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If Spotify Is The New Radio, The Artists Are Winning

November 25th, 2009 | 25 Comments | Categories: New Music Strategies · tips for musicians |

[EDIT - this post is a couple of years out of date - for a more recent appraisal of where I stand with Spotify, see Why I've Taken My Music Off Spotify]

There were a few articles kicking around yesterday touting a figure that ‘Lady Gaga earned $167 from Spotify for over a million plays’ - I think the story originated on TorrentFreak.

Perhaps not surprisingly the writers at TorrentFreak aren’t too au fait with the way that payment systems work for artists. The figure quoted is a publishing royalty – it’s from STIM (The Swedish Performing Rights Society). It doesn’t reflect payments due to the performer direct from Spotify (outlined in somewhat confusing detail in this Guardian article) which, according to the CEO of We7, are roughly ten times the PRS-collected royalty payment. It’s this figure that may or may not have been negotiated downwards by Spotify with the major labels – the labels have pretty much no say over the rates that the PRS set (other than through lobbying).

There’s also no mention of whether that’s the fee going to Stefani Germanotta (apparently Lady G’s real name) or whether that’s the entire payment, to her publisher, of which she and the other writer, RedOne, get a share.)

So, we now have a situation where for 1 million listens (that’s not downloads, or tracks sold, it’s listens) Lady Gaga has received a royalty of $167 (approx £100, give or take 49p) plus, according to estimates, a performers payment of $1670.

This also doesn’t take into account

  • any (unreported on) direct sales through the service (via Spotify’s digital partner 7Digital),
  • anyone listening on Spotify to audition the track, then heading elsewhere to buy it (because, say, they have an iTunes account that they use for buying tracks, but use Spotify to listen to them because iTunes has painfully annoying 30 second previews).

The article does mention that she’s had 20 million paid downloads. 20 MILLION paid downloads. (that warrants a Dr Evil pinky-in-the-corner-of-the-mouth pose).

Yup, that’s not the headline, that her digital strategy that includes Spotify has lead to her selling 20 MILLION downloads – in an age when any of those 20 million sales could’ve been grabbed from a file sharing service or copied from a friend (I’m taking a wild guess that Lady Gaga fans run in packs – she doesn’t strike me as the kind of artist that appeals to the friendless reclusive goth kid with the idiosyncratic taste).

No, instead, the fact that for 1 million listens via ‘radio on-demand service(which is what the non-premium version of Spotify really is), she was paid WAY more than she would’ve got for an equivalent number of listeners on, say Radio one’s breakfast show.

According to The Mirror, back in August, Chris Moyles had 7.7 Million listeners for his show. And according to the PRS website (see screen-grab above), Radio One pays £17.68 per minute for airplay.

So, if we multipy that by the length of ‘Poker Face’, which Spotify tells me is 3.57 (we’ll round up to four minutes), that’s

£17.68 x 4 = £70.72, for 7.7 million listeners.

So, let’s divide that by 7.7 to get the value for 1 million listeners:

£70.72 ÷ 7.7 = £9.18, for 1 million radio one breakfast show listeners

And no additional artist payment from the BBC, as well as no direct link to a place to buy it next to the track, a good chance that a big number of those listeners wouldn’t even find out who it was and no way of the person hearing it saying ‘hey, check this out!’ with a direct link to everyone else that they’re friends with and therefor likely to share some music taste with.

So, in summary -

  • Spotify, 1 million listeners = £100 royalty + £1000 fee + maximum shareablity.
  • Radio 1, 1 million listeners = £9.18. That’s it.

Spotify isn’t by any stretch perfect. I’ve written about this before. But it’s not the disaster this bogus, statistically questionable, piss-poor journalism is making out.

Just to repeat, the headline here is that in an age when people can Torrent whatever they want, Lady Gaga’s digital strategy has netted her 20,000,000 paid downloads. An ocean-liner filled with WIN is sailing her way.

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25 Comments so far ↓

  • Tim Ferguson

    Fantastic as usual Steve! P.S. Type-o: ‘many’ should be ‘may’ in 2nd paragraph: “It’s this figure that may or many not have been negotiated downwards by Spotify with the major labels…”

    Feel free to delete this once you’ve fixed it!

  • Tom Davenport

    Excellent web journalism Steve, glad to have seen this article and been reminded that the current models for streaming aren’t as flawed as I thought yesterday.

  • Anna Goss

    I’d have to argue with your maths here Steve. That is, while you may have done the sums correctly, the comparison is incorrect. The way of accounting to artists is hugely different. Radio 1 does not pay per listen – as Spotify does – but per play. Number of listeners are not taken into account on a per-play basis. A place on a R1 playlist will automatically pay better than listens on Spotify.

