Earlier this year, Spotify announced that it paid out a whopping $9 billion to music rightsholders in 2023. This was shared in the latest version of their Loud & Clear report, with some other interesting takeaways:

• $4.5 billion was paid to Indies in 2023. This represents a 4X increase since 2017 and the highest amount Indies have ever generated from a single retailer in one year.
• Spotify has paid out a total of more than $48 billion since its founding
• The numbers of artists generating at least $10K, $100K, and $1M have nearly tripled since 2017

Unsurprisingly, the $9 billion sum stirred up many sentiments and questions, mostly mirroring these: “Big numbers don't mean big money. Artists are not making any money from Spotify in general! Stop lying!” “How much of the $9 billion went to the actual artist?”

Spotify founder Daniel Ek on LinkedIn

Spotify founder Daniel Ek took to LinkedIn to address questions about the Spotify payout. He clarified that

• Spotify does not payout to artists individually
• Spotify pays out to record companies, publishers, collecting societies
• How much an artist receives depends on the contracts agreed on with their labels and publishers

On top of this, Spotify announced late last year that they were working on improving their royalty system to better benefit artists – specifically, the ‘professional or professionally aspiring artists’ that amount to about 200,000 out of the 9 million people who have uploaded any music to Spotify. These royalty model changes have since gone live as of early 2024.

Spotify payout changes for 2024 include:

• A song needs to hit a minimum number of 1,000 annual streams before it can generate royalties. According to Spotify, this will redirect at least a total of $40 million per year in ‘tiny payments’ away from ‘recreational artists’ to ‘professional artists’ who are more dependent on streaming revenue.
• ‘Non-music tracks’ like white noise, static, etc. will require a minimum track length to generate royalties. They will also be valued at a fraction of music streams.
• Labels and distributors will be charged per track if artificial streaming is detected on their content.

Spotify has also taken steps to increase the visibility of artists’ tickets and merch on its platform to help boost non-streaming revenues for musicians.

So if Spotify isn’t the villain then who is?

As Daniel Ek clarified, Spotify pays out to record companies, publishers, and collecting societies. These parties in turn facilitate the royalties payout to their artists and creators.

So how much do the artists get then? It varies, and it depends on the contracts and agreements they’ve signed with their labels and publishers. Usually, it seems that a big chunk of the payout stays with the labels rather than the artists, due to the terms agreed in the contracts, leaving artists feeling like they’re getting the short end of the stick. The exact percentage that ends up in the pockets of artists can be really small, especially if there are lots of middlemen taking their cuts.

Major labels?

Major labels in particular have been drawing up a bad rep in terms of notorious record label cuts and ‘locking’ artists into unfair contracts with unfavorable splits, brought to the public’s attention by high-profile disputes involving major artists like Taylor Swift in her battle over master recordings and Kanye West in his contract dispute.

Common issues with these contracts include unfair terms like lengthy and binding agreements that restrict an artist’s creative freedom and control over their own music, unclear ownership details, excessive financial obligations that require repayment regardless of an album’s success, unfair revenue splits that favor the labels or publishers more than the artist.

In general, there seems to be an issue surrounding artists not fully understanding how their earnings are distributed and ending up in a situation of minimal returns despite significant streaming numbers.

If they’re so ‘bad’, why do artists sign to labels?

Though now with streaming services and digital service providers, that power for major labels has reduced, as independent artists and smaller labels are gaining more traction, leading to a shift in market shares and total plays.

Could an artist succeed without a major label? Sure, independent artists and those signed to smaller labels can build successful careers through grassroots marketing, social media, and touring.

However, they might not have the same guaranteed marketing budgets or industry connections that major labels can provide, which can greatly accelerate an artist’s career. And the label could eventually create more competition for them with younger and more affordable talent. In a way, going with a label means paying for less risk.

It’s not just labels, it’s the entire mechanism

But: we can’t only rely on blaming labels; there are even artists who own their own labels that are among the biggest critics of the streaming status quo – the reality is that the music ecosystem is way more nuanced and complex. We’ve already talked about how many parties are involved, and in general, music royalty payout models are complicated, not straightforward, and lack transparency.

On top of that, the rise of digital distribution and streaming services has dramatically altered the landscape, despite that, contractual frameworks established before have remained rigid and not adapted to the new realities.

Tl;dr? Spotify’s not the problem

At the end of the day, it’s not so much about how much of Spotify’s $9 billion went to whom in 2023 – it’s a bigger conversation about how we can make the future of music something that works for all.

The music industry is undeniably lucrative, with Spotify’s $48 billion payout since inception – what changes can we make to arrive at a more equitable distribution of streaming revenues among stakeholders? Are there alternative models of artist-label agreements that could serve both parties' interests more effectively? Or should we be lobbying for changes in copyright law, music rights management systems, and the overall infrastructure of the ecosystem i.e. the relations between artists, creators, producers, publishing, etc.?