Anna, a fictional Spotify subscriber, is a big jazz fan. She recently fell in love with a jazz trio called The Expressionists (also fictional). The Expressionist’s new album accounted for 100% of her time listening to music last month on Spotify. Anna might reasonably assume that of the money that went to artists from her $10 monthly subscription, nearly all of it went to The Expressionists. She would be wrong.
The way Spotify and Apple Music pay artists is simple. They take all of the money generated from users, whether by advertisements or subscriptions, and put in a big pot. They then divide that pot by the total share of streams each artist received. So, if Apple Music gave $100 million of their revenues to artists in a month, and Drake songs accounted 1% of all streams that month, then Drake (and the writers of Drake’s songs) would receive $1 million. Essentially, 1% of Anna’s money is going to Drake. (About 70% of Spotify and Apple Music’s revenues go to music labels and artists.)
This is called a “pro-rata” system. Not everybody likes it. Many people in the music industry would prefer a payment system that was “user-centric.” Under this system, each user’s payment would be distributed based on what they streamed. If half of a user’s streams are Rolling Stones songs and half are Beyoncé, then those two artists are the only ones who earn money from that user. In this case, all of Anna’s money would have gone to The Expressionists.
The main difference between a pro-rata and user-centric system is that the preferences of super users are far more important under pro-rata. Even if two subscribers pay the same amount, the user who spends 100 hours a week on Spotify generate more revenues for their favorite artists than the one who only spend 10 hours. If everybody spent the same amount of time listening to music, pro-rata and user-centric systems would result in exactly the same outcome.
A 2017 study conducted the Finnish Music Publishers Association used data from Spotify premium subscribers in Finland to examine the impact of a change to a user-centric system. The research found that in the current system the top 0.4% of artists get around 10% of all revenue, but they would only get about 5.6% of revenue under a user-centric system. Though smaller artists ended up better off in aggregate, not all smaller artists gained—in fact, some were worse off. The data Spotify provided were anonymized so the researchers could not identify trends in which types of artists did better.
Some music streaming services are considering making the switch. Deezer, a French streaming service with 7 million subscribers, announced that it is may move to a user-centric model, and has encouraged other streaming services to do the same.
Crispin Hunt, head of the British songwriting group The Ivors Academy, claims that Apple Music has also explored user-based payments. Hunt says that Apple found some artists making music on the “fringes,” like jazz, would gain. (Jazz is also hurt by the fact that Spotify pays by stream, rather than by minute of listening, since jazz tracks tend to be longer than most other genres.) But like the Finnish study, the impact is varied. Some big artists, like Taylor Swift, may increase their share of revenue, and some smaller ones will lose out.
Yet even if user-centric payