Spotify: the problem is at the end of the value chain
In a commendable display of transparency, Spotify has opened an analytics page for artists whose music it features that provides information on its earnings model and shareout thereof. In a parallel move, it has also reached an agreement with Topspin, the company directed by the amazing Ian C. Rogers, on the possibility of selling merchandising through Spotify.
First, a few figures: of the 24 million users spread across the 32 countries where Spotify is present, six million pay for the premium service: all in all, a very successful conversion rate. The amounts the company pay the industry have been growing rapidly, having reached more than $500 million so far this year, with an average earnings per user of $41 a year (a figure based on premium subscription payments and earnings from advertising on the free users’ version.
The company’s business model consists of sharing 70% of its earnings with the rights holders (record companies and labels, and performing rights societies) on a proportional basis, in order of the popularity of an artist’s music. This is essentially a “market share” interpretation of the total number of plays on the site, bearing in mind the negotiations and deals that it can cut with the rights owners in each country. From there on in, it is the record companies et al who must then pay the artist, based on…
