Why is Everyone Mad at Spotify?

Spotify changed how they pay artists. Many people were up in arms. I think their anger is misguided.

Within the last month, Music Business Worldwide broke the news that Spotify was changing how they pay artists. There are generally three pillars to this change.

1. Introducing a threshold of minimum annual streams [1,000 streams] before a track starts generating royalties on Spotify – in a move expected to de-monetize a portion of tracks that previously absorbed 0.5% of the service’s royalty pool;

2. Financially penalizing distributors of music – labels included – when fraudulent activity is detected on tracks that they’ve uploaded to Spotify; and

3. Introducing a minimum length of play-time that each non-music ‘noise’ track must reach in order to generate royalties.

These changes - specifically item (1) - quickly drew criticism from artists. As both an active artist and an employee at a streaming company, I think much of the criticism was misguided. Let me explain.

Streaming Isn’t All Good or All Bad

To properly understand the changes to Spotify’s royalty system, we need to understand two things: how music gets on Spotify and how artists are paid for people listening to their music on Spotify. I’ll start with the former.

Unlike YouTube, SoundCloud, and Audiomack, artists cannot upload their music directly to Spotify. They have to go through a distributor. If you are signed to a major label (i.e., Sony, Universal, Warner) or notable music company (i.e., Empire, Believe), they handle distribution for you. In most cases, they have a direct feed set up with each streaming service to efficiently deliver your music to the platform.

Most artists are not signed to one of these entities, though. Those artists have to go through independent distributors to get their music up on Spotify and a number of other streaming services. Popular independent distributors include TuneCore, DistroKid, CDBaby, and Amuse. For either a flat fee, cut of your royalties, monthly subscription, or some combination of those things, they will distribute your music to the streaming services of the world.

Some plans from the popular distributor TuneCore

Understanding how digital distribution works, how do royalty payments get from the streaming service to artists? It’s actually somewhat complicated. I wrote about this in a two part series earlier this year, but I will summarize the process again.

Contrary to popular belief, artists are not paid per stream. Many platforms, Spotify included, use a pro-rata royalty system. Here’s how that works in broad strokes. Imagine that last month, Spotify generated $5,000,000. Imagine that you are an artist and received 100,000 streams on your music in that month. Finally, imagine that there were 8,000,000,0000 streams across the entire platform in that month. Your payout would be (100,000 / 8,000,000,000) * $5,000,000, or $625.

In short, you are paid a share of the total revenue pool based on how many streams you received compared to the entire platform. What this means is that you can receive the same number of streams in two separate months and be paid different amounts. To illustrate this idea, let’s take that same situation as above, but imagine Spotify made $90,000,000 instead of $5,000,000. Your 100,000 streams would now be worth (100,000 / 8,000,000,000) * $90,000,000, or $11,250, just because Spotify made more money.

Me explaining royalty calculations to anybody that will listen

Spotify does not pay artists directly. For you to collect that money, Spotify will send it to your label or distributor. The relevant entity will then divvy it up and either automatically send it to you or allow you to withdraw it at your leisure. Sort of. Most independent distributors have a withdrawal minimum. Here is what those minimums look like at DistroKid, a popular independent distributor.

DistroKid payment minimums

These minimums may look small, but it usually takes an artist a few hundred to a few thousand streams to hit them. For example, in January 2023, I earned $1.77 across streaming platforms. In that month, I had 1,025 streams on Spotify. Though all of my earnings didn’t come from Spotify, the majority did.

My paltry earnings actually make me a bit of an outlier, though. There are 100 million tracks on Spotify today. Only 37.2 million have reached 1,025 all-time streams. Furthermore, over 9 million artists have music on Spotify. My 452 monthly listeners in January 2023 put me in the top 10% of all artists.

So, if most tracks aren’t being streamed enough to meet the withdrawal minimums for independent distributors, then where is that money going? In all likelihood, it is generating income for distributors as it sits in their bank accounts collecting interest. Artists will certainly never touch the interest, but in many cases, they won’t touch the money they actually earned either because they will never reach the withdrawal minimum. Spotify claims that they want to put this unreachable money back in the pockets of working artists.