    Not to mention that while there may not be ‘no additional artist payment from the BBC’ (I’m not sure what you mean by this with reference to Spotify – are you referring to recording royalties?), the PRS income will be split with 50% going direct to the publisher (which will then be split approx 80/20 between writer/publisher) and 50% directly to the writer(s).

  • Hans

    The article is spot on Steve! Finally someone who understands the market AND is willing to explain! We need MORE great services like Spotify.

  • Krotify

    The ideology behind Spotify is that one can access all the world’s music whenever wherever. So ideally people wouldn’t need to buy albums or even in digital format. In that kind of world Spotify would be the primary source of income (excluding gigs and fan stuff).

    “Yup, that’s not the headline, that her digital strategy that includes Spotify has lead to her selling 20 MILLION downloads”

    “Include” doesn’t mean Spotify’s role in that 20 million downloads would be even significant. For me it sounds a bit strange that people would by digital version, say, from iTunes if he/she already has superior access to that song with Spotify (it doesn’t seem to be so yet but it most probably will be in the future). And I really think Spotify (or something like Spotify) will be the future platform for listening music.

  • Tim Ferguson

    As an independant, Steve, you’re on Spotify via CD Baby right? How straight forward are the calculations in your case? You mentioned “fractions of a penny” per play in this post. But is it more complicated than that? Stepped by volume? Are there any caveats? Are you privy to this information as a customer?

    CD Baby themselves state: “What we’re paid by partners varies, however, and contractually we are not allowed to disclose those amounts to anyone who is not yet a CD Baby customer. Depending on what level service you sign up for with CD Baby, some partners may pay less per song, and streaming clips pay much less — but we still pay you 91% of all download and streaming revenue”

    TorrentFreak posted a follow-up to their previous article, in which they claim: “In fact, TorrentFreak has heard from various sources that independent distributors can get deals of at least $0.03 per play with Spotify. This adds up to a pay day of $30,000 instead of $167 for a million plays, which suddenly sounds like an altogether better deal.” – http://torrentfreak.com/spotify-isnt-ripping-off-artists-the-labels-are-091123/

    Would be interesting to know what CD Baby’s deal is compared to some other known independant artist going ‘directly’. I haven’t created enough of my own music (yet) to warrant exploration, so I don’t know if it’s even possible to approach Spotify directly without some sort of representation from a group such as CDBaby or a record label…

    Anyway, just curious!

  • guylaine l'heureux

    As a former Copyright & License Manager in a small Canadian indie record co., all I can add to this is that “The Times They Are-A-Changing”. Growing pains aside, one can expect to see many new biz models rise and fall while we all go through the transition from the LPs & Cds to files, files-sharing, listening “from the cloud”… Some how, I can’t really see contracts being anywhere near up-to-date between the time you sign an artist and the various technological changes and new listening habits once their music is out there. And all this still varies from country to country in a world where one can get around geolocation fairly easily.
    At least, it makes great food for thoughts on a daily basis.
    Thanks again for the thorough analysis and the intelligent comments.

  • Alex Guest

    Steve

    Nice article. Spotify is clearly good news for the artists. The labels are also making good money. What about Spotify? With these massive payouts can they ever become profitable? Will any of these startups (Spotify, We7, Deezer…) provide a return to their investors?

    Alex

  • A gift to the music industry | the personal blog of Andy Bold

    [...] recently that Lady Gaga earns $167 for every 1,000,000 plays on Spotify. Musician Steve Lawson did some analysis that shows that one million listeners on radio would net Lady Gaga £9.18 (which is about $14 as I [...]

  • refe

    Steve – you caught the big point that I missed in my own article comparing old radio to new streaming. Per play vs. per listen is really the fundamental difference here, and really does provide context to the revenue issue. Nice work!

  • LondonJazz

    The thing which a lot of people miss here is the sheeer economic scale of MCPS-PRS.

    Go to page 10 of this PDF

    http://www.prsformusic.com/SiteCollectionDocuments/About%20MCPS-PRS/Alliance%20Financials%202007.pdf

    In 2007 total fees collected were £562m.
    2008 will clearly have been down, and to date MCPS-PRS have been very coy about disclosing 2008 figures., let alone any indication of trends for 2009.

  • LondonJazz

    The final quarters of 2008 were the start of recession, which will have hit discretionary spending very hard.

    The US numbers for CD sales were down significantly and there was no way downloads made up the slack

    http://online.wsj.com/article/SB123075988836646491.html

    I think they are still dealing overall with a decline again in 2009, the first half-year, particularly in ther US will have been very slack.

    I presume that coyness is why the figures from the collection agencies are so late. They only have press departments capable of waliking tall while talking about success and they don’t have the moral fibre or the incentive to disclose poor numbers.

