Spotify doesn't make profit from music streaming, despite having over 400M monthly active users, because it pays two-thirds of all its revenue to the rights holders.
Why Spotify Struggles to Make Money from Music Streaming
Sometimes, I see some of the takes on here, and it's hardly surprising that the fediverse isn't particularly popular.
Spotify are somewhat responsible for their current position. They hired too many people, extended into markets they didn't need to enter, and have a CEO that has blown money in places that didn't need it. Let's not forget that Spotify spent $300m on sponsoring FC Barcelona, which could have allowed Spotify to employ ALL of the employees it laid off for 1-2 years. Spotify had no need to give $200m to Joe Rogan, either! That's half a billion spunked up the wall on decisions that have done nothing for the company but cause grief. Instead, they could have focused their efforts on paying more out to smaller artists that provide the long tail for their service, while also making deals to promote merch and tour dates where possible.
With that being said, if you think that Spotify didn't play a huge part in making music streaming accessible you're just being contrarian for no reason. They provided (at the time) a solid application, good connectivity with services like last.fm, and had the social connection sorted from the start. Once phones took off, Spotify removed the need for mp3's for the majority of people, largely killing iTunes. Spotify was the winner of the music streaming wars.
Frankly, a lot of people were praising Spotify for their "good" severance package, but IMO shareholders should be livid, and should be calling for a new person at the helm.
Completely agreed. If they focused on their core business they would've already been in much better shape.
I doubt Joe Rogan and Barcelona has only caused grief. There’s a reason huge companies throw absurd amounts of money on advertising and right deals. It’s often lucrative and worth it.
As we don’t have the numbers we can only speculate in what return they got on those deals. But it was most definitely not 0.
Tour deals, merch and independent artists are great, but you do not reach critical mass when it comes to a general audience that way. It’s basically like trying to advertise on the Fediverse versus advertising on Reddit.
Marketing like that doesn't have solid numbers. Did sponsoring FC Barcelona cause people to signup to Spotify? How many? How much revenue did they get from each one?
Even when people fill in the "where did you hear about us?" option during signup, the data there is murky, at best. You can try to do tracking like "we saw a 20% increase in signups during and immediately after FC Barcelona games", but that's still just a proxy measure. Maybe it isn't 20%, but more like 2%, and that could easily be noise.
These deals tend to have an amorphous "increase in brand awareness" that has little hard data to back it up.
Yeah spotify did wind up how most people listen to music, and podcasts. They had what people wanted and made it cheap. Then they also made a lot of decisions that wasted money. Dont know for certain but i doubt the exe there stopped geting big bonuses or pay cuts over those decisions
In it's whole history, Spotify only made profits in two quarters and if I'm not wrong the other streaming services aren't profitable either so it doesn't looks to me that the problem is just over hiring but the nature of streaming business itself You also underestimate the power of sponsorship especially sponsoring sport. I'm sure a lot of people are using Spotify just for that. Investing in podcast make sense because it's more profitable than music, Spotify need to diversify it's revenues. You said that Spotify have good connectivity with lastfm but that's not true. Most of issues lastfm users have with lastfm is related to Spotify.
Spotify has a lot of Blockbuster energy, but with a mixture of something far worse, since they did indeed stand by Rogen and profit off him.
IMO shareholders should be livid
Why? Shareholders gave Spotify billions of dollars - they expect the company to spend that money. Shareholders are quite capable of depositing their own money in a bank if they didn't want it to be spent.
My take is Spotify hired over 5,000 employees over 2020 and 2021 when the economy looked great. Then Russia Invaded Ukraine in 2022 screwing the global economy and particularly Europe which is Spotify's biggest market. They've laid off about half the people they hired, which is unfortunate... but it's understandable. The couldn't have foreseen the economic shift.
Spotify removed the need for mp3’s for the majority of people, largely killing iTunes
Huh? Apple's music service has about a hundred million users. Up from eighty million a few years ago. Spotify has more than twice that, but iTunes is hardly dead.
Sometimes, I see some of the takes on here, and it's hardly surprising that the fediverse isn't particularly popular.
You genuinely think the reason the fediverse isn't popular is because people have negative opinions of Spotify? As if these opinions wouldn't also be prevalent on Reddit? As if having to see opinions you didn't agree with was ever holding reddit back to begin with?
And yeah, Spotify made music streaming accessible, but the overall problem is they did what all tech companies at the time did: burned money to establish themselves hoping the profit would come later.
