Why is Spotify launching Loud & Clear?

How does this

help artists?
Questions and concerns about artist income from streaming have been around for over
a decade, and in many ways, we feel we’ve been too quiet on the topic. Our aim with
this site is to provide a valuable foundation for a constructive conversation. In sharing
more information, we hope to answer questions and share useful resources about
today’s streaming industry

 Wasn't the music industry better off before streaming?

Spotify plays a leading role in this healthier music industry — as a sort of radio
station and record store all rolled into one, but without their limitations.

With radio, artists can reach lots of listeners. However, there’s limited space in
a radio station’s rotation of songs — they typically stick to the Top 40, making
it harder for artists to break through. And in some markets, not all talent is
compensated for the music being played.

Artists benefit from a high purchase price in record stores, but physical and
digital sales don’t generate money from all of an artist’s fans — only those
willing to spend money to download tracks or purchase a full album.

Spotify solves these challenges with streaming. Streaming is where fans come
to put their favorite artists on repeat, but it’s also where casual fans discover
new music or rediscover old favorites. And revenue is generated from both
types of listening—from fans who pay for Spotify Premium to advertisers who
fund Spotify’s Free tier.

When Spotify launched in 2008, the global recording industry had been
ravaged by piracy — spiraling downward from 1999’s peak of over $25B to the
industry’s low point in 2014, when the combined market of physical and digital
sales was $14 billion.

Since then, streaming has powered the resurgence of the music industry. In
2019, the total revenue of the recording industry was just over $20 billion —
with $11.4 billion of that coming from streaming. And from Spotify alone, last
year in 2020, we paid out over $5 billion to rights holders, more than any other
streaming service. L
 ast year, Spotify accounted for more than 20% of all recorded music revenue
(based on IFPI data) — up from less than 15% in 2017.

When you combine the growth of the overall royalty pool paid out to rights
holders — and the expanding number of artists succeeding thanks to streaming
— we believe the future is incredibly bright for artists’ careers. At this rate, we
think that the music industry will surpass its 1999 peak in 2025 because of
streaming royalties.

 Is streaming only helping music’s biggest stars?

No. Streaming has fundamentally changed the music ecosystem — lowering
barriers to entry and democratizing access to audio for listeners across the
world. Artists no longer need big budgets to create, distribute, and amplify their
music around the world. 
More creators are creating — and succeeding — than ever before. In 2020,
over 76,000 artists were added to Spotify playlists for the first time, the large
majority of which were discovered through our playlist pitching tool, which is
freely available to all artists. Also, as of 2020, 57,000 artists now represent
90% of monthly streams on Spotify — a number that has quadrupled in just six
years. That means a growing and increasingly diverse group of artists are
finding fanbases.

 How do artists and songwriters get paid?

Spotify primarily makes money for music from two sources — from Spotify
Premium subscribers as well as from advertisers on Spotify’s free tier. Roughly
⅔  of this money is paid out to music rights holders. In 2020 alone, that
number  — what we refer to as the ‘royalty pool’  — was over $5 billion from
Spotify alone.
Spotify divvies up that royalty pool based on each rights
holder’s streamshare on Spotify. This money is not divvied up based on a fixed
 amount per stream, because Premium subscribers do not pay per stream; they
pay a subscription fee for access 
From there, we encourage you to check out our “How the Money Flows”
video. 

 How is streamshare calculated?

Every month, in each country we operate in, we calculate streamshare by
adding up how many times music owned or controlled by a particular rights
holder was streamed and dividing it by the total number of streams in that
market.
So if an artist received one in every 1,000 streams in Mexico on Spotify, they
would receive one of every $1,000 paid to rights holders from the Mexican
royalty pool. That total royalty pool for each country is based on the
subscription and music advertising revenues in that market.

If an artist has millions of streams, why don’t they earn

more?
Spotify has been around for more than a decade. We now have over 345 million
listeners, streaming more songs per month than ever before, which means the activity
on the platform increases exponentially. And streaming services pay based
on streamshare, not a per-stream rate.

Because of streaming’s growth and the increase in engagement per user, the meaning
of a million streams has changed over the years —  lots of tracks are reaching a
million streams, and more often than you think. In fact, 550,000 songs have now
surpassed a million streams, and 207,000 songs received a million streams in 2020
alone. Over a hundred songs have even reached a billion streams. To get a better sense
of the Spotify ecosystem, you can play around with the interactive tool on this site,
which reflects data as of December 2020

I heard Spotify pays a fraction of a penny per stream. Is

that true?
In the streaming era, fans do not pay per song so we don’t believe a “per stream” rate
is a meaningful number to analyze. Instead, we’re focused on maximizing the total
size of the payments we are able to make to rights holders — those that pay artists and
songwriters — and we think the data on this site reflects our progress.
Still, we understand that artists find it useful to calculate an effective “per stream” rate
— dividing the total size of the royalty pool on Spotify by the total number of music
streams on Spotify. We dig into that in the “Why does the “per stream rate” appear
lower for Spotify than some other streaming services?” question on this page.

Our model drives more fan engagement and generates revenue from more places —
that means larger total checks from Spotify to rights holders. We make some choices
which decrease the effective “per stream rate”, but we believe we are maximizing
overall revenue, generating the most possible money for rights holders and their artists
and songwriters. Case in point, Spotify generates more money for rights holders than
any other streaming service: As of 2020, Spotify has paid over $23 billion in royalties
to rights holders — including over $5 billion in 2020 alone, up from $3.3 billion in
2017

 Why does the “per stream rate” appear lower for Spotify
than some other streaming services?
In the streaming era, fans do not pay per song and services do not pay per
stream, so we don’t believe a “per stream rate” is a meaningful number to
analyze. Still, we understand that artists find it useful to calculate an effective
“per stream” rate or, in other words, a revenue-to-streams ratio — dividing the
total size of the royalty pool on Spotify (the numerator) by the total number of
music streams on Spotify (the denominator). Both of these numbers are
growing incredibly quickly every year.
There are a number of factors that contribute to that ratio looking small, which
we understand can seem problematic. We don’t believe it is; we are confident
our model is maximizing revenue for everyone.
High Streams per Listener: First, the average subscriber to Spotify listens to
more music per month than on other services. That means more listeners
discovering more artists, more opportunities to deepen engagement with
listeners, and more chances to convert them into fans who buy tickets and
merch. This engagement — as well as millions of new Spotify listeners signing
up every month — impacts the denominator of the revenue-to-streams ratio. 
More Global Audience: Second, Spotify is more popular in countries with
lower prices, which makes our revenue-to-streams ratio look lower compared
to services not focused on those markets. Meeting listeners at an affordable
price for them is the way to generate revenue from these markets that wouldn’t
have been captured otherwise. Growing into these territories increases total
revenue for the industry and for artists, which increases the size of the royalty
pool for rights holders. This impacts the numerator of the ratio.  
Ad-Supported Tier: Third, unlike most of our competitors, Spotify runs both a
Premium subscription service and a free ad-supported service — so looking at
Spotify’s revenue-to-streams ratio next to subscription-only competitors isn’t a
direct comparison. While the ad-supported service doesn’t generate as much
revenue as the Premium service per user, we’ve conducted extensive testing
that consistently shows that when we take the free service away, those listeners
turn to non-revenue-generating alternatives, meaning the collective music
industry is missing out on revenue. This also impacts the numerator of the
ratio. Offering an ad-supported service is also one of our most useful
mechanisms for getting listeners to pay for music: roughly 60% of Premium
subscribers were once Free tier users. Again, this means we are maximizing the
revenue for everyone.