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Spotify to Musicians: Don't Hate On Us

December 3, 2013
URL: http://www.entrepreneur.com/article/230191

Spotify is renewing its effort to win over skeptical critics and artists into believing that it has a viable long-term business model.

The company unveiled its new Spotify Artists website today to explain “how Spotify works, how we pay artists and where we fit into the industry.”

The streaming music service is also, for the first time, giving artists access to its analytics. The free new feature will let artists see how often their music is being played and which tracks are most popular in real time.

Amidst criticism from the likes of Radiohead’s Thom Yorke and the Talking Heads’ David Byrne, Spotify’s goal is to highlight how artists can earn more revenue, even as streaming eats away at album sales.

"With any format change in music – CD and iTunes included – there's a lot of confusion around how these different models work, and quite often some serious skepticism,” Mark Williamson, director of artists services for Spotify told The Guardian. “We understand that's out there, so we want to be as clear and transparent as we possibly can explaining how Spotify fits in."

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After much hemming and hawing, Spotify has published the average earned revenue per stream: between $0.006 and $0.0084. That doesn’t look like much, but Williamson says thinking in those terms is “really flawed." The company also published its payout formula, which takes into account Spotify’s total revenue, an individual artist's streams and the total number of streams played across the service.

At current levels, with between 6 million and 10 million paying subscribers, Spotify says a “niche indie album” earns roughly $3,300 each month versus a “global hit album, which can rake in more than $400,000 per month.

Once it grows to 40 million paying customers, Spotify believes those numbers will shoot up to $17,000 and $2 million, respectively.

Although Spotify is fresh off of a $250 million funding round, its bottom line is still moving in the wrong direction. The company’s viability and profitability will become much clearer next year once rights holders are able to compare revenues from Spotify to other traditional means like album sales.

Related: This Tiny Gadget Can Turn Virtually Anything Into a Musical Instrument