You're praising them for killing iTunes, but maybe iTunes didn't need to be killed. Maybe breaking markets with a type of streaming that wasn't profitable and fucked over artists has given us a few years of good streaming, but the honeymoon is coming to an end, and we'll all be worse off when the stockholders start demanding profit.
Same thing that happened with YouTube, basically. Company runs something at a loss for so long they've effectively broken the market and now that it's time to make money, we're all fucked over.
No it's not because people here don't like Spotify, but the stupid ass takes y'all have that lead to Spotify hate bleed through in half the other content on here that people don't like either.
That fact that you thought ops comment was about disliking Spotify specifically reinforces it.
YouTube is fucking you over because they're trying to get rid of freeloaders? How entitled.
I call bullshit. Yeah I'm sure they spend 2/3 of their income on rights holders, mainly Joe Rogan, Ed Sheeran and Taylor Swift.
The average musician isn't making shit, and yet the spotify execs are sipping champagne.
"not making profits"
Just massive salaries and equity
You know they don't pay the artist directly? Like with physical the ones taking the biggest share are the labels... Also the average musician isn't making shit cause compared to a very few bigger artists they represent an extremely low percentage of the overall streams on the platform.
Average musician probably makes more than you think https://youtu.be/qjb-pJIfQXI?si=Zbi54GvD3NqomIrv
Taylor Swift somehow being a hallmark of the times makes me wish the whole world would end in a giant ball of fire.
Man, a lot of people here don't understand how the music industry works. From the perspective of someone who's been loosely following the music industry, what I've learned is that it doesn't matter if Spotify gave up 2/3rds of their revenue, or 100% of it, the artists would still make fuck all.
Why?
The labels love taking their cuts and as a result, artists make very little. Instead of taking the blame for giving artists a <10% cut of the label's revenue from their music (my understanding is that it's pretty common for musicians to get <10%, sometimes <5% if you're on a particularly shitty label), the labels are blaming platforms like Spotify.
Now, I'm not saying that Spotify is blameless, however I think there's a lot of misdirection from the labels going on. I don't remember anyone complaining about pre-spotify services like Pandora Radio for not paying out enough when they were largely ad-supported, which is another reason I'm not totally buying the, "it's cause it's free" argument either.
Fuck, remember Pandora?
Labels are an outdated concept that needs to die. Now that you can find any music from just a quick search artists shouldn't have to rely on them, at least not as heavily, for advertising.
Relatively “large” truly independent bands like KNOWER are starting to give true home recording a base of proof of functionality.
Power to bandcamp.
Why isn't there some kind of genre music search for all artists without a label, Foss of course. From what I understand, when you're starting out in music, getting people to hear it is the hardest part.
Artists aren't forced to sign a contract with a label. They do it because they want to.
They do it because the label will often invest a million dollars in the artist upfront before the songs are even available for the public to stream.
Good recording studios are expensive to hire. And if you want a video track to go with it... those are even worse.
Ehh, you've got a different but similar problem these days. Before, it was hard to get the word out so even finding new bands was difficult. Now, there are so many artists that you've got to find a way to stand out. Still need marketing. That's what labels provide.
Pandora didn't replace buying music. They did not add the "on demand streaming" option until after Spotify was prevalent.
I still use pandora free daily!
Lots of people still use, and even pay for, Pandora.
Do you know how the merch shops works? Spotify seems to be a reseller of some kind. How many % of the money is going to the artist usually?
Not talking about Spotify merch, didn't even know that was a thing. I was talking about buying merch from the artist themselves.
I'll take "Unethical accounting" for 500, Alex
And the artists still don't really make shit from it.
It was them or Joe Rogan
How is this news? The price you pay for media of any kind I can think of goes mostly to the rights holders, not the companies physically delivering it to you. You may object to the rights holders being shitty record labels, but that term also includes independent artists. And more to the point, rights holders are by definition the people who are entitled to profit from selling access to the media they own.
If you want to get pissed at someone, get pissed at the record labels sharing a ridiculously small part of their licensing fees with the artists who make their product.
Ugh, yes poor poor spotify, fuck that. Artists can't even make a living making music anymore thanks to spotify. Fuck off blaming artists for trying to get paid. Fuck this article. Oh no it only gets a third of the revenue?! Abhorrent, no it should get ALL the revenue, for doing what, having a server with music on it. Amazing. Fuck spotify.
Is Spotify the villain here or is the “big three”? Because it sounds like Spotify is delivering a service and deserves some profit from that.
But what are the big three doing? Seems like they are just skimming because they hold the IP rights. Are they providing any service?
