The Record
2:28 am
Wed September 26, 2012

How Musicians Make Money (By The Fraction Of A Cent) On Spotify

Originally published on Thu September 27, 2012 4:23 pm

The streaming music service Spotify has garnered some 2 million users in the U.S. since its introduction a little over a year ago. The service includes many big acts like Katy Perry, but many musicians have mixed feelings about it. Some, like Adele and Coldplay, resisted putting new albums on Spotify, citing the service's low royalty payments to musicians. Others, like the Black Keys, won't allow full albums on the service at all.

The independent musician Erin McKeown has her albums on Spotify, and because she doesn't have a label, she gets all of the royalty money the service pays out every time someone plays one of her songs. McKeown asked her accountant to figure out how much money she was making. The answer was $0.004 per play — not much at all. McKeown says most of the money she sees from online activity comes from iTunes downloads.

"For me, most people go to iTunes," she says. "I'm paid fairly from iTunes. My entire catalog is represented."

She worries that her fans will stop buying downloads of her songs and listen to her free on Spotify without realizing they're not supporting her as much financially.

"I think a lot of people who used to buy music at full price use Spotify," McKeown says, "maybe because they don't know or maybe because it's a great service on the consumer side."

Executives at Spotify see it differently. Ken Parks, the company's chief content officer, says the service isn't cannibalizing digital downloads but instead luring people away from such unauthorized file-sharing sites as Pirate Bay. Both Spotify and Pirate Bay were born in Sweden, a country, Parks says, famous for its love of file sharing.

"Piracy was sort of ingrained in that culture," he says. "But now Spotify is ingrained in that culture in a way that's reduced piracy greatly. It's removed the incentive to pirate."

Spotify's database includes millions of songs, which listeners can access free on a computer if you don't mind a few ads. For $5 a month, subscribers can eliminate the ads, and for $10, they can access the service via mobile devices.

Parks says Spotify has around 15 million users worldwide, though he wouldn't break down the numbers by country. However, a document leaked to NPR shows over 1 million users in Sweden alone — not bad for a country of just 9.5 million people.

"Two years ago, the ... debate about downloading illegal music was a really hot topic in Sweden," says Mattias Lovkvist, the CEO of the independent Swedish label Hybris Recordings. "Now it's completely cold. Nobody talks about it anymore."

Lovkvist says what's even more significant is that around 90 percent of Swedish users have upgraded from the free Spotify service to one of the paid levels. He says artists get a higher royalty rate when paid subscribers stream their songs, and at least one Hybris musician, the singer Jonathan Johansson, is making a substantial amount of money from Spotify. Johansson sells out theaters in Sweden, and Lovkvist says the singer made $20,000 in royalties from Spotify the first week his most recent album came out.

"People actually go to Spotify to check out new artists," Lovkvist says. "All the kids listen to Spotify."

In other countries, however, most online revenue has been coming from iTunes and Amazon downloads. Martin Mills, who runs Beggars Group, a consortium of independent labels including XL and Matador, says Spotify does cut into sales.

"It does cannibalize to some extent," Mills says. "I mean, it's fashionable to say it doesn't, but of course it does. We all know people who've either stopped buying records or stopped downloading, are just using Spotify."

Independent labels, like those in Mills' Beggars Group, negotiate their own agreements with Spotify, and he says he is seeing some of his artists make more from the service. But the key seems to be the number of subscribers: The more people use the service, the more royalties it generates. So it's likely to be a long time before Spotify's U.S.-based service comes close to matching its numbers in Sweden, where more than 10 percent of the population uses the streaming service. Of course, the bigger the artists, the more people will stream their songs.

How much of that money actually goes to label-affiliated artists varies widely. Like Sweden's Hybris, the labels in the Beggars Group give 50 percent of the royalty payments to the artist. The bigger labels wouldn't talk to NPR, but according to the research firm Enders Analysis, the labels only pay their famous artists a 20 percent royalty, while lesser-known artists get 15 percent.

As part of their agreement to let the service stream their music, the majors also own part of Spotify. Mills and others worry that in the future, the big labels will use that clout to force the service to promote their own artists.

"That's our daily struggle as the small guys," he says. "The big guys can always try to squash you."

Still, an independent artist like McKeown says she'll stay on Spotify because that's where the fans are going.

"My goal as an artist is to be as available as possible to as many people as possible," she says.

McKeown notes that at least Spotify pays better than one even more popular service — YouTube.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

STEVE INSKEEP, HOST:

It's MORNING EDITION, from NPR News. I'm Steve Inskeep.

DAVID GREENE, HOST:

And I'm David Greene. If you like streaming music on Spotify, you are not alone. Spotify has only been around a little more than a year in the U.S., and it already has some 2 million users. The streaming is convenient for listeners, but maybe not so profitable for musicians. Some musicians, like Adele and Coldplay, held off on putting new albums on Spotify because of its low royalty payments. NPR's Laura Sydell has more, in the second part of our series on how musicians make money online.

