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How Do Spotify Royalties Work? (Spotify Payments Explained for Musicians)

  • Damian Keyes
    Damian Keyes
  • Mar 14th 2022

The Swedish audio streaming platform Spotify is one of the world's most important players in today's music industry. Over the last decade, they've become the central figure in how music is streamed all around the world. With over 400 million monthly users, Spotify has the highest market share over any of the other major streaming services such as Apple Music and Amazon Music.

With all this market dominance, you might think the way Spotify pays artists their streaming royalties would be simple, or at least well documented.

Sadly, that just isn't the case, and the truth sometimes can sometimes seem deliberately opaque, especially for musicians, who are usually the last to see any of the money from streams.

This article aims to make the inherently complicated royalty payment process a lot clearer for musicians.

How Do Streaming Services Like Spotify Make Money?

The first thing to consider is how Spotify itself makes money.

Its two main sources of revenue are Spotify Premium listeners' paid subscriptions, and money from the adverts played to Spotify Free tier listeners when they stream music.

With a chunk of this money from premium subscription fees and ads, Spotify then forms what they call a ‘royalty pool’ from 2/3rds of the net revenue collected, out of which the music rights holders are then paid a ‘streamshare’.

Spotify phone headphones

How Much Does Spotify Pay Per Stream?

According to Business Insider, Spotify pays artists and rights-holders on average between $0.003 and $0.005 per stream.

However, this is a gross oversimplification of the way Spotify royalties actually work. Let's look at why focusing on Spotify's pay-per-stream numbers isn't going to give you an exact answer.

The Pay-Per-Stream Fallacy

It’s highly likely that you’ll have heard talk of how much Spotify ‘pays per stream’ — quite possibly alongside a critique of how low that amount appears to be.

And while headlines about fractional per-stream amounts are a good way to stir up public interest in how little artists are generally getting paid for their music on streaming services, the truth of how much artists are paid for their streams is slightly more complex than a given number.

Now, that's not to say that calculating a pay-per-stream amount is a completely useless endeavour; it can be useful to work out and look at these numbers as a guide to roughly how much money an artist earns (potentially) from a given number of streams.

But since there are so many factors that determine exactly how people listening translates to how much an artist makes on their songs, the actual amount artists are paid based on a single stream is highly variable.

As such, most artists won't find an arbitrary pay-per-stream estimation a useful figure for working out their streaming income.

Spotify’s system of handing out royalties doesn’t work on an arbitrary set rate based purely on how many streams artists receive. Instead, the streamshare system for working out the money owed relies on distributing specific proportions of Spotify’s revenue from subscription fees and advertising.

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How Spotify Works Out Royalty Payments - The 'Streamshare' System

We've mentioned that Spotify royalties are calculated by “streamshare”.

But how exactly does Spotify pay the correct amount, and how is this calculated?

Where Is Your Music Being Streamed? Here's Why It Matters

Although Spotify is an international company with a service that’s available all around the world, the streamshare is actually calculated on a separate basis for each market.

This means that the total royalty pool for each country is based on the revenue for that country.

Spotify considers each country a separate market, and the money is divided accordingly based on how many listeners live there, and the number of streams there are in total compared to the revenue made in that market.

Artists focus on getting more Spotify streams, but it's worth knowing where these streams are coming from.

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How Does Spotify Work Out The Streamshare?

For each market, the streamshare is calculated by adding up the total number of streams in a month.

A given rights holder’s total music streams are then divided by this overall total number to determine the streamshare.

The streamshare is thus a proportion of Spotify’s revenue for that market.

And because different markets have different subscription prices and different total stream counts, the streamshare is going to be massively different between countries.

The bottom line is: there is no consistent arbitrary flat fee per stream.

In simple terms, this means that if you, an artist, were to receive 1 in every 10,000 streams in the United Kingdom, you’d receive £1 out of every £10,000 that Spotify pays to artists out of their particular royalty pool for the UK.

Every month, the numbers that make up the streamshare for each market are going to vary. That’s why Spotify can’t say you’ll get X amount of royalties for X amount of Spotify streams.

Because of the way streamshare is calculated, the amount of monthly royalties you’d get for streams on your tracks is highly dependent on whereabouts your music is streamed and Spotify’s own revenue for that market.

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Collecting Your Royalty Payments

Spotify doesn’t deal with the artist directly.

Royalties for streams are paid through a middleman — for an independent artist this means their music distributor/aggregator (the same service provider that uploads your music to Spotify) and for artists signed to a record label, this will be their major label or independent label.

Spotify tallies the listens and pays out a proportional amount to the distro. The music distribution company is the one that pays you, not the music streaming service itself, and there may be a delay between the distribution service receiving the money and actually paying out to the artist.

Distros vary of course, but generally, the process for collecting your streaming payouts will be that you log in to your account with the distribution service, choose your payment method, and then request that the money be transferred.

Bear in mind that the distro might have a minimum amount that they can transfer (so that potentially you mind not earn anything until you reach a significant number of streams) or they might charge a small transaction fee.

It's worth finding out if these things apply to your distro in advance of signing up with them.

Some distros might even take a percentage of your earnings in return for charging less to get your music up onto Spotify. Again, it pays to know these details of the distribution contract in advance.

Here is a breakdown of the different music distribution companies and how they operate.

Songwriters: Don't Forget To Collect Your Publishing

If you are a songwriter as well as a recording artist, it’s very important to note that the royalties you receive from your distribution service are likely to only be from recording royalties — that is, from the master, or sound recording of the song, rather than the composition itself.

Nearly all of the distribution services available today by default don’t go anywhere near the publishing royalties which are owed to songwriters. If you were responsible, or partly responsible, for coming up with the music or lyric of a song on Spotify, then there will be a publishing royalty destined for your bank account, and merely collecting royalties from your distro means you're likely not receiving all the money you're owed.

Many artists, especially independent artists, miss out on collecting more money from the publishing side of their royalty. It's one of the most common ways to earn money as a musician, so don't forget about it.

Some distros might offer a publishing add-on at an additional fee, but for songwriters in most countries this is redundant, as you'll have a local Performing Rights Organisation that is responsible for collecting publishing royalties.

Therefore, if you’re also the songwriter or composer of your music then you’ll need to look into signing up with a Performing Rights Organisation in order to collect the publishing royalties you’ll be owed from streams.