SPOTIFY FOR ARTISTS AND LABELS - THE ULTIMATE GUIDE

2.0 HOW TO MAKE MONEY ON SPOTIFY

Success from music doesn’t happen overnight — but nowadays, it’s easier than ever for anyone to make and earn revenue from their music without a big label. While it’s true that, per stream, the payouts are low, you’ll see that the right marketing, the right release strategy, the right playlists, and the right PR are all important tools to help you achieve your goals. In terms of Spotify, this means you’ll need to focus on release frequency, stream counts, playlisted songs, and gaining followers. In this chapter, we’ll take a look at how royalties work and tell you everything you need to know about making money on Spotify.

2.1 WHAT'S THE DIFFERENCE BETWEEN MECHANICAL ROYALTIES, PERFORMANCE ROYALTIES, AND STREAMS?

To understand how to make money on Spotify, you have to understand how money is paid out in the music industry. To break it down roughly, there are two sources of income available to you from Spotify:

  • Royalties from the master rights in the form of income from streams. If you self-release, these are directly transferred to your digital music distributor.
  • Revenue from mechanical reproduction or performance rights paid to the composer, lyricist, and publisher of each song via a collection society (also known as performing rights organization) — such as BMI (US), ASCAP (US), PRS (UK), GEMA (DE), SACEM (FR), SGAE (ES) or SUISA — or publisher, if they have one. In the past, this came from the sale of physical recordings, but nowadays private streams are also included. If you’re not sure what collection agencies are in your country, check out this this list of international collection societies.
  • How do you know what is what? Take the example of Whitney Houston’s “I Will Always Love You.” Whitney recorded the song with Sony Music, her label, which owns the mastering rights and therefore receives the royalties for streams of the hit song. Likewise, Dolly Parton, who was the songwriter and lyricist, receives the mechanical and public performance royalties via her collection society or publisher.

    If you self-release and you write your own material, you are the label and the songwriter. That means you hold, respectively, the master rights and the mechanical/performance rights. Accordingly, you should receive royalties from both sources. Of course, if you’re in a band, you should ideally sort out the splits before you release. If your music was released by a record label, they might own the master rights, and therefore receive the royalties you earn on Spotify, Apple Music, Amazon, and any other platform. Normally, if you are the songwriter, composer, or lyricist, you will receive the mechanical and performance rights from your collection society.

    In some countries, platforms such as Spotify have to assign a part of their revenues directly to the collecting societies, such as SACEM in France or GEMA in Germany.

    But what happens to the fees collected by the collecting society? Together with other income from, for example, radio and TV plays, these end up on the account of the respective societies and wait there for collection. Again, this is minus the processing costs incurred by the collecting societies. As mentioned above, collection societies distinguish between two types of income:

  • Performance fees
  • Fees from mechanical reproduction
  • Performance fees include all income from the public use of music. This includes playing the song on a radio station, in a restaurant, or at a bar. And of course, event organizers must also pay fees to the PROs for live performances.

    Whether a membership with a collecting society makes sense for you or not depends largely on your expected income. In some countries, as a member you have to pay an annual membership fee. A membership is especially worthwhile if you expect many streams or radio plays, if your music video is shown on television, or if you have some live performances coming up.

    How much the composer, lyricist, or music publisher receives per minute and stream varies from country to country. Some collecting societies like STIM in Sweden, for example, offer relatively detailed information.

    Regardless of which country you come from, you can choose which collecting society you want to become a member of. Be sure to read the respective conditions (especially transfer costs between the societies, membership fees, etc.) and see what suits you best.

    Take this example: You’re in a metal band; you come from Germany and tour in Sweden regularly. Your biggest fanbase is there, and on Spotify you can see that your listeners are mainly from Gothenburg, Malmö, and Stockholm. In this case it might be worthwhile for you to become a member of STIM in Sweden, because then some transfer costs can be dropped and the membership fees are low. But be aware: your sales report will be in Swedish and the billing in Swedish Krona. If you’re an American electronic musician who tours in Europe with radio plays on BBC Radio 1, you might want to consider joining BMI or ASCAP to cover the US and PRS to cover the UK. This will help you get your money faster from those European sales and radio plays.

    2.2 HOW DOES SPOTIFY PAY ARTISTS?

    Spotify does not pay artists directly for their respective streams. Just as musicians use the service of a digital music distributor to publish their music on Spotify, payment is handled through the distributor.

    Spotify will transfer the revenue to your music distributor approximately 3-4 months after the streams have been completed, which you can then view in your distributor’s dashboard and have transferred to your checking account or PayPal. At iMusician you can withdraw your money at any point without a minimum amount.

    If you have a Spotify for Artists account — which is highly recommended at this point — you can also follow your streams. A stream counts as such if a track has been listened to for 30 seconds or longer. Everything below this time is not counted.

    2.3 HOW MUCH DOES SPOTIFY PAY ARTISTS?

    Now, the big question: How much do streaming platforms pay per stream? This changes regularly and depends on the number of subscribers and the amount of uploaded music content. In addition, Spotify distinguishes between Spotify Premium, Family, Free, etc.

    One of the most up-to-date breakdowns of revenue per stream is from Digital Music News. The online magazine updates the article regularly and is generally a recommended source of information for musicians.

    According to Digital Music News, Spotify currently pays $0.00437 per stream. As previously mentioned, only tracks that are played for at least 30 seconds count towards revenue. This means, according to Digital Music News’ calculations, a musician needs around 336,842 streams to earn revenues of $1,472 — not necessarily a huge money maker at first. But patience is a virtue, especially if you are still at the beginning of your career as a musician. Here at iMusician, we estimate that our customers make $4,000 for every one million streams.

    Thanks to digital music distribution, independent artists in particular are now able to reach their fans without having to rely on a music label, saving money on expensive vinyl and CD pressing along the way. As the digital borders are becoming increasingly blurred, the world is getting smaller — meaning it’s now even easier to reach new fans worldwide.

    It remains to be seen what long-term consequences streaming will have for the income of artists in the future. The challenge now is to find new, creative ways to attract listeners.

    2.4 WHY DO YOU NEED A DISTRIBUTOR TO COLLECT YOUR MONEY FROM SPOTIFY?

    As mentioned previously, Spotify relies on third-party digital music distributors to upload music releases. This ensures that everything on the streaming platform meets its standards; including high-quality audio and optimal artwork for each release. It also ensures that all tracking is centralized. This includes metadata — like songwriter, publisher, and composer — to help ensure all copyright holders are paid by the PRO. It also includes things like the ISRC, which helps log streams cross-platform — crucial for chart positioning and the almighty algorithm — while centralizing the financial payment of revenue from streams, leaving it up to the distributor to handle the payouts — taking the burden off your shoulders.

    2.5 CAN I PAY FOR STREAMS ON SPOTIFY?

    You should never try to cheat with your streams. Many have tried, and many have failed. It’s considered a type of fraud, prosecutable with jail time and large fines. And since Spotify is one of the largest tech companies in the world, it has the resources and intelligence to immediately notice any strange inconsistencies. You will be caught.

    Of course, if you play your album a few times a day, you won’t have a problem. But there are many companies that offer stream generation for a fee. You pay them, and then they stream your tracks via a computer program or robot, usually 31 seconds per track. If Spotify notices unusual or random waves of streams, they may pause or delete any releases they consider suspicious. If you’re found to be in violation of these rules, Spotify will alert your local fraud agencies, freeze your earnings, and will most likely block you from any future releases via the platform — not a great look for an aspiring artist.