I’ve been intrigued, impressed, and surprised by Spotify’s earnings results over the years — but never quite so confused.
On Wednesday (July 29th), Spotify issued its customary quarterly letter to shareholders, revealing that its global subscriber base had grown by 8 million in the second quarter, up to 138 million. Within the letter, the company revealed a startling statistic: “Growth in the number of artists making up our top tier — those accounting for the top 10% of streams — is accelerating; that cohort now stands at over 43,000 artists, up 43% from 30,000 one year ago.”
Then, a few hours later, a different version of the same letter was available on Spotify’s own investor site, complete with this subtle change: “Growth in the number of artists making up our top tier — those accounting for the top 90% of streams — is accelerating; that cohort now stands at over 43,000 artists, up 43% from 30,000 one year ago.”
I checked in with Spotify, which clarified that the second version (90%, not 10%) is correct; ergo, 90% of all streams on Spotify are now shared between 43,000 artists.
Nitpicking over corporate slip-ups is rarely a productive use of time, but in this instance it matters, partly because multiple global media outlets are perpetuating the incorrect 10% number, but also because the true statistic (90%) gets to the heart of Spotify’s own grandiose mission statement — and its shaky relationship with reality. Spotify CEO Daniel Ek issued this mission statement in front of investors in 2018, and the company has continually published it in annual results: It wants “to unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art.”
Now let’s run the math.
The latest official statistic I could find for the total number of artists on Spotify arrived in March 2018, within the prospectus the firm sent to would-be investors before its flotation on the New York Stock Exchange. That prospectus reads: “Spotify provides a large stage for more than 3 million creators and artists to connect with existing fans and to be discovered by new fans.”
Considering that around 40,000 tracks are uploaded to Spotify daily, and that rival SoundCloud recently confirmed that it hosts music from over 25 million artists and creators, you’d expect that this 3 million figure would have ballooned considerably since Spotify announced it. Let’s use it to paint a conservative portrait of how many performers are actually able to “live off their art” — and how many cannot — on Spotify today.
As covered previously, Spotify pays out its royalties on a pro-rata basis, meaning that, at the end of each accounting period, all of its royalty money gets virtually dumped into one pot, from which artists are paid according to their share of all streams on the platform. So if a group of artists is getting 90% of the streams, they’re also getting 90% of the money.
Spotify pays the major record companies a 52% share of all net receipts attributable to streams of their artists. This was a figure the parties agreed to during negotiations in 2017, and it’s believed to have remained unchanged since. We can be confident that, judging by the extraordinary market leverage of these major record companies, no other label and/or distributor gets paid a higher royalty rate than this 52% standard. (A further 10%-15% of Spotify’s revenues go to music publishers and songwriters, which we’ll come back to.)
According to Spotify’s Q2 results, the firm generated €1.89 billion ($2.05 billion) in the three months to end of June. We can therefore broadly assume that 52% of this money, or $1.07 billion, is being paid in recorded music royalties to labels and distributors, who will carry a portion of that over to their artists.
Now, if 43,000 artists are pulling in 90% of the royalties, that means those people are getting $963 million of the $1.07 billion. As a mean average, that’s $22,395 per artist, per quarter.
A salary of around $90,000 a year can certainly provide the average “top tier” Spotify artist with the “opportunity to live off their art.” But this is skewed in itself, of course, because across the 43,000 “top tier” artists, the majority of the $963 million would actually have been captured by the world’s biggest superstars. (And that’s not to mention how big of a cut the labels and distributors are commanding via individual artist deals — some of them slicing quite significantly into the totals.)
Now, let’s consider the millions of relative paupers of Spotify — the artists existing outside of that 43,000 “top tier” group. The, erm, “bottom tier.”
Again, we know that Spotify had over 3 million creators on its service in 2018, and that this figure is likely considerably larger today. Yet even relying on this conservative 3 million number suggests that 98.6% of the world’s artists — i.e. 2,957,000 separate performers — are currently operating outside of Spotify’s “top tier.”
How much money do these artists receive from Daniel Ek’s platform? Well, we know that they share 10% of Spotify’s recorded music payments (outside the 90% of streams claimed by the “top tier”). And, according to our estimates here, in Q2, we know this 10% amounted to $107 million in royalties. Divided amongst those 2.96 million artists, this means the average non-“top tier” Spotify artist earned just over $36 in the quarter.
Or $12 per month.
Publishing revenues are more complicated, as, for one thing, songwriters often aren’t credited as performers. But even if we assume that a further 15% of Spotify’s global revenues in Q2 ($308m) all ended up with songwriters who were also named artists, it still only suggests that those 2.96 million “bottom tier” Spotify artists would have earned an average of approximately $47 each in Q2.
Or just over $15 per month.
The second flaw in Spotify’s aim to provide “a million creative artists the opportunity to live off their art” is tied to the pace of growth amongst the size of the firm’s “top tier” artist group. It seems like in order for creators on Spotify to “live off their art”, they also have to enter the “top tier” of artists sharing 90% of streams on the platform. If so, Spotify won’t satisfy its own mission statement — Daniel Ek’s central visionary, democratic aspiration — for three-quarters of a century.
On the one hand, Spotify has much to be proud about in its goal to tear down the traditional record industry plutocracy: Spotify’s 43,000-strong “top tier” club has doubled in the past three years, and almost tripled since 2015. As a result, superstars continue to see their streaming dominance nibbled away by a rising “middle class” artist community (a fact which makes Taylor Swift’s record-setting achievements with her recent release Folklore all the more impressive).
However, 43,000 is a long way off a million. Even if Spotify can sustain its current annual pace of “top tier” growth (+13,000 per year) forever more, it would take the company nearly 74 years to transform the 43,000 Club into the 1,000,000 Club.
In an interview last week, Daniel Ek told Music Ally of his disappointment over the frequency with which artists continue to publicly slam the lack of royalties they receive from his platform. “It’s quite interesting that while the overall [revenue] pie is growing, and more and more people can partake in that pie, we tend to focus on a very limited set of artists,” said Ek, in a reference to those acts voicing their economic displeasure. He added that in Spotify’s existence, “I don’t think I’ve ever seen a single artist saying ‘I’m happy with all the money I’m getting from streaming.'” Ek countered that “unequivocally, from the data” there are in fact an ever-growing group of artists able to live off streaming income.
This is true, and a significant chunk of those 43,000 “top tier” artists who are now earning regular, reasonable money from Spotify will likely (privately) back him up. But Ek shouldn’t be surprised about the fact that there is a far, far greater volume of artists — literally millions of them — who are struggling to make ends meet from their streaming royalties. This simple conclusion can be drawn from the statistics Spotify itself hands to investors.
Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for Rolling Stone.