By Anya Gert
In today’s ever-changing music ecosystem, music streaming services have become the most efficient method of audio distribution, discovery, and connection. Many, especially the younger generation of listeners, are easily attracted to Spotify; for a reasonable subscription price, Spotify provides a platform for accessible music streaming and organizing. Self-starting artists are granted the ability to publicize their music and develop a small following. However, monetarily supporting your favorite artists on Spotify is not nearly as easy as consuming their content.
Zoë Keating, a cellist from Vermont, has been posting her streaming income from Spotify for years. While her numbers for 2018 appear successful—with over 2 million streams from 241,000 listeners over the course of 190,000 hours—her ultimate payout amounted to a mere $12,231, approximately half a penny per stream.
The current payment system under which Spotify operates is often described as a pro-rata method, which means that artists are paid based on the number of streams they receive. Upon first glance, this approach seems completely reasonable; an artist is paid based on their objective popularity, which is measured via stream count. However, Spotify sells subscriptions, not music. Say Person A and Person B both purchase
a Spotify subscription for the same price, and A listens to 1000 hours of music in a year while B only listens to 100. Because Spotify pays the artists that A and B listen to based on the number of streams that their music receives, A’s artists would receive most of A and B’s total subscription money. The issue is, B paid the same amount as A for the subscription, so why are B’s dollars going towards artists that they didn’t listen to?
Ultimately, artists with the most avid streamers end up receiving the majority of Spotify’s subscription payment pool. This practice gives popular and mainstream artists a disproportionate advantage over middle and lower-class artists on the platform, since smaller artists tend to have more devoted individual fan bases while popular artists ubiquitously obtain streams from diverse audiences. As an example, a study in Finland found that the creators of the top 0.4% of tracks on Spotify collected 10% of the total revenue.
In disclosing her annual earnings from Spotify, Keating has brought to light the issues behind the pro-rata system, explaining that her fans are often shocked when they find out that the money from their subscriptions are not solely distributed to her, even if their accounts are used to listen exclusively to Keatin’s music. Rather, it is distributed disproportionately, with popular artists making the largest gains, contributing directly to artist income inequality on the Spotify platform.
This disparity has resulted in a call for a user-centric system from users and artists alike, which would pool each listener’s subscription payment and split it amongst the artists they listen to. While a user-centric system may have its downfalls, a general move away from a pro-rata system and an adjustment of Spotify’s platform design would allow artists to be rewarded on the basis of their own success, rather than on the basis of others’.
In addition to the disparities in income that the Spotify pro-rata royalty system facilitates, this payment method undermines one of Spotify’s core values and mission statements as a company. In 2018, Spotify CEO Daniel Ek presented a mission statement to a panel of potential investors, stating that his goal was to “unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art.” However, Tim Ingham of the Rolling Stone Magazine performed a study which concluded that Spotify is a ways off from achieving this objective. Based on his research of Spotify’s annual results, Ingham found that approximately 43,000 artists are receiving 90% of the royalties. After the distribution, it is estimated that on average, these 43,000 artists are being paid a salary of $90,000. While this figure surely allows top artists to “live off of their art,” the truth is that this value is highly skewed. A majority of the income pot is allotted to the world’s most famous artists, and most of the 43,000 would be off with significantly less than $90,000.
Even then, 43,000 creators is a far cry from the “million creative artists” championed by Mr. Ek. Furthermore, Rolling Stone additionally estimated that the remaining artists outside this group of 43,000—the so-called “bottom tier” of creators—obtain average earnings of just over $15 a month. However, that is not to say that there is no progress being made on Spotify’s behalf; indeed, this group of 43,000 has almost tripled in size since 2015.
While the user-centric payment approach generally stands as the most common solution for the issues behind fair pay within the pro-rata model, it is uncertain whether or not it is feasible or will solve the problem in its entirety. A user-centric program has never been tested on a platform as large as Spotify’s, and even if it is successfully administered on such a large scale, it is theorized to produce extremely high operating costs, as each listener’s proportional content intake would have to be considered when dividing the payments. Even more discouraging is the fact that a user-centric system would be completely incompatible with Spotify’s current business model, as Paul Vogel—of the head financial officers at Spotify—disclosed that low royalty rates are required to successfully operate the platform. The company already pays 70% of its total revenue to rights holders, and increasing the royalty rates is financially unsustainable for the company. Additionally, although Spotify significantly underpays its lower-tier artists, the situation could very well be worse off without the platform’s existence. Spotify has made it significantly easier for individuals to get their music out there in the first place.
Finally, in order to embrace an effective journey towards fair pay and move away from the pro-rata model, Spotify could address how the design of the platform exacerbates the problem behind stream-based payment systems. Pro-rata systems can be easily manipulated by individuals who seek higher payoffs from Spotify and the platform is inhabited with numerous fake accounts and computers which constantly stream songs to increase revenue. Additionally, certain design features of Spotify could be adjusted to reduce the impact the current design has on small artists. Spotify is well-liked as a result of its personalized qualities, but the manner in which the platform auto-generates playlists and song recommendations inherently prioritize popular artists, thus handing them more streams and contributing to payment disparities.
As concerns over payment inequality rise, Spotify will have to continue to weigh the social cost and the financial benefits of under-paying small artists. Yet improvements in the design of Spotify’s app and payment system are an important first step in accommodating middle and lower-tier artists and accomplishing Spotify’s mission of allowing a million artists to live off their music.