Spotify is definitely not the villain here, they have created the best music streaming platform in the world. The big publishers also can't be called the villains per say, but it wasn't so nice of them to force a small startup (Spotify in it's early days) to sign contracts that will permanently force it to payout about $0.66 out of every $1 it makes.
Spotify picks it's price point. It's picked a price point (free) that meams artists can't get paid. And it's price point (free) means that artists can't compete either.
So yeah fuck spotify, pay artists what they are worth and having servers to download mp3s on isn't worth taking 1/3rd of the revenue. They should get less not more. Adjust their prices (maybe it shouldn't be free so artists can fucking pay rent and spotify can pay employees)
Blaming artists for wanting to pay rent and eat food is some bootlicking bullshit.
Have you ever looked into the operating costs of having a server with music on it which over 400M monthly active users use?
I actually work in cloud engineering and regularly price this kind of thing up.
Their costs are salaries not aws bills.
Not that high. Spotify uses some pretty tight compression (not good, just tight); most users get 96-128kbit/s AAC, premium can go a bit higher if opted in. That works out to about 16KB/s or 58MB/hour, assuming nothing's cached.
Bandwidth pricing very much goes down with scale, not up. But even the non-committed AWS pricing at Spotify's scale is 2 to 3 cents/GB. You end up paying way less than that with any kind of commitment and AWS isn't the cheapest around to begin with.
Wooh. 👀. This isn't Spotify's fault. They can't pay artists if they don't have money.
To be fair- Spotify priced the service that doesn't make enough profit to pay artists adequately.
Is that your blog or whatever you keep posting?
Yes, it is. It's entirely spotifies making. It's the situation spotify has created. And the answer is absolutely not 'starve artists even more than we do today'.
Haha. Don't be shocked by the reaction. We live in a world where a certain portion of 'people' Believe every thing should be free and corporations don't need money at all and should just be willed in to existence and live off of the ether.
Etc. Etc. Rich people bad
Equity.
In total, at the close of last year, SEC documents show that exactly 65 percent of Spotify was owned by just six parties: the firm’s co- founders, Daniel Ek and Martin Lorentzon (30.6 percent of ordinary shares between them); Tencent Holdings Ltd. (9.1 percent); and a run of three asset-management specialists: Baillie Gifford (11.8 percent), Morgan Stanley (7.3 percent), and T.Rowe Price Associates (6.2 percent). These three investment powerhouses owned more than 25 percent of Spotify between them — a fact worth remembering next time there’s an argument about whose interests Spotify is acting in when it makes controversial moves (for example, SPOT’s ongoing legal appeal against a royalty pay rise for songwriters in the United States).
Furthermore, according to MBW estimates, which my sources suggest are still solid, two major record companies — Sony Music Entertainment and Universal Music Group — continue to jointly own between six percent and seven percent of Spotify (Sony around 2.35 percent and Universal around 3.5). With Sony and UMG added into the mix, then, the names mentioned here comfortably own more than 70 percent of Spotify.
https://www.rollingstone.com/pro/news/who-really-owns-spotify-955388/>
And yet, they still aren't even close to the highest paying service when it comes to musicians getting their cut.
https://dittomusic.com/en/blog/how-much-do-music-streaming-services-pay-musicians
It's hilarious that Napster now tops the list. I use Tidal, myself, since it's got great quality audio. Spotify is horrible quality for 2023.
Spotify is horrible quality for 2023
To my surprise, even Spotify's standard (not high or very high) is extremely difficult, if not practically impossible for the average consumer to differentiate from lossless (on better than consumer grade hardware). Upon hearing this, me and several friends decided to test it for ourselves by taking lossless files for several songs and resampling them to the same codec and bitrates that Spotify's standard quality uses, then ABX testing the before and after with Foobar's ABX and exclusive mode plugins (also tried the popular comparison website, but that's apparently less accurate). One of my friends had access to a college studio, I have a dac and sennheiser, and the third had sony wxm4s. To our surprise, none of us could consistently differentiate the two. Its not perfect considering we didn't grab the outputs directly from the streaming platforms, but that would've added extra variables like volume normalizing (louder sounds better).
