How Do Spotify Royalties Work?
Music Industry
GetPlaylisted
Music Industry
01/26/2023
4 min
0

How Do Spotify Royalties Work?

01/26/2023
4 min
0

Spotify is easily among the world’s most important platforms in today’s music industry. The streaming platform boasts more than 400 million users every month and more than 180 million subscribers. It also boasts the highest market share when compared to other major streaming platforms like Amazon Music, Apple Music, and Tidal.

With that much music moving through the streaming service, it may leave many people wondering how exactly Spotify pays its artists. Understanding Spotify royalties can be a little hard, what with the company’s pay-per-stream and streamshare systems. Hopefully, this article will help make things a lot clearer for artists who are looking to get a start on Spotify.

How Spotify Makes Money

In order for Spotify to pay their artists, Spotify must first make enough of a profit to be able to pay them. Of course, Spotify must first pay their own employees and all other costs that are associated with running a business. This is done through Spotify’s two main sources of revenue. The first of these sources come from the premium paid subscriptions that some listeners choose to pay for.

Spotify’s second source of income comes from the money earned from advertisements that are aired to the free-tier listeners on Spotify. Each of these companies must pay advertising fees to Spotify, which Spotify is then free to add to its list of revenues. From all of this money, Spotify then creates a “royalty pool,” from which the artists and music rights holders are then paid through the streamshare system.

Spotify’s Streamshare System

Do not worry if you are still confused; Spotify’s payment system is rather confusing and can be especially so for new artists who are trying to get their start on Spotify. Many new artists assume that Spotify royalties work off of a simple pay-per-stream system, but the truth is a lot more complicated than that. There are many factors that these artists must take into consideration, such as how many streams their song received, as well as where it was streamed the most.

Let’s take a closer look.

First off, it completely matters where your music is streamed, simply because Spotify calculates their royalties based on individual countries. Other factors that Spotify takes into account when it comes to their separate markets are how many Spotify listeners live in each country, how many times your song was streamed, and how many overall streams Spotify received overall in that country. You will want to focus on all of these factors to truly understand how your royalties were calculated.

So That Means…?

We know, you were hoping to be less confused by this point in the article. No worries; everything will make much more sense by the end. Now that we know that we need to pay special attention to our stats within different countries, it is time to realize how Spotify uses this information to determine the number of royalties you will receive. This process is what Spotify calls their “streamshare system,” and it is important that you know how this works if you want to succeed on Spotify.

The first step to calculating your streamshare is to add up the total number of Spotify streams in your country for that month. Next, you need to figure out how many streams you received in that country for the same month. Then, divide your individual streams by the total number of streams for that country within the given month. The number that you end up with is your streamshare amount, and thus the number of royalties you will receive for that month.

To put it a little more simply, if your music received one stream for every 1,000 streams within the United States, you would receive $1 out of every $1,000 that Spotify pays their artists from their streamshare. But don’t forget: you will have to complete this process for every country in which your music was released to get a complete look at your royalties from around the world. Also, bear in mind that there is no true pay-per-stream system that Spotify uses to determine royalty payments.

But That’s Not All

It is Spotify's policy that the company does not deal directly with individual artists; you will need a middleman if you expect to receive your royalties. If you are an independent artist, you will go through your music distributor. This is usually the same service that you use to upload your music to Spotify in the first place. If you are signed to a record label, you will go through that label to receive your royalty payments.

Once Spotify has calculated how much they owe you from your royalties, your payment will be sent to your music distributor. It will be the music distributor’s responsibility to pay you. Not Spotify. Keep in mind that, due to the fact that there is a middleman in the process, there may be a delay between the time Spotify pays your music distributor and the time you actually see your royalties. You will also want to remember that most music distributors charge a fee for processing your royalty payments. Make sure you are familiar with that fee so that there are no unexpected surprises.

Another Thing to Keep in Mind

Many independent artists who are also songwriters miss out on a lot of the money that is owed to them because they forget about the publishing side of their royalties. Anybody who was even partly responsible for the music or lyrics of a song is entitled to publishing royalties for the work. The easiest way to ensure that you are getting all your publishing royalties is to sign up with a Performing Rights Organisation, which will then be responsible for collecting all the publishing royalties due to you.

Hopefully, this article has helped make the confusing world of Spotify royalties a little more clear. Though their streamshare system seems confusing at first, it will be easy enough to catch on to, and it only takes a little math on your part to ensure you are receiving the correct amount. Once you have the hang of Spotify and its royalty payment, check out the Spotify promotion service offered by GetPlaylisted and start getting even more streams under your belt!

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