Estimated reading time: 6 minutes
If you follow the music business on socials, you may have seen charts claiming that Spotify pays rightsholders less per stream than other platforms do. But is that actually the case? Today, I’m going to do the math to figure out if it is, and if so, why that is, and what you can do about it.
Let’s start with some facts. Spotify is by far the biggest streaming platform active in the United States. Globally, they have a staggering 675 million monthly active users, including 263 million paying premium subscribers. Apple Music, the number two service in the U.S., has a much more modest 93 million paying subscribers.
Table of Contents:
• Payouts per stream
• Payout percentages
• What this means for you as an artist
Payouts per stream
When it comes to per-stream payouts, the highest rates come from Tidal, which pays around 1.3 cents per stream. Apple Music is also near the top, paying close to a penny per stream. Deezer pays roughly six-tenths of a penny, Amazon Music pays about four-tenths of a penny, and Spotify comes in just slightly above three-tenths of a penny per stream. In last place, by a wide margin, is YouTube, which pays seven one-hundredths of a penny per stream.
To put that into perspective, if your song had a thousand streams, Tidal would pay you $13. Apple would pay you $9. Spotify would pay around $3.30. YouTube would pay just 69 cents.
So yes, with the exception of YouTube, it certainly looks like Spotify pays the least. The question is why, especially since they are the largest streaming platform by far. To understand that, we need to look into the streaming revenue model. Every platform pays out a fixed percentage of their revenues each month to rightsholders, which includes labels and independent artists who use distributors like CD Baby and DistroKid.
Payout percentages
Spotify pays out about 70% of its gross revenue to rightsholders. That’s a significant portion of their income. In accounting terms, their cost of goods sold is 70%. Tidal also pays out around 70% of its revenues to rightsholders, while Apple Music pays out about 52%.
So if Spotify and Tidal are paying out the same percentage of revenue, why is Tidal’s per-stream payout so much higher? And how is it that Apple, which pays a smaller portion of its revenue, can still offer a per-stream rate that’s nearly three times what Spotify pays? It comes down to how these platforms generate revenue and how much their subscribers actually stream. With very few exceptions, such as brief free trial accounts, both Tidal and Apple generate all of their revenue from paying subscribers.
Spotify, by contrast, includes a large number of users on their free, ad-supported tier. These users bring in significantly less revenue than the $11 or so that a paying subscriber contributes each month. On top of that, Spotify engages in more bundling than the other platforms, including discounted family plans. They also have a larger global presence, which means more subscribers in lower-income markets.
For example, a paying subscriber in India pays far less than one in the U.S. or Denmark. That results in a lower average revenue per user. Because per-stream royalties are based on overall revenue, a lower average revenue per user means less money available per stream. Tidal has a smaller global footprint and a higher average revenue per user.
So even though both platforms pay out about 70% of their revenue to rightsholders, Tidal ends up paying more per stream because there’s more money to go around. There’s also the issue of how often subscribers stream music. Spotify users stream a lot. In fact, they stream far more than users on other platforms.
This means that royalty revenue has to be divided up among a larger number of streams, making each stream worth less. It’s important to remember that streaming platforms don’t actually set a fixed per-stream rate. They set their subscription prices and they decide what percentage of revenue to pay out. The more people stream, the more that fixed royalty pool gets divided, and the lower the value of each individual stream.
What this means for you as an artist
So what should you, as an artist, do with that information? Should you only release your music on Tidal because they pay the highest rate per stream? That would be a mistake. Tidal only has around 2 million subscribers, compared to Spotify’s nearly 700 million.
I would rather have my music on a platform where more people are listening. More listeners mean more opportunities for people to discover and connect with your music. It does seem strange that the platform with the largest user base, that collects more in revenue than any other paid service, and that pays out a higher percentage of that revenue than competitors, ends up paying so little per stream. But that’s the reality, driven by their business model and user behavior.
From where I stand, the streaming model is broken — at least for independent artists. While streaming works great for the top one percent of artists, it’s extremely difficult for emerging musicians to make meaningful income from such small royalty payments. And now, with major labels pushing for so-called “artist-centric” pricing models, it’s even worse. You’re no longer even paid for songs that get fewer than a thousand streams per year.
So what can you do? You can hope platforms continue to raise their subscription prices, as Spotify has started doing in markets like the U.S. and Europe. That may help a little, but it’s not something you can control. What you can control is how you connect with your fans.
You can give memorable performances. You can grow your email list. You can experiment with the way you release your music, like putting out CDs before you put your album on streaming. You can direct your fans to your own website instead of to Spotify.
You can’t rely on Spotify or the major labels to help you build a career. They don’t care about your success. That’s on you. Spotify can still play a role, especially as a discovery tool.
But once people find your music, it’s your job to turn them into loyal fans who buy tickets, CDs, T-shirts, and vinyl — fans who help you build a sustainable music career. No one ever said this would be easy. But then again, the music business never was.
Want to see the math in action? I break down Spotify’s royalty model visually in our companion YouTube video. If you prefer to see how Spotify’s payouts stack up against the competition and what that means for your music career, give it a watch below!
Tony van Veen
Tony van Veen is the CEO of DIY Media Group, the parent company of Disc Makers and BookBaby. As a college student, he played in indie bands, created his own LPs, cassettes, and t-shirts, and sold them at shows. Today, he collects CDs, vinyl LPs, and concert t-shirts to support the artists he loves.
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