Sun, 24 May 2015

Spotify Began In Europe

Spotify was founded in April 2006 by Daniel Ek and Martin Lorentzon, with the dream of making music of collating music and make it easy and accessible to everyone. It began in Europe and was widely received there before it was launched in the US and eventually worldwide.

Controversy Regarding Royalty Payouts

Recently however, there has been controversy regarding royalty payouts, accusing Spotify of not paying artists and labels enough. This was most highlighted by Taylor Swift after the launch of her newest album 1989 when she decided to pull out her entire music catalog from Spotify, saying:

"Music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for. It's my opinion that music should not be free, and my prediction is that individual artists and their labels will someday decide what an album's price point is. I hope they don't underestimate themselves or undervalue their art."

Spotify countered saying that they paid almost 2 million dollars to Universal, the company who holds the rights to Taylor Swift's music but how much she actually got from that amount is a different story. That being said, how does Spotify actually make money streaming music for free?

Spotify Makes Money From Two Sources

Their website's pretty transparent, making all kinds of company information available to their users and even their artists. There's even a separate site for artists called which generally explains how it works. Spotify makes money from two sources. First, free streaming with advertisements in between. The advertisers fund the royalties that Spotify pays out. Second, premium streaming which provides a better experience since it removes advertisements and allows you to skip and save music, features that are unavailable with free streaming.

From the money they make, they claim on their site that 70% of that goes to rights holders meaning the labels or the publishers. The site tries so hard to explain their payouts technically but if you think about it, the artists lose out in the long run and Taylor Swift has a point. This despite the fact that other artists such as Maroon 5's Adam Levine disagree with her.

The amount you make on Spotify depends on how often your music is played. graphs how they paid out their royalties in 2013. They paid as little as $3,300 monthly for niche indie albums and as much as $2.1M monthly for global hit albums. So, unless you are as big an artist as Taylor Swift, you're barely going to make money on Spotify. But then again, that's probably what made Spotify such a hit in the first place.

With other streaming services such as Beats music and Rhapsody, you'd have to pay for a premium package to have access at all to music. Spotify offers one of the widest collections and for no amount at all if you could just be patient enough to live through the annoying advertisements. So compared to other streaming services, Spotify is basically free and accessible to all, as is the dream of Ek and Lorentzon.

Is Spotify Really Making A Ton Of Money?

So is Spotify really making a ton of money on other people's work? With a 30% payout, they just might. If you go back to the whole Taylor Swift debacle, remember that Spotify said they paid almost $2M for royalties to Universal. But Taylor's label, Big Machine is just a part of Universal. It's no wonder Big Machine's CEO Scott Borchetta said they only received $500K from Spotify. That's only 25% of what Spotify paid Universal so it would follow that Taylor isn't fairly compensated given that what she got was considerably less than what they made off of her by just streaming her music.

With a situation like that for such a big name like Taylor Swift then what about the smaller artists? Spotify claims accessible music options like theirs that help reduce piracy. Remember, however, that Taylor's relatively small compensation is nothing compared to that of lesser known artists. Given that all artists are paid according to how many times their songs are played on Spotify, it logically means that less plays (which is out of their control) and small payout (which is their choice but you can blame Spotify) would mean that no one is really supporting their music. It's a sad reality with a lot of gray areas. The convenience of Spotify for consumers competes against iTunes 0.99c per song leaving artists out in the cold.

What is Spotify to do then? With more companies trying to reduce piracy and offer better music services, Spotify will just have to find a way to keep their artists on their streams without undermining their artistic integrity. They're not at a total loss anyway. Sales have jumped over the years with more and more people paying for the premium service. It helps that their advertisements are pretty annoying as hell. You cannot deny the growing in interest in streaming music and actually paying instead of downloading illegally on sites like has increased which is a very positive thing for the music industry and a bigger progress than we've seen in a while.

On a blog post by Daniel Ek one of Spotify's creators on, he answers big misconceptions about Spotify but he starts his post off by saying:

Taylor Swift is absolutely right: music is art, art has real value, and artists deserve to be paid for it. We started Spotify because we love music and piracy was killing it...

...The music industry is changing - and we're proud of our part in that change - but lots of problems that have plagued the industry since its inception continue to exist...

...We will do anything we can to work with the industry to increase transparency, improve speed of payments, and give artists the opportunity to promote themselves and connect with fans - that's our responsibility as a leader in this industry; and it's the right thing to do..."

The question goes back to whether or not Spotify is paying artists enough for streaming their music. Is Spotify just a slightly better alternative than piracy? Ek is right. There's still a lot to be done but maybe it's a just start and for now it could be enough.

More to read:
Spotify or iTunes? The Battle for Music Supremacy.
How Streaming Can Sweep Famous Musicians Into Poverty.
Is Music Streaming a Threat to the Music Industry