Spotify’s model aims to regenerate this lost value by converting music fans from these poorly monetized formats to our paid streaming format, which produces far more value per listener. The chart below shows the money a Spotify Premium customer spends per year compared to the average spend of a US music consumer who buys music (not including those who spend $0 on music).
There's also the claim that Spotify Premium users in the USA bring in $120 per annum to Spotify, and therefore a proportion of that makes it to the artists. There's an overview of the annual royalty payout in the period 2009-2013 (it looks almost exponential). Taken overall, the average Spotify user apparently coughs up $41 per annum. But presumably this is the trackable income that Spotify makes through direct user subscriptions and advertising (for example $10 per month = $120 per annum - it's a fair bit more pricy in the UK). There's evidence of a solidly growing user base: [caption id="" align="alignnone" width="299"]
The growing Spotify user base[/caption]
Spotify also outline how their revenue is split - approximately 30% is kept by Spotify, with the rest going to rights-holders. I guess it's up to labels and the like what proportion of that gets back to the artists. But the means by which rights-holders get their slice seems a little complex, and it's not on a per-play basis. Essentially the criteria are as follows:
An artist’s royalty payments depend on the following variables, among others:
• In which country people are streaming an artist’s music
• Spotify’s # of paid users as a % of total users; higher % paid, higher “per stream” rate
• Relative premium pricing and currency value in different countries
• An artist’s royalty rate
This calculates out at a rate of between 0.6 and 0.84 cents per play. How this translates to different kinds of genre and sub-genre is presented here. There's also a projection based on current Spotify growth forecasts. Of course it's difficult to compare those payouts with what rights-holders may have got from physical sales. Finally, there's a section on how Spotify impacts on piracy. Here's a clue - Spotify tells us that availability of legal streaming significantly reduces piracy. It's not immediately clear how those data were obtained, and maybe the whole exercise is media PR puffery - though I see no reason why Spotify wouldn't be telling the truth about their cash flow models and future growth projections. I think I've observed before that I am a Spotify Premium customer, but that I don't expect to continue coughing up £9.99 a month. In fact, I use the service as much as an auditioning service as a music streaming service, and accordingly the rate at which I buy albums, either as a physical copy or as a download has increased. Maybe I'm alone? Maybe Spotify does increase album sales? Maybe the global music business would be in direr shape without Spotify? Has nobody done surveys to address this aspect of music buying?