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The Truth about Spotify. Part 1

Streaming accounts for 37% of all the revenue from recorded music and with over 220million subscribers and a market share of 36% Spotify are by far the market leader in music streaming. In fact, more than 1/8 of all the revenue from recorded music, including physical sales and downloads, comes via Spotify. So it’s really important, as independent artists, to fully understand how the platform works and how to get the most out of it.

Part 1. Hit or Myth?

First of all, we need to dispel some of the myths around Spotify. Many of the reasons people give for not using Spotify, both as a listener and as an artist, are generally false often based on a lack of knowledge and understanding of how the streaming site actually works. The aim of this article is to try and correct some of the misconceptions and offer some practical, actionable advice on how to make the most of this platform, so let’s start with the myths.

Myth 1. Spotify algorithms favour tracks by major artists more than independent artists.

One of the biggest myths around Spotify isn’t even to do with how much they pay artists and other such hot topics. It’s all about the user experience, probably the most repeated falsehood about Spotify is that their playlists and playlist suggestions are programmed to favour the biggest artists. Many people give this as the reason they refuse to sign up as a listener, they have a specific taste in music that they don’t think Spotify will cater to. This may be true of other streaming platforms but on Spotify, the algorithms that pick the songs do not unfairly favour bigger artists.

I have used both Spotify and Deezer as a premium subscriber and had a very different experience with the two streaming platforms. Deezer allows the user to both like and dislike artists and songs, this is supposed to improve the search results and suggested playlists such as Deezer’s “Flow” feature.

I had only searched for reggae, soul and 90’s hip hop yet the app kept suggesting and playing things like Little Mix and Zayn Malik, despite me clicking dislike on both artists and also on associated artists like One Direction. I even got bombarded with emails promoting the Zayn Malik album around the time of its release. It was obvious that Deezer had been paid to push this particular artist on listeners, and it prompted me to cancel my subscription.

I joined Spotify and the experience was like night and day compared to Deezer, after using the service for about a month it started to “learn” my tastes and the suggested playlists like “Spotify Weekly” are now full of great songs I love, both ones I know and ones I’d never heard before. Even if I wasn’t an artist, I would still be a massive fan of Spotify as a listener.

Don’t just take my word for it, sign up to Spotify and see for yourself, it takes a few weeks for it to learn your taste so try it for at least a month (there’s usually a free trial that lasts about that long anyway)

Myth 2. You can’t get many streams on Spotify unless you are a famous artist (and/or are on a major label)

This is partly a continuation of the previous myth, if the platform favours major artists when recommending tracks to listeners then it must be really hard for an independent artist to get a look in, right? As we’ve already discussed, the algorithms aren’t weighted in favour of bigger artists but that’s only 1 of 3 kinds of playlists on Spotify. The other 2 types of playlists are made by humans, there are the “editorial” playlists made by Spotify staff and there are also user created playlists.

The playlists created by Spotify are definitely hard to get on to and certainly do feature more high profile acts. I think for many of the playlists it’s inevitable that they will feature more famous acts and tracks, listeners clicking on those playlists will be expecting to hear certain artists and songs and if they don’t they’ll just select another playlist. For those listeners who want to explore and discover new music, there are quite a few editorial playlists that feature emerging and lesser-known artists.

How many is many?

It really all depends on what your idea of “many” is and what your expectations were, my own tracks on Spotify have over a million plays and I have around 19,000 monthly listeners, not record-breaking numbers but pretty decent nonetheless.

When I look at my own statistics, 42% of all my streams came from personalised (algorithmically generated) playlists such as Spotify Weekly. One particular track has clocked up more than 16,000 streams in the last 28 days with 82% of those coming from personalised playlists. I have also had one of my tracks selected on a curated “editorial” playlist, the track eventually clocked up over a million on its own but still, only 22% of my overall plays came from being on the playlist, the same amount again came from them adding the tracks to their own playlists and listening again outside of the playlist.

To be clear, I (and the independent labels I have licensed my music to) have never paid for plays, likes, follows or playlist inclusion on any platform so these stats are unadulterated, and shows that you can get playlisted without being a famous artist on a major label.

Using Spotify for Artists you can now submit your upcoming releases for playlist consideration so it may get easier to find your way onto one of the playlists, I’ll go into more detail on that and the other things I’ve been doing to try to boost and maintain my own statistics in the next part of this article.

Myth 3. Spotify makes millions while they pay artists next to nothing.

There are 2 parts to that statement and they’re both false. Firstly, Spotify is yet to actually make any profit, despite reported revenues of $4.6billion in 2017 they posted a loss of $426million. The main reason they are making a loss is that their business model is to pay out 70% of their gross revenue to the owners of the recordings, regardless of their other running costs. Which with the company experiencing annual growth rates averaging 30% year on year, it shouldn’t be more than a few years before they do start profiting, assuming that running costs don’t increase at the same rate.

Secondly, they have absolutely no responsibility to pay the artist anything at all. Spotify, like all other retailers and streaming platforms, only have an obligation to pay the “recording rightsholder” this is usually a record company, who then pay the artist based on the terms of their recording contract. For reference, most major labels keep about 85% of the money and the remaining percentage has to be split between all the contributors. Only in the case of self-releasing artists, when the artists are also the rightsholders, does Spotify pay the artists directly, and even then it’s almost always through a distributor or aggregator.

Supplying the demand

To have any kind of successful business you need 2 things, supply and demand. Demand can be created through advertising but without a supply, you have no business. To make sure they had that supply Spotify had to agree on deals with the owners of the recorded music they intended to feature on their service. That meant negotiating with the 3 major labels (who between them account for about 75% of all the commercially available recorded music worldwide), the biggest publishers (who are also owned by the major labels) and the “Collective Management Organisations” (CMOs) that look after the rights of the music such as PRS for Music, ASCAP and BMI.

Right now, Spotify is one of the biggest players in the music industry so to a large degree can call the shots and negotiate deals on their own terms, but that wasn’t always the case. When they first started out they were nobody, they had no bargaining chips and nothing to leverage. The music industry had no reason to accept a deal that didn’t benefit them. So make no mistake, the payouts initially agreed by Spotify and the major labels are at a rate those labels agreed to under no pressure and 70% of gross does seem like a pretty decent deal.

Share and share alike

They did also accept a number of shares in Spotify as a result of the deal. SONY recently cashed in half the shares they received in that deal for an estimated $750million! It’s unknown how much of this money actually found its way to the artists on those labels whose music was distributed on Spotify although SONY had pledged to pass it on to their labels and artists regardless of the stipulations in their individual contracts and whether or not they have recouped their advances whereas Warner and Universal have said they will only pass it on to artists when it stipulates in their contract.

You down with OMM?

It’s also worth noting that Spotify didn’t invent this business model, it’s based on the “Open Music Model” which was the result of many years of research at M.I.T. and is regarded by many economists and industry commentators as the future of digital distribution.

It correctly predicted the failure of online music distribution systems based on DRM (Digital Rights Management), this is evident in the sharp decline in paid downloads and major retailers like iTunes dropping DRM and venturing into streaming.

So while it’s not perfect, it’s the best model we have right now and there’s no real indication it’s imperfections are the result of an agenda to rip off artists. It may be some years before the payouts reach a level that pleases most people, but that’s not unlike the early days of any new format. It was decades before all the necessary laws and industry infrastructure was in place to enable creators, writers and performers of music to cash in on vinyl in the early days of that format and a similar transition period is occurring with streaming and the subscription, and ad-supported Open Music Model.

In part 2, I’ll get into what I’ve been doing in an effort to boost my numbers on Spotify.

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