    The 2008/9 Gema Annual report talks clearly – again without any numbers produced beyond 2007 – about numbers in decline, and about how they will be making cost reductions but feel a need to remind any concerned readers that they are “successful and financially sound”

    http://www.gema.de/fileadmin/inhaltsdateien/presse/Publikationen/Jahrbuecher/Jahrbuch_08_09/Vorwort_JB_08_09.pdf

    The current round of MCPS-PRS fee increases in live music venues is surely a defence against the downtrend, to lower volumes of royalties.

  • Ian Smith

    Hi Steve! Hope all´s well. The Spotify model seems to be as realistic as micro accounting can get these days, before the rise of the machines (who would then start to think for themselves and destroy the earth etc!). I wish someone would tell Fripp, who´s extremely conspicuous by his absence.

  • If I was an unsigned/indie artist in 2010 I would (in no particular order)… « Sentric Music’s Blog by sP

    [...] of weeks back about Lady Gaga receiving $100 for a million plays on the Spotify service. Click here to read why it’s basically a load of old [...]

  • John Goldsby

    Very insightful writing, Steve. Spotify is still not available in Germany, which I think must be due to the lack of an agreement with GEMA (just guessin’).

    Another development that caught my eye recently was Apple’s purchase of the music streaming site Lala.
    http://www.nytimes.com/reuters/2010/01/15/arts/entertainment-us-mergers.html?pagewanted=all

    At the moment, iTunes (for example) usually sells tracks for .99 US cents for a permanent download. If iTunes starts offering things like custom streaming options, then they might sell the right to always stream that same track for (guessing) only .10 cents. The customer would not download the track or own it, but always be able to call up a specific track anytime on their iTunes device, forever.

    The rates paid to labels or musicians (if they own their music) for streaming are minimal compared to the rates for permanent downloads.

    For the current style of .99 permanent download, (I think), iTunes pays .79 US cents to the label or aggregator, which then has to pay mechanical royalties of about .9 cents, and then artist royalties (if they do that at all).

    For the sale of a streaming track (in the Lala/iTunes style), they would probably pay fractions of peanuts to the rights holders.

    What I really doubt is that the rights collection organizations can really keep track of all of this. PRS, GEMA, Harry Fox, et al will be hard pressed to find a system to track all of the billions of streams, even though everything is encoded. They will be relying on the accounting procedures and goodwill of Spotify, Lulu, etc to report things accurately.

    Sorry for the slightly off-topic detour. To get back on topic, I would say streaming services: good. Yes, stream our music—get it out there. And, yes we can’t forget that streaming services are also businesses trying to make money from and with all of their business partners.

  • Riley

    1. comparing 7.7million plays in one small window of time in a format that the listener can’t repeat over and over with one like the spotify experience of being able to endlessly listen to a track is a bit silly imo.

    also, what do you think about less popular music on indies? where one sale means a hell of a lot more proportionally? 50’000 listens for someone small would be amazing, but on spotify it would make them literally a few pence, if that!

  • Luke "Kip" Owen

    Interesting. I was at a meetup here in Boston on Music Branding 2.0 and one of the panelist talked about how much Lady G got for 1 million listens and everyone was like, “oh my, that model will never work”. Your post really helps put it all into perspective and I’m now back on board the Spotify train. Thanks.

  • Spotify and Lady GaGa « A Cultural Policy Blog

    [...] evidence of the internet destroying recorded music as we know it? Well … no, actually, as Steve Lawson points out: [The original report about the Spotify royalty] does mention that she’s had 20 million paid [...]

  • Jim

    I am very confused about why this comparison would be considered a useful one.

    With Spotify you can listen to any track (that’s on there) any time. In what way is this comparable to radio? It’s more an internet jukebox that obviates adding new titles to a record collection and so should compensate the artist for their reduced record sales.

    My conception of radio: audio stream curated by some other person, who plays what they want when they want. It is ephemeral and so “current” and thus can be useful to publicise the work of an artist in hope of sales. Same for any PRS-style plays such as at a cafe etc.

    My point is that to the listener, Spotify does not replace radio; it replaces recording purchasing with all-you-can-eat subscription. So surely when evaluating the value to the musicians you should compare the revenue from Spotify with the revenue from recording sales, not with radio plays.

    As a Spotify subscriber I had imagined my cash finds its way to the musicians I listen to. There needs to be a better channel for that, and something like Spotify could be it. This article shows this is not happening.

    And I don’t see how Open/Premium/Unlimited makes much difference to that. None of them are any more like radio than the other. Only thing is Unlimited obviates record purchase completely because it works offline.

    Please tell me if I have the wrong end of the stick here. I’m just trying to make the right comparison!

    It seems the dubious practice of buying a CD then ripping it and sharing with friends earns the artist more money than if all those friends use Spotify to listen to it constantly for months. Right?

