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May 20, 2022

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Seattle musician’s Spotify numbers shed light on music’s business models

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SEATTLE — When KEXP DJ Gabriel Teodros started living on his own when he was 18, he made a living selling CDs of his hip-hop music.

He sold around 20 CDs for $10 each time he performed at a show (normally 40 to 80 times a year, making roughly $8,000 to $16,000). Along with the checks he got for shows, and later, for the music and writing workshops he taught in schools, his career paid the bills he needed to survive in Seattle in the early 2000s.

But as people started buying more of their music on iTunes or pirating it from sites like The Pirate Bay and LimeWire, CD sales declined. And they kept falling in the 2010s as streaming music service sites like Spotify took over the market. Eventually in 2017, Teodros decided to take a job outside of music to make ends meet as a driver for Lyft.

Teodros has been a full-time DJ at KEXP since 2020, so he doesn’t drive for Lyft anymore. But the amount of money he makes from recorded music has plummeted since the CD era.

When he looked through his 2021 “Spotify Wrapped,” the company’s end-of-year marketing campaign that compiles listening data for creators and listeners into shareable infographics, he found he’d only made $150.

Streaming services like Spotify, which charges a monthly subscription fee for unlimited music streaming, upended the music industry’s business model. The company, which has the biggest share of the music streaming service market and 381 million monthly users, says it’s helping generate more revenue for the music industry. According to Spotify’s website, part of the company’s mission is “giving a million creative artists the opportunity to live off their art.” But some in Seattle’s music industry say streaming services reduce revenues for artists, producers and record labels and make it harder to make a living. Other artists, though, are finding creative solutions for online revenue on platforms like Bandcamp and Patreon.

On Dec. 1, when Teodros shared his 2021 Spotify Wrapped on social media, he got lots of congratulatory messages. People thought since he got 80,000 streams for one of his songs, he must be making a lot of money. In response, Teodros wrote an article on his Substack titled, “There’s no money in streaming.”

“I just mean to really expose what these numbers mean and what they don’t mean,” Teodros says. After splitting the revenue with a collaborator, those 80,000 streams only made him around $90, just over $0.001 per stream.

He’s among a number of artists who’ve publicly criticized Spotify. Taylor Swift famously left some of her albums off the streaming service for years. Prince boycotted Spotify and Apple Music for a few years, insisting in multiple interviews that artists can’t get rich on digital sales. Thom Yorke and Nigel Gogrich also temporarily took their music off Spotify in protest of the company’s payment practices.

How Spotify pays

The way artists make money from streaming services is complicated. According to Spotify Loud & Clear, a website the company launched in March to increase transparency about its processes, Spotify doesn’t pay artists directly, instead paying those who hold the rights to a song or album (normally record labels, distributors, aggregators and collection societies) who take a cut and give artists the rest. It also doesn’t pay a flat rate per stream, rather, paying rights holders based on “streamshare,” a figure calculated from the number of streams of a rights holder divided by the total number of streams in a particular market.

So, the amount rights holders earn per stream varies. But most estimates range from around $0.003 to $0.005 per stream. Business Insider estimates most artists need around 250 streams to make a dollar.

Seattle-area music producer Ryan Hadlock, who’s worked with big-name artists including The Lumineers and Brandi Carlile, says 20 million streams typically generates $100,000 (based on a rate of $0.005 per stream). Though $100,000 seems like a good wage, Hadlock says artists normally only get a fraction of that amount, with record labels generally taking at least 50 percent and artists paying out much of the rest to managers, artistic contributors and lawyers.

Reduced revenue

Spotify says it’s helping the music industry bring in more revenue. Loud & Clear says Spotify hit the market when the recording industry was “ravaged by piracy,” and that it’s helped the music industry recover. According to the Recording Industry Association of America, music industry revenue peaked at $14.6 billion in 1999, dropped to $6.7 billion in 2014 and was up to $12.2 billion in 2020.

But Hadlock isn’t seeing this growth reflected in his revenue. He says when he compared the royalties he made on his last album that sold 1 million physical CDs (which makes it eligible to be a platinum album) and the royalties for his most recent album which went platinum by reaching 1.5 billion streams (a new RIAA definition of platinum in the streaming era), he found that he made 10 times less money on the streamed one.

The few people making lots of money off streaming services, Hadlock says, are the A-list songwriters the industry uses to write consistent hits for pop stars.

According to Loud & Clear, only 870 artists’ catalogs generated over $1 million on Spotify in 2020.

Spotify is steadily gaining subscribers and listeners and turned a profit of $2 million in the third quarter of 2021. But even with 172 million paid subscribers, the company, which is known for focusing on long-term growth over short-term profitability, only sometimes reports profits, according to the company’s financial reports. According to Loud & Clear, it pays around two-thirds of its revenue to rights holders.

Hadlock says the people who benefit most from streaming services are the consumers — who can listen to almost all the world’s popular recorded music for $10 a month.

New opportunities for revenue

Even though royalties from streaming services are often meager, the industry is finding new ways to make money.

Tony Kiewel, the president of Seattle record label Sub Pop Records, says though the company doesn’t make the same amount from streaming royalties as it did from CDs, increasing vinyl sales are making up for much of that loss. In the first six months of 2021, U.S. vinyl sales increased 108 percent. But even vinyl production has been hurt by pandemic-related supply complications. The increasing demand for vinyl, exacerbated by Adele’s November release of her new album, “30,” for which she pressed 500,000 records, has left artists struggling to get records pressed in time for album releases.

Kiewel says Bandcamp, an online music site where, unlike Spotify, people can pay to download music, has become a powerful revenue source. Teodros says he normally sets the price for his albums at $10 on Bandcamp, but the platform allows listeners to pay more if they want to. On his last couple of projects, he averaged $20 an album, with some people sending him as much as $100. Bandcamp also gives Teodros access to buyers’ emails, which helps him market new projects.

“I think a lot of music lovers go there because they know they’re supporting artists,” Teodros says.

During the pandemic, too, artists found new, creative ways to make money online. Spokane-based soul singer Allen Stone spent much of 2020 and 2021 making pay-per-view sketch comedy and music specials on Patreon, a site that allows independent content creators to run subscription services. Former KEXP DJ and multigenre artist Otis Calvin III (known as OCnotes) also has a Patreon and uses Bandcamp’s subscription feature to offer his entire discography for $5 a month, like a personal streaming service. Calvin III said in the spring that he had taken his music off Spotify and that he ended up making more money than he ever did with that streaming service.

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