Spotify, Rhapsody, Rdio: When Will Subscription Music Pay Off For Artists?

At L.A.'s Digital Music Forum last week, Anu Kirk, a product lead at digital music service MOG, shared some bad news for musicians adapting to the current state of the music industry: "It sucks," he said. "It sucks that right now that artists are getting paid so little money by subscription services, but it sucks that artists are getting paid so little money by everyone."

Tell the artists something they don't know. The music industry has long been in decline, and even as a proliferation of new subscription music services have hit the market--Spotify, Rhapsody, Rdio, to name a few--it doesn't appear musicians have started to feel the benefits. The innovations in both technology and business models for these services may be one of the few signs of hope for the industry--but for now, the labels and artists have a long way to go before their investment in this future of on-demand, streaming music pays off. Lady Gaga, for example, was rumored to have earned only $167 from more than 1 million plays of "Poker Face" on Spotify; Kirk offered some more depressing statistics at last week's event which indicate the industry's woes are far from over.

Kirk estimates that Spotify has a $0.04-per-album payout rate, meaning a roughly $0.004-per-play rate, assuming ten tracks to every album. He also estimates that Pandora pays just $0.001 per play, while Sirius XM Radio pays just $0.002. "This is a tough business to be in," he said.

The thinking here is that the payments to artists could get even worse. In a sense, the race to gain subscribers can be a race to the bottom. As more and more services enter the space, whether for on-demand or streaming services, the more concessions they're willing to make to attract more listeners. Services want to offer the lowest monthly subscription plans, the least amount of ads, the cheapest prices per stream. All that might benefit the users, but it's a long way off from benefiting the artists.

A spokesperson for Spotify wrote in an email to FastCompany:

"Spotify does not sell streams...Users pay for access either via a subscription fee or with their ear time via the ad-supported service. In other words, Spotify is not a unit based business. Overall...Spotify is generating serious revenues for rights holders, labels, publishers and the artists that they represent. We have paid over $100 million to rights holders since our launch. Spotify is now the second single largest source of digital music revenue for labels in Europe according to IFPI."

The CEO of Rdio, Drew Larner also noted: "I don't pay the artists directly. I have deals with all the major labels and all the major indies, and they have deals with their artists. I have no insight into what their artists are paid because every artist deal is different. One artist may have a huge advance, while one may get different royalties."

Larner acknowledges that the industry is still trying to recover, but argues that it will take time--and patience from the labels and artists--before the industry has a turnaround. "I think we all believe that through use of free and other methods to get people in the door, subscription for on-demand music will reach that tipping point that other subscription media products have reached," he says. "Look at Netflx. Subscription on-demand music has been around for a long time but it hasn't reached that tipping point yet. When it does, everyone will benefit. We will benefit, the labels will benefit, the artists will benefit."

While he's not sure industry revenue will ever return to '70s- and '80s-era heights--because of the change of distribution from physical to digital, and the resulting decline in margins--he's certain subscription music will help at least revive some of the lost revenues. But when?

"I think we're a hell of a lot closer than we were five years ago, even three years ago," he says. "I use Netflix as an example because people are now used to not having to own their content. I acknowledge movies and TV are different than music in terms of the emotional attachment of ownership. But I think people will get more socialized to the point where they say, 'Hey, I don't need to physically control these digital files,' And that if they pay a reasonable fee every month, they can access their music whenever and wherever."

"Once they get over that hump--and they're certainly getting there with video and I think they'll get there with music--it'll be a big business," he adds.

[Image: Flickr user jonathanpercy]

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7 Comments

  • Preet

    "By May 2011, the tour had grossed a total of $227.4 million, from the 200 reported shows, drawing an audience of 2.5 million. It became the world's highest-grossing tour of all time by a debut headlining artist”

    I’m not sure how much she cares about $167 she might make from a three year old song. 

  • Dave Allen

    It's interesting that Anu Kirk spreads the blame. The intellectual failure of these streaming service companies is paramount. If the only way to try and get to IPO is to burn VC money and strike deals with labels that do not share the wealth with recording artists, I would say that is a failed business model. More here: http://www.north.com/latest/wh...

  • Emmett McAuliffe

     "Spotify is generating serious revenues for rights holders, labels, publishers and the artists that they represent."  Record companies don't represent artists, fyi. They have a contractual relationship with artists.  Even the concept that in a record contract that they had "fiduciary responsibilities" was rejected in courts.  So artist, beware.  You are already at the end of a long list from Spotify ... and even that they have wrong.
    http://bit.ly/NewEcosystemforC... 

  • atimoshenko

    Cut out all middle men, offer maybe 1-2 free listens per song per person, then sell DRM-free songs at $0.5-$1 a pop and it will all work out. The economics of subscription music services don't really work for anyone.

  • Bob Cramer

    Most artists these days make money because their fans are passionate about their music and them.

    We've found that if you give your fans plenty of opportunities to "support you", then they will.  This can be in the form of pre-selling an album that include "multiple tiers" of support (from buying the release, to a signed version, to a signed version with VIP access to your show, to more), to going to your shows, buying merch, fan-funding a project, or simply "donating".These days, artists (or the team around them) need to be entrepreneurs - or "small business owners" that cultivate and build a close relationship with their customer (fan) base. And if they do this successfully, they can make a living doing what they love -- playing and performing great music!

  • John Jackson

    These services could care less about small (Read: Indie) artists. Don't drink their kool-aid, they care about users only. It's laughable that they think artists care about the "exposure" they offer...if I want exposure I'll drive fans to my website. These services are fine for users but from an artist perspective, they're a joke. 

  • Jason Williams

    While I certainly can sympathize with lower earning for artsts' recorded music, I think one important issue here is that this new generation of listening platforms helps to speed up and expand the reach for many bands.  I have been introduced to several great bands that I would have never heard of if it weren't for the connections/recommendations on Pandora and Spotify.  Since learning of bands like Old Man Markley, I have now purchased CD's and attended live shows.  Music is a physical product.  If you have something worth selling, that gets people excited, they will come and spend their money on your brand. In Seth Godin's latest book "We Are All Weird", he points out the eroding "mass" center of the bell curve in just about every category.  This is no different.  Gone are the days that a few radio stations can pump out the same Top 40 songs all day and we sit back and watch artists sell millions of CD's as a result.  Companies, er bands, that can adapt to this new environment will still find success.  But it still starts with what they're selling.