Spotify Growing Globally, But Is It Benefitting Artists?

The music industry saw a boom in its revenue in the early 2000s due to a rise in the popularity of streaming platforms. Since then, the market of music streaming consumption has seen a steady rise every year. According to reports by Recording Association of America (RIAA), streaming services accounted for 62 percent of the revenue in the music industry during the first half of 2017 and it rose to 75 percent in 2018. The previous generation saw the advent of mass pirated music in a market where it could be distributed and consumed for free. It only meant that there was no payout for artists even though their content was massively being consumed. The growth of streaming services only helped shift public's willingness to pay for music. Spotify claims that its availability in the market helps push the users to migrate from piracy to consumption from platforms that benefits the artists. But just like other streaming services, Spotify rates for artist payouts are extremely negligible, even though it's better than nothing.

Revenue distribution

Services like Spotify don't work on physical sales or downloads that pay the artists a fixed price for their content. Spotify works on a market share model. Spotify collects revenue from advertisements and subscription based users and puts it in a pool. It then takes 30% of the revenue as operational costs and distributes the rest 70% to its right holders (labels) who then pay their artists based upon their contractual agreements. This model of payment is called 'pro rata' model. For example, if a user pays 10$ a month for premium and plays 700 streams, 30% of that is kept by Spotify as distributor share. The rest 70%, which is $7 is then dished out to artists and labels, which then is divided accordingly. So we can see, at $9.99 a month, one can get an ad-free subscription - which eventually benefits the consumer more than the artist. Also the income inequality between large and small artists is stark. Top 1% of the artists on the platform and their record labels earn 77% of all artist recorded income. Also the platform ranks third last among a seriously low-paying group, with per-stream royalties averaging just $0.00397 which stands just a little better than YouTube, which pays just $0.00074 per stream. Many artists do not agree with the payout policy like Thom Yorke and Taylor Swift, who have openly criticised Spotify for the same and also had temporarily withdrawn their music from the platform.

Pro rata vs User Centric

Most music streaming platforms work on the 'pro rata' system. How this works is, all the revenue that is generated from the users - by advertisements or subscription - is pooled together. Then it is distributed to the labels or the artists on the basis of the share of their individual streams. People from the music industry would prefer the 'user centric' payment system that differs from 'pro rata' exponentially. Under this system, the pooled payments are distributed based on the pattern of user streaming. For example, if a user pays $10 and listens to artist A and artist B, then A and B are the only ones that will earn any revenue from the from that user. In 2017, The Finnish Music Publishers Association (FMPA) used data from Finland Spotify's premium subscribers to conduct a study and examine what difference the 'user centric' model would make on the revenue distribution. According to the research, under the pro rata model, only the top 0.4% of the artists get about 10% of all share of the revenue. If that model was shifted to user centric, they would only receive about half of that.

Spotify Controversies

Spotify has been criticised for several security breaches and controversial marketing moves regarding changes in various policies. There are theories that include 'pay-for-play' practices - which basically means that Spotify used to take money from labels to put specific songs on the most popular playlists and boost their revenue.  Also, as users of Spotify know, there is an increase in consumption of playlists, especially mood playlists. There has been numerous claims that some of the playlists also have 'blank' tracks that are made to order and are credited to artists that don't even exist. It was alleged that Spotify created various 'fake artists' who made music using Artificial Intelligence to make instrumental tracks and put it on the most listened to playlists like "Acoustic Love", "Broken Heart" etc, which Spotify denies. It was alleged that Spotify generated revenue for itself using this method.

Music Modernization Act, 2018

The Music Modernization Act was signed in 2018. It was supported both by the artists and the labels and looks towards a better distribution of revenue for music consumption in the future. The Act covers three bases - First, the songwriters and artists of the tracks from before 1972 will receive royalties. Second, the Act will improve the way songwriters get paid by streaming platforms with a single licensing database that will be overseen by publishers and songwriters. The cost of operating the database will be taken care of by the streaming platforms. And lastly, the act will collect the royalties unclaimed by the music professionals to provide artists with legal aid for the same.

“The result is a music market better founded on fair competition and fair pay. The enactment of this law demonstrates what music creators and digital services can do when we work together collaboratively to advance a mutually beneficial agenda.” Mitch Glazier, President, Recording Industry Association of America

What's In The Future?

Even though streaming services like Spotify are a great convenience to the consumers, artists are getting ripped off. It is clear that artists aren't getting paid enough for their art. A way to solve the issue is if companies like Spotify and Apple start evolving into being distribution platforms, instead of just streaming platforms, there can be an erasure of middlemen record labels, and both the platforms and the artists will get enough payout that they deserve. Thus the platform can earn money from being the exclusive holder and distributor of content and artists can make more income from their work. With every major player trying to enter the streaming era, it's no surprise that the industry is getting saturated. The future depends on bringing other exclusive features to each platform to get the consumers to shell out more money. All that remains is to see how the industry pans out and how lawmakers make sure that everyone gets their fair share.