  • steve

    thanks! Fixed the typo. Glad you like it :)

  • steve

    Hi Anna,

    The comparison is what it is – a comparison between reaching 2 million ears on Spotify with a song (assuming 2 ears per person), and 2 million ears via BBC Radio One with the same song.

    The value in the comparison is that 7.7 million listeners on Radio 1 would be considered MUCH better than 1 million listeners, despite the payout per listener being much higher for the lower listener figure. No-one thinks about radio in terms of cost-per-listen/listener, because that’s insane. Most radio airplay in the UK isn’t paid anyway, thanks to the sample day system that works on all but the biggest national stations.

    So to complain that Spotify didn’t pay enough for 1 million listens is nuts, if you accept that Spotify lite (as opposed to Spotify Premium – a whole different beast with a different pay structure, as far as I can tell) Is ‘listen-on-demand radio’. I’m guessing given the slow rate at which stats reach artists, that all of those 1 Million plays were before Spotify launched its iPhone app, which is a game-changer of a whole other type…

    So the comparison is about

    • the transformation in radio
    • about the bizarre expectations of revenue that people are assuming Spotify is ever going to be capable of
    • and the unwritten notion that any artist is unhappy with the deal doesn’t have to have their music on there if they don’t want to – Spotify is very much an ‘opt in’ service…

    The extra payment from Spotify is what the article in the Guardian says is paid direct to the artist – in my case, it’ll arrive via CDBaby, I guess, the same way I get paid a fraction of a penny for each play-on-demand I get on Napster or Rhapsody. There are rates for such things that aren’t about paying PRS royalties, and, again according to the Guardian article linked above, are ten times the PRS rate.

    As Lady Gaga is both co-writer and performer, I’m assuming the royalty payment is both, though what’s not clear is whether that’s the royalty payment for the track, for her personally, or to her publisher before it’s divided up… It’s just an incomplete stat that means nothing when pulled out as a headline without some context and comparative data.

  • steve

    Krotify,

    that’s the ideology behind Spotify premium – which at last count was 2% of Spotify users, I think. Spotify lite is desktop only, interrupted by increasingly-regular ads and not available off-line.

    If Spotify turns a significant percentage of its users into Spotify premium users, then we have a whole other conversation on our hands, and I’m sure at that point the labels who own a hefty stake in the company would start asking for more of that money.

    Right now, that Spotify ‘ideology’ you speak of is not available to almost all of its users.

    Interesting that you dismiss anything other than digital sales as ‘fan stuff’.

    And as for ‘include’ – what it means is that those 1 MILLION plays on Spotify are part of a digital portfolio that also includes 20 MILLION paid-for downloads. So if it is insignificantly a benefit, it’s also insignificantly a detriment. Unless Ms Gaga has a business plan in which 20 million paid-for downloads and 4 million albums is insufficient to be making enough money to live on and make more music. If that’s the case, she needs to talk to a lawyer and start sacking some advisors.

    Music collections in the Cloud may well be the future. The ramifications of that are fascinating, and the wrangling over payment schemes, price-per-play etc. will go on, but at the moment, Spotify for all but a tiny percentage of its users is not ” all the world’s music whenever wherever” – not by a long shot.

    Right now, it’s online radio on-demand. Radio has always been a mixture of reason to buy and reason not to buy – I’ve heard things on the radio that I was planning to buy and then decided not to having heard them. I’ve also heard songs on the radio so much that I loved but never needed to buy because my listening was satiated by the radio over-exposure. I’m sure those artists who were overexposed on the radio saw that amount of airplay as a good thing, not a bad thing, despite it causing me to never buy the song that had it been a little harder to hear on a day to day basis I might’ve spent a couple of pounds on…

    The radio analogy also works for shared playlists on Spotify – check out Andrew Dubber’s awesome Sunday Jazz Spotify ‘radio’ show. Will people be listening to these tunes instead of buying music? I’m guessing not. Will some people who maybe think they like jazz but aren’t sure where to start going to find artists to explore further, in a digital environment that makes it possible to find that music that they’d otherwise not find? I’d wager that’s a little more likely than the former scenario.

    But I could be wrong. :)

  • steve

    Hi Tim,

    I honestly don’t know. Someone told me it was about 0.2p per play. I think.

    My main interest with Spotify is in being heard. The fact that it’s not costing me anything to have myself findable, searchable, linkable in a library of tunes like that is a wonderful thing. If they’re making money of it, yeah, I’d like a cut, but I’d just rather be listened to than not :)

    I may email CDBaby about it, in the interests of research, and see what the deal is. Almost all of my CDBaby money is either iTunes or eMusic. Seems people are still buying digital music – what a crazy thought! ;)

  • steve

    Sebastian, why do you say they’ll ‘clearly have been down’? What’s the indicator for that? I’m not saying that won’t be, just wondering why you’re so sure :)