LAURA SYDELL, BYLINE: Spotify has millions of songs. And you can access them for free on a computer, if you don't mind a few ads. The service includes big acts, like Katy Perry; and independents, like Erin McKeown.

(SOUNDBITE OF SONG, "ALL THAT TIME THAT YOU MISSED")

ERIN MCKEOWN: (Singing) There's no camera in your face. There's no phone up in your ear. When the glamour drops, what don't you hear?

SYDELL: McKeown gets paid each time someone plays one of her songs. And because she doesn't have a label, she gets all of the money. She asked her accountant to figure out exactly how much that is.

MCKEOWN: I make .004 cents per play, on Spotify. [POST-BROADCAST CORRECTION: McKeown misspoke. She makes $.004 - just under a half-cent - per play.]

SYDELL: Not much. McKeown says most of the money she sees from online activity, comes from iTunes downloads.

MCKEOWN: For me, most people go to iTunes. I'm paid fairly from iTunes. My entire catalog is represented.

SYDELL: McKeown worries that her fans will stop buying downloads of her songs, and listen to her on Spotify for free - without realizing that they're not supporting her so much, financially.

MCKEOWN: I think a lot of people who used to buy music at full price, use Spotify - maybe because they don't know; or maybe because it's a great service, on the consumer side.

SYDELL: Executives at Spotify see it differently. Ken Parks, the company's chief content officer, says the service isn't cannibalizing digital downloads; it's luring people away from such unauthorized file-sharing sites as Pirate Bay. Like that site, Spotify was born in Sweden - a country, says Parks, famous for its love of file-sharing.

KEN PARKS: Piracy was sort of ingrained in that culture. But now, Spotify is ingrained in that culture, in a way that's reduced piracy greatly. It's removed the incentive to pirate.

SYDELL: Parks says Spotify has around 15 million users worldwide, though he wouldn't break down the numbers. However, a document leaked to NPR shows over a million users in Sweden. Not bad for a country of just 9 and a half million people. Mattias Lovkvist is the CEO of the independent Swedish label Hybris Recordings. He says Spotify shifted the conversation there.

MATTIAS LOVKVIST: Two years ago, the downloading debate - about downloading illegal music - was a really hot topic in Sweden. Now, it's completely cold. Nobody talks about it anymore.

SYDELL: Lovkvist says what's even more significant, is that around 90 percent of Swedish users have upgraded from the free Spotify service to the paid one, which has no ads and offers access on mobile devices. He says artists get a higher royalty rate when paid subscribers stream their songs. At least one Hybris musician is making a substantial amount of money from Spotify.

(SOUNDBITE OF MUSIC)

JONATHAN JOHANSSON: (Singing in foreign language)

SYDELL: Jonathan Johansson sells out theaters in Sweden. And Lovkvist says the singer made $20,000 in Spotify royalties, the first week his most recent album was out.

LOVKVIST: You can see a correlation, when you have a successful artist. If you get a lot of media for an artist, it's easy for people to just click on Spotify, and listen to it. And that generates money for us.

SYDELL: But in other countries, most online revenue has been coming from iTunes and Amazon downloads. Martin Mills, who runs Beggars Group - a consortium of independent labels that boasts Adele among its artists - says Spotify does cut into sales.

MARTIN MILLS: It does cannibalize, to some extent. I mean, it's fashionable to say it doesn't but of course, it does. We all know people who've either stopped buying records or stopped downloading, and are just using Spotify.

SYDELL: Independent labels, like those in Mill's Beggars Group, negotiate their own agreements with Spotify. And he says he is seeing some of his artists make more from the service. But the key seems to be the number of subscribers. The more people using the service, the more royalties it generates. So it's likely to be a long time before Spotify in the U.S., for example, comes close to matching its numbers in Sweden, where more than 10 percent of the population uses the streaming service. And of course, the bigger the artists, the more people will stream their songs.

(SOUNDBITE OF SONG, "ROLLING IN THE DEEP")

ADELE: (Singing) There's a fire starting in my heart, reaching a fever pitch, and it's bringing me out the dark.

SYDELL: How much of that money actually goes to label-affiliated artists varies widely. Like Sweden's Hybris Recordings, the Beggars Group labels split the Spotify payments 50-50. The big labels wouldn't talk to NPR. But according to the research firm Enders Analysis, the labels only pay their famous artists a 20 percent royalty; lesser-known ones get 15 percent. The majors also own part of Spotify, as part of their agreement to let the service stream their music. Mills and others worry that in the future, the big labels will use that clout to force the service to promote their own artists.

MILLS: That's our daily struggle, as the small guys. Yeah, the big guys can always try to squash you.

SYDELL: Still ,an independent like Erin McKeown says she'll stay on Spotify because that's where the fans are going.

MCKEOWN: My goal, as an artist, is to be as available as possible, to as many people as possible.

SYDELL: And McKeown says at least Spotify pays better than one even more popular service - YouTube.

Laura Sydell, NPR news.

GREENE: And we'll continue our series tomorrow. We'll focus on the economy of YouTube. Transcript provided by NPR, Copyright NPR.

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