Our conclusion is that the quality "difference" is likely placebo and probably a waste of bandwidth.
i figured having volume normalizer off would be the best quality
i think a lot of people that complain about the "bad" quality simply have the volume normalizer on, which makes the quality worse for some songs
I wholeheartedly disagree. I have more trained ears then most (worked in video production), but not by much, and when i got my AirPods Max, I thought they sounded awful at first. They were crunchy and dithered sounding in this weird way. I was gonna return them, but I did some testing, and discovered that I was hearing Spotify compression. I turned up the quality as high as it would go in the settings, and that made it a little bit better, but I could still hear it, and can to this day. I did some further testing by signing up for a tidal free trial, in addition to Apple Music. Listening in lossless was an entirely different experience, I could definitely tell the two apart blindly, without even specifically looking for sound quality. There were like 2 to 3 instruments in a given song that I wouldn’t be able to pick out in the lower quality audio, that I could easily pick out in the lossless audio. You have to have a pretty decent pair of headphones to be able to hear it, but some of the higher and consumer stuff can definitely hit that level, and when you do, it’s not something you have to go looking for, it sounds very obvious.
as a young 20 year old i doubt those services have new music. Spotify has albums SAME day
im sure that works great for oldies like blink182 tho
They do
If you want to support an artist pirate their music and see them in concert.
This is outdated and bad information. Most small artists lose money touring. Bigger artists might break even.
If you can buy merch, do that, if you can buy physically do that. Spotify is gonna pay pennies for thousands of streams, so nothing you do on spotify is going to benefit an artist. But "pirate and see live" is probably gonna result in a negative bank balance for artists.
Nice try ticket Master!
Lol. Yes, ticket service fees, venue fees, and reseller makerts is totally the best way to support an artist, especially if you live no where near a tour location.
I will be ready to pay for Spotify again if they bring that.
Honnestly Deezer Student has "HIFI" file on in so it's great for me But I'm quite certain when Spotify HIFI will be launched I'll already pass on to Quobuz because I wont be a student anymore
This is probably why you get a nearly endless stream of covers and remixes if you just let Amazon Music play random music.
This is why I thought some of their recent actions that hurt the lowest played artists was strange, you want to encourage artists to NOT use the big publishers to help break their triopoly.
I think the most recent changes are fine in practice, but the optics are not great which probably matters a lot.
Exactly, Spotify is stuck between pleasing artists and the big publishers.
Even the smallest artists are making more than 1000 streams yearly. The only ones they are hurting are AI generated songs.
FYI it's 1000 per track per year, not per artist.
I agree though, I went through my instrumental playlist which has loads of indi stuff and the smallest I found had 10,000 plays
Edit - looks like I got a notification for this 4 days late....
How much money would they want to skim to distribute the music? 33-66 split doesn’t sound so bad considered that they don’t produce the music, sign artist, promote them, etc
They can always start their own label if they believe that vertical integration will be more profitable for them.
They tried that with podcasts and it didn’t go as planned
33% is a massive amount for effectively just being a download service. massive
For reference, the Steam store of the gaming distributor Valve charges 30% of each sale, however the Steam service provides quite a bit of incentive. Having community and discussions easily accessible, cloud storage that links to screenshots and saves, branches, I'm sure there's more.
Meanwhile Spotify gives you, what, playlist creations?
Distributing the music is basically free these days - at least for the artist/label anyway. Artists can pay about ten bucks (per album) to various cloud services which will handle distribution - and that includes global physical CD distribution (via an online store, not retail stores). That cost is often $4 per disc and paid by the purchaser.
Recording an album and music video can cost a fortune, and marketing the album can cost an infinite amount of money. That's where the record label spends most of their money and it's not a fixed figure - it gets negotiated for each album. AFAIK the split between the artist and label usually varies depending on wether the label's investment has been paid for yet. And marketing is an ongoing expense, the label can keep spending money on that indefinitely (and the artist probably wants them to keep spending money on marketing).
Profit can be distorted based on how much you're paying your employees.
In this case royalties paid out to imaginary property holders means spotify is functioning exactly how it should. Those people are profiting, spotify's employees are being paid. Everyone directly involved has more money than they need.
except tht artists, which is more the fault of the rights holders in this case really...
I mostly listen to smaller bands and buy their stuff on Bandcamp. It sucks that Bandcamp was sold (twice now) and will probably go down the shitter, but that seemed like a more sustainable model. Also buying music is nicer than renting it for me.
Team Bandcamp as well. I'll be sad if it degrades. My hope is it survives long enough to be discovered by everyone as they get sick of the shit music streams on Spotify, Pandora and their ilk
Poor Spotify. Here's a Link to a documentary about the dark side of Spotify, by Slightly Sociable. Their illegal business, extortion of artists and support for scamming.
They just want your personal and behavioral data to sell to third parties for shady purposes
How does me listening to "I'm Blue" on repeat help, especially in case of AI? I fail to see the connection.
