this question is illustrated perfectly in Figure 1.

Taking a further look at the data on US Music Revenues by Format, there is a noticeable trend that begins to appear around the year 2000. From the year 2000 all the way to about 2016, total music revenue generated across all formats was on a sharp decline. It is no coincidence that this decline began the exact year that the infamous Limewire music pirating application was released. While technically illegal, music pirating is incredibly simple to do, and unimaginably difficult to prevent or prosecute by law enforcement. While digital downloads did make up for some of the lost revenue, they never came close to making up for the humungous gap the industry was facing by 2010.

In 2010, the doomsday narrative about the music industry’s decline had become commonplace, and the outlook was bleak.⁷ It was simply too easy to illegally download music, and to difficult to catch the people doing it.⁸ Yet in just 10 years the industry would make a full recovery, and be on track to surpass all time highs in revenue. Despite the narrative about streaming services and their meager payouts, it is due to these companies alone that this former loss in revenue returned. So how is it the case that streaming services were able to defeat the threat of piracy and save the industry? The answer is simply opportunity cost and convenience.

While still relatively easy, all things considered, pirating music does take some amount of time and energy. Sure it saves the consumer money at the point of purchase, but taking the time to download, catalog, maintain, and update a library of music is not completely free. Doing all of this can take many hours that consumers would rather spend working, all else equal. In the past spending an hour illegally downloading 100 songs may have saved you 100 dollars. In the world of streaming, no matter how many songs you illegally download, the most you could ever save is $10 dollars. Even if we assume that it would take only 1 hour to download all 2470 songs an average Spotify user listens to in a month, (which surely would take longer), as long as that user makes more than 10 dollars per hour it is simply not worth their time to do so.

The hard truth is that music piracy, not Spotify, is the true price setting mechanism behind the value of a stream. In fact if it were not for music streaming services like Spotify, artists would almost definitely be making less money than they are now, not more.

PART IV: Spotify Raise Your Prices!

Seeing the streaming world through this lens translates every “anti-Spotify” post into the following slogan: Spotify raise your prices! If $0.004 seems low per stream, then ask Spotify to double their subscription cost, and see that number rise to $0.008. There is no way around the fact that your ability to consume as much music as you want, comes at the cost of artists making less money per stream than selling a physical copy.

With that said, this piece is not meant for doom and gloom, but rather pure optimism. In 2021, Spotify paid out 7 billion dollars in music royalties.⁹ In the past, the cost of getting your music heard included: going to an expensive recording studio, copying CDs, distributing them to record stores, and sharing 80% of your profit with a label. Now, artists are reaching millions of streams, with music they made on their laptop and released for $10 through an online distributor. Nowadays it is both easier to create music, and easier to reach the people who want to hear your music, while avoiding third party rent seeking entities like labels. Once we dispel with the myth that Spotify created this problem, we are all able to work out the real solutions that will help our favorite artists succeed, and help fans get access to the music they want to hear.

1. https://www.musicradar.com/news/spotify-royalty-model-1000-plays#:~:text=Spotify%20is%20set%20to%20announce,less%20than%201000%20plays%20annually.

2. https://www.apple.com/newsroom/2008/04/03iTunes-Store-Top-Music-Retailer-in-the-US/

3. For the last 12 years Spotify Premium has technically cost $9.99, and is now increasing to $10.99, using $10 is assumed to be an appropriate simplification for rough estimates. https://www.theverge.com/2023/7/24/23805364/spotify-us-price-increase-10-99-a-month-9-99-month-twelve-years

4. https://appinventiv.com/blog/spotify-statistics-facts/#:~:text=On%20an%20average%2C%20users%20listen,on%20their%20cross%2Dplatform%20device.

5. https://www.businessofapps.com/data/spotify-statistics/

6. https://www.forbes.com/sites/bobbyowsinski/2018/11/17/song-skip-rates/?sh=cebe1af1c42a

7. https://money.cnn.com/2010/02/02/news/companies/napster_music_industry/#:~:text=Although%20the%20Recording%20Industry%20Association,average%20of%208%25%20each%20year.

8. https://musicbusinessresearch.wordpress.com/2010/03/29/the-recession-in-the-music-industry-a-cause-analysis/

9. https://www.forbes.com/sites/marisadellatto/2022/03/24/spotify-says-it-paid-7-billion-in-royalties-in-2021-amid-claims-of-low-pay-from-artists/?sh=8202175a0dba