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Spotify – comparing oranges with Apple?

spotify_logo_smallThere’s been a lot of press in the last few days over Taylor Swift’s decision to withdraw her 1989 album from Apple’s iTunes, due to the non-payment of royalties during the trial period of their new streaming service.   Given the preponderance of her fanbase amongst the younger, more IT savvy generation, (and I know, I’m taking two of them to see her in Manchester tomorrow), that must have been a decision that hurt Apple, so fast was their about turn.  And I can see where she’s coming from with that – non-payment of royalties due is definitely wrong.  But that got me thinking about a previous decision of hers that also hit the headlines, her decision to withdraw her catalogue from Spotify.  And I don’t think that decision stacks up.

It all depends how you define Spotify and other streaming services, where you see them fitting in the food chain of the music industry.  There seem to be an idea that streaming services equate to a replacement for CDs, but there are significant differences.  Assuming an average CD price of $12.99, you pay your money and take it home, whereafter you can play it as many times as you like.  The artist gets their share of the sale, which depends on their recording contract, but is typically 23% – so they get $2.99, once and for all time.  If it’s a download, there aren’t the same manufacturing and distribution overheads, but the price is less.   If downloaded from iTunes for $9.99, Apple takes a 30% cut, then the rest is divided between artist and label.  Assuming the artist gets the same 23% of what’s left, they earn $1.61.  That’s for a one-off sale.

So how much do Spotify pay?  Their quoted figure is between $0.006 and $0.0084 per stream.  Let’s take a midpoint in that range, say $0.0072 per stream.  Taking the recent Whitesnake album as an example, there are 15 tracks on the album as it appears on Spotify, so a single listen to the full album would yield a royalty of $0.108.  So, if we regard that as being listened to instead of a CD, the artist loses out until the 20th stream of the album, at which point their royalties from Spotify will continue to exceed the CD income.  And that’s the same whether you’re Taylor Swift, Whitesnake or any other artist.

But is that a fair comparison?  Streaming is more akin to listening on the radio, as the royalty is per-play.  So, if a song is streamed off Spotify, the artist gets our notional $0.0072.  The best figures I can find for airplay are from 2013 for BBC Radio 2, a national radio station here in the UK, where the royalties paid for a 3 minutes song were £59.73 for the writers and “a similar” figure for the artist.  Again, how much of that ends up with the artist is dependent on contracts, but let’s assume that they get same 23% of the artist royalty, (£13.74), and as most people these days write their own material, let’s give them the writer’s royalty as well.  (You can work out all the permutations and combinations for yourself – life’s too short!)  This gives them a royalty from a single airplay of £73.47, or $116.08 at today’s exchange rate.  And because we’re talking national radio here, that’s very much on the high side.

A quantum difference?  No, because we’ve not got a true comparison.  You have to factor in the number of listeners for this to make sense – Spotify pays per stream per device, whereas BBC Radio pays per play.  To equate the two, we need to assign some listening figures.  Playing music on a PC or smartphone is a solitary experience, so let’s say an average of 2 people listen to the Spotify stream, a royalty rate of $0.0036 per play per listener.  RAJAR puts the Radio 2 audience at 15.087 million, a royalty rate of $0.0000077 per play per listener, or 0.21% of the Spotify rate.

So what’s the point of all this arithmetic?  The answer is, partly, that successful artists can earn a significant royalty cheque.  Time magazine estimated that Taylor Swift earned between $280,000 and $390,000 from people streaming “Shake It Off” in the month of October 2014.  That’s over a quarter of a million dollars in one month for one song, the equivalent of that track being played 1,697 times a month on Radio 2.  And that’s just from Spotify, which she believed was not paying a fair rate, (but as a signed artist, she might only see a fraction of that, depending on contracts).  Less successful artists won’t earn anywhere near that, of course, but if we follow Ms Swift’s argument that music has an inherent value and artists should be paid what they’re worth, perhaps it’s somewhat ironic that Spotify’s royalty model actually seems to reflect that.

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