And snoop dog complains after receiving a measley $45k from one billion streams.
My Spotify wrapped had a special message from Weird Al (I know, I have great taste!) with the following:
“It's my understanding that I had over 80 million streams on Spotify this year. So if I'm doing the math right, that means I earned $12, so, you know, enough to get myself a nice sandwich at a restaurant. So from the bottom of my heart, thanks for your support. And, uh, thanks for the sandwich.”
To determine if this company is actually a poor widdle guy or just trying to look like their hands are tied with respect to paying artists, look up how much Daniel Ek is worth, and then look up what he does with his money
You do know even without Spotify artists would be getting paid the same amount by their label?
Spotify splits 70/30, that 70% goes to the rights holder. So why aren’t the artists seeing it?
It used to be artists didn’t make money on albums annd only from merch at tours, nothing has really changed in the music industry.
Indies are on spotify, and spotify pays them badly, too.
Still not paying for it.
Amen! Ownership counts!
ok. they should get a job then. pull themselves up by their bootstraps
Yeah it's all the fault of the rightsholders. Definitely not bad management.
Not that I'm a fan of rightsholders but this is more like shifting the blame.
400m subs x 100$ a year on avg = 40 billions in revenue. Even if only 25% e.g. 10 bil is retained by Spotify it's a lot of money to maintain infra and pay stuff.
I believe Spotify is largely responsible for its own financial struggles. Knowing that 2/3 of their revenue goes to the greedy labels, they should consider scaling back on operational costs and excessive investments in advertising and celebrity podcast deals.
In a way, it serves them right. Spotify plays a significant role in transforming music into a product akin to fast food, prioritizing mass consumption over artistic value. This approach not only impacts their profitability but also contributes to a broader devaluation of music as an art form.
So fuck Spotify.
Spotify plays a significant role in transforming music into a product akin to fast food, prioritizing mass consumption over artistic value.
Have you never heard of Top 40 before?
Absolutely, I'm aware of the Top 40, but my point is about how services like Spotify are amplifying the dominance of this type of quickly digestible music. While the Top 40 has always reflected popular tastes, Spotify intensifies the focus on ephemeral hits rather than promoting a diverse range of music and independent artists. Additionally, the technology behind Spotify, where artists or labels aren't compensated if a track is skipped within the first 30 seconds, further influences this trend. It shapes not only what we listen to but also how we value music.
BLITZSCALE BABY
For a company that has revolutionized the music industry and changed the way we listen to music, one would expect Spotify to be making a lot of money.
How has spotify "revolutionized" the music industry? Are thy doing anything new? Streaming isn't new, yearly reviews aren't new, freemium isn't new, discovery isn't new... Is the revolution that it's now a standard target for artists?
Spotify literally changed the way people listen to music by being popular enough that the general way of listening changed from a purchase, listen forever model. To a listen to anything you want and never not have anything new, way of listening (but you don't own anything).
A song is no longer worth a purchase of a cd, or dollar at itunes. It's worth the 3 minutes of listening that it gives you when Spotify recommends it to you.
Obviously I'm biased. And also, yes, there were streaming services before Spotify, but nobody that mattered and with the influence of Spotify.
Hmm... fair point.
CC BY-NC 4.0
Honestly, Spotify is only half bad compared to the real scumbags of this industry, and that's the "rights holders".
It's not the artists who created the music I'm talking about. It's the record companies taking the largest piece for themselves.
They are the ones earning on other people's talent and success.
But...but...muh "discovery"
I'll die on that hill. 90% of the artists I listen to, I found through spotify's algorithms.
Well, their CEO Daniel Ek's investment company Prima Materia "invested €100 million ($114 million USD) in Helsing, an artificial intelligence company based out of Europe that assists in military technological ventures. "
So I'm happy to take my *streaming business elsewhere.
After being the earliest adopter of free and paid that I know personally (and I work in tech), Joe Rogan was the nail in the coffin for me. I was already paying for YouTube premium (download for subway, and close screen while playing) and saw music was included so the decision was simple.
This was also exactly why I moved away from Spotify.
What does a record company even do? Why do they have rights?
In the day and age of streaming sercices like Spotify, record labels/companies like Sony Music etc should not exist IMO.
Back when people purchased their music from brick and mortar stores on vinyls, cassettes, and CDs, they had a place to facilitate a relationship with distributors etc to get your music on the shelves, handle marketing and a bunch of other stuff. Nowadays, this all can be done digitally, independently.
Edit: clarify record label
Basically they fund artists to record and then handle things like promotion.