Will Artist’s Be Paid If Spotify Goes Public?


Recently, I was pondering the scenario whereby Spotify is listed on the stock exchange and what the outcome would be for artists. Lets first look at the current ownership structure of Spotify – All four major labels and indie representative body Merlin own a combined 18% of the service. DST, Accell and Kleiner Perkins recently invested $100 million in the streaming business. Obviously, Daniel Ek and Martin Lorentzon also own a substantial chunk of the company as well. Recent valuations of the company have been $1 Billion dollars.

Out of the $200 million dollars invested into Spotify up until this date, how much has actually been paid through to the artists on the mentioned labels? TMV have it on very good authority that artists have received zero, nada, and zilch from these high and extortionate licensing deals undertaken by the labels they are signed to.

The key issue in TMV’s mind is that whilst artist’s are complaining of only seeing ‘a pocket of change on the floor’ labels have received massive advance payments from Spotify based on the catalogue of music they license from each label. So please labels explain to TMV and your artist’s why you have not been paying through these advances to your artists. You trade on your artist’s art and would not have the ability to secure such high advances without said artists.

Drilling down further, these labels stand to make a killing if Spotify is listed on the stock exchange. Reinforcing this is the statement made by Pink Floyd’s manager Paul Loasby that “Payment to artists is not going to be high on their priority list”. And so sadly based on current behaviour it is clear artists will not see the clear light of day in terms of a payout.

Reinforcing this is the fact that allowing labels to own equity in digital music services ensures serious conflicts on interest between, the service, labels and artists. Clearly the global artists taking down their tracks from Spotify and other streaming services have illustrated that they understand this.

The conflict of interest is crystal clear – if a label owns equity in a digital music service, it is in the labels interest to keep royalty payouts to a minimum, as it will make more money on the backend from the equity owned in the digital music service than it will out of artist royalty payments. The artists who have already demanded their music be taken down have seen no payout from advances received by their labels paid by Spotify and understand that the labels will not payout any of the winnings when an IPO eventuates, which it will.

And labels wonder why large artists like Coldplay, The Black Keys et al decide to pull their catalogue from such services? TMV would hazard a guess that such high level artists will continue to pull their content from Spotify until artists are guaranteed an inclusion payment from advances received by these labels and also a payout once the company goes public for $2 billion or more. Without all the artist’s music, labels would not be able to demand such high advances. Labels are trading on artists signed to them and then not paying through when it comes to receiving advances based on these artists music.

Ironically, Cosmo Lush the SVP of Digital Business at EMI states “If you take a stake in a partners business, your objectives are much better aligned with that business”. In real speak this can be translated as being “better aligned” means receiving high advances, owning part of said company and paying less in royalties to artists. This label statement drills down and confirms the conflict of interest between service, label and artist in such a situation.

Let me be very clear TMV have no problem with labels making legitimate investments and reaping the benefits as that is only fair. Just as it is only fair that artists receive their fair share from advances charged to digital music services by labels. To trade on catalogues of artists signed to labels and then not pay through to artists is the height of hypocrisy when labels talk about illegal downloading. Stealing is stealing folks whether it is labels doing it or pirates.

Sadly, history has proven time and time again that a majority of labels cannot be trusted to account to their artists in both a transparent and honest manner. Subsequently, whilst onerous Spotify and music services like it need to take some responsibility and insist contractually in any new deals that major labels and others outline the base calculation they use to pay the artist signed to them. Going further it is important that digital music services have a right of audit of labels they pay hefty advances to. This would help to make sure that artists are paid what they are legally owed and prevent any reason for them to leave such services in droves.

The added benefit to services such as Spotify is that they would protect themselves from having numerous artists, which could turn into a domino effect leaving their services. If such a domino effect were to occur then labels, artists and Spotify including its investors would all lose out. With the continued lack of transparency from labels and Spotify, TMV views this as a very real significant risk. The fact is everyone needs Spotify and services of its ilk like Pandora, Rhapsody, MOG and Deezer, as without them everyone suffers and there will be no alternatives to curbing piracy.


Jakomi Mathews – Founder & Editor, The Music Void

Discussion4 Comments

  1. When myspace was sold, The artists that had music or content on myspace did not receive any of the money, and listening to music and looking at art, were the reasons people used mysapce. There is no way that Spotify will pay the artists any more than the fraction of a penny per play, that the law says they have to pay. The major record labels and owners of Spotify, will keep all the ad money and will not share it with the acts. And there have been a few, recent studies that show, people who stream music, do not buy the music they were streaming, they just go back and stream it again for free and the band only receives a small fraction of a penny from a Spotify stream.. Spotify is just the newest way major labels get around paying acts, while keeping the lions share of the income, earned from those acts hard work and music.

  2. As I currently understand it, the business model for paying the artists consists of taking the ad revenue earned that month and dividing it amongst all of the song plays in that month. So as an indie artist, I can expect to receive much less than someone in the mainstream because their songs are likely played more than mine. Finite amount of money divided by all the songs played by millions of listeners leaves a very small fraction of a penny. As an artist, I’d be more likely to earn money by one person blindly buying one of my songs for download. I considered all of this before making my current music available on Spotify, and the only reason I did it was to see if there was any benefit in attracting new fans. It’s still too early for me to determine those results.

  3. I wouldn’t say that Spotify pays nothing. I believe they pay something along the lines of $.00029 per stream. Okay, on second thought, they pay nothing. It would likely take tens of thousands of plays to earn $12.43.

    What we are seeing here is history repeating itself. The artists, songwriters, composers – “content creators” – are getting the short end of the stick. Is this anything new? Is anyone really surprised? This is simply another David and Goliath story, and the momentum for Goliath is already so strong that the future doesn’t seem very bright for the little guy.

    It is ironic that on one hand it seems as if the “digital revolution” has leveled the playing field, allowing equal and direct access – from music creators to their fans. But when it comes time to get paid, nothing has significantly changed – not yet, anyway. One can only hope the the concept of “karma” comes into play and that eventually, fairness will rule the day. Until then, keep selling those t-shirts and bumper stickers.

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