How does Spotify pay artists and songwriters? Here’s what we know

LOS ANGELES (AP) — Every day, millions of people use Spotify to listen to music. A few years ago, it would have seemed impossible: Click and boom, a seemingly endless catalog of music opens right at your fingertips.

Streaming now accounts for the majority of money generated by the music industry — a whopping 84% in the United States, according to the RIAA, and 67.3% worldwide, according to a 2024 report from the International Federation of the Phonographic Industry, which tracks global sales.

Spotify is the largest platform of all, accounting for approximately 31% of the total market share, with 626 million users and 246 million subscribers across more than 180 markets.

In July, Spotify raised the cost of its monthly subscription. But how does money from advertisers and Spotify subscription fees move into artists’ wallets?

How does Spotify pay artists and songwriters?

Short answer: They don’t. Spotify pays roughly two-thirds of every dollar it earns from music streams — a combination of paid subscription and advertiser revenue — to the rights holders of the music on its platform, who are paid out in between recording and publishing deals.

Those rights holders are typically a combination of record labels, distributors, aggregators and collecting societies – such as Sony, Warner, Universal, the digital music licensing organisation Merlin that represents independent labels – who then pay their artists according to their contracts.

If an artist distributes their own music, they may pay a small fee to an aggregator or upload service (some popular ones include DistroKid and TuneCore).

A self-distributed artist keeps “the vast majority (of the royalties),” explains Charlie Hellman, vice president and global head of music products at Spotify. Otherwise, this “goes to their label and their publisher.”

Payments to rights holders are determined by a process called streamshare.

Once Spotify pays rights holders, “we lose visibility into exactly what happens after that,” Hellman says.

What is streamshare?

When you walk into a store and buy an album, a percentage of that amount goes directly to an artist. When it comes to streaming, subscription dollars are collected in one big pool and paid out through streamshare — a figure Spotify calculates by adding up how many times music owned or controlled by a particular rights holder has been played in a month in each market, and dividing it by the total number of streams in that market.

Most streaming platforms use streamshare: Spotify, Apple Music, Amazon Music, etc.

Hellman explains that “any fraction of streams” a rights holder has on Spotify is “the fraction of total payments that are paid” to them. “We calculate that by market,” he says.

So if a rights holder like Universal Music Group accounted for half of all streams in the US, it would “get half of all revenue generated in the US.”

Liz Pelly, a journalist whose first book, “Mood Machine: The Rise of Spotify and the Costs of the Perfect Playlist,” is due out in 2025, says the streamshare system has been criticized for “benefiting artists who generate the most streams” and “major labels that already have a lot of market share.”

In recent years, she’s seen artists’ organizations and independent artists’ unions call for a shift to a user-centric system. Under such a system, royalties would be paid directly to rights holders based on what each user streamed. Essentially, if you only listened to Charli XCX this month, she and the rights holders of her music would receive roughly two-thirds of the revenue generated by your subscription.

How much do musicians earn per stream?

You may have seen a popular metric suggesting that artists earn, on average, between 0.003 and 0.005 cents per stream. But because streaming platforms don’t pay artists directly, that number isn’t exactly accurate.

“This concept of the streaming fee is one of the most misunderstood aspects of the music industry,” Hellman says. “There is no streaming fee.”

To put it more clearly, a listener spends $10 on their monthly subscription. Three of those dollars go to Spotify, the other seven go to the rights holders. (Currently, the individual subscription plan costs $11.99.)

“If they had just one stream a month, the payout would be $7 per stream. But if they had 700 streams in that month, then the actual payout per stream would be one cent,” he says.

Pelly notes that artists deduce that they earn “fractions of a cent” in royalties by looking at their statements. “And that is significant.”

They are “symbolically important,” he adds, although inaccurate, “because they communicate the reality that many artists are seeing – very little payment for digital services.”

Los Angeles experimental artist Julia Holter, whose sixth studio album “Something in the Room She Moves” was released in March, says artists receive what amounts to fractions of a cent.

“Spotify’s current model doesn’t work for most artists, in the sense that you can’t easily make a living off of streaming alone,” he says. “The math here is very complicated, which is part of the problem.”

“There are a lot of artists who struggle to make a career in the streaming era because things are set up in ways that are inaccessible and opaque,” Pelly adds.

And many musicians don’t make music in ways that are “specifically tailored to the way streaming services make money… The system is set up to reward artists who generate a large number of streams.”

But not all music works like that, he says. There are “certain artists who make the kind of music that you might not listen to in the background for hours and hours, or who make music in long-form compositions, not in short two- or three-minute tracks that you might load up a playlist with.”

In 2024, Holter is one of those artists: it’s been five years since her last solo album, and her latest release has a few six-minute tracks. If streaming demands short songs, viewing “music as content,” she says, is “the antithesis of creative people.”

Are there situations where artists are not paid?

In April, Spotify began eliminating all payments for songs with fewer than 1,000 annual streams in an effort to boost revenue for what it calls “emerging and professional artists.” As a result, those with a higher percentage of streamshare revenue will receive an even larger cut, pooled from artists with fewer streams.

Hellman argues that because there is a minimum threshold that must be met to get money from a distributor, artists with fewer than 1,000 annual streams are not eligible to collect royalties. (On DistroKid, it’s $5.35; on TuneCore it’s $1 via PayPal.)

“There was an increasing number of users putting in tracks that were $0.03, $0.08, $0.36,” he said. “All those pennies that were sitting in bank accounts all over the place were siphoning money away from artists who were actually doing this, like aspiring professionals.”

Are there any expected changes to the way streaming royalties are paid?

In May, Spotify announced it would add audiobooks to its premium subscriptions, resulting in a lower royalty rate for American songwriters, according to Billboard. They estimate that songwriters and publishers will earn $150 million less in royalties in the U.S. from the premium, duo and family plans over the first 12 months it is in effect.

Politicians are taking note. In March, U.S. Reps. Rashida Tlaib and Jamaal Bowman introduced the Musicians Living Wage Act in partnership with artists and industry workers at the United Musicians and Allied Workers organization.

The bill proposes new streaming royalties, which would be paid into an Artist Compensation Royalty Fund, which would ensure that artists receive at least one cent per stream. It is a direct payment from streaming services to artists, without any middlemen.

The new royalties would be funded through a 10% levy on streaming platforms’ non-subscription revenues and an additional subscription fee.

The law “suggests that the current system is not working for artists,” Pelly says.

Holter, who works with UMAW, is optimistic about the bill, suggesting that “if streaming services are going to raise prices anyway,” this is an opportunity to make sure artists — and not just major label artists — are compensated fairly, without fundamentally altering how the system currently works.

“I think this will benefit everyone,” he says, “including streaming services.”

Earlier this year, Hellman did not comment on the act, but stressed that the easiest way to get a penny per play is to get people to play less music.

“I think obsessing over what ‘average revenue versus total streams’ is really distracting us from what we’re trying to do as an industry, which is get more people to pay more money for music so we can pay artists and rights holders,” he says.

“Spotify has every incentive to maximize revenue because we get to share 30% of it. And that’s why we’ve been raising prices,” he says.

“We’ll continue to raise prices as much as we can. That’s going to maximize revenue. But if you raise prices too much or restrict value too much, you’re going to drive people away from the subscription, back to less productive behaviors like piracy. And I don’t think anyone wants that kind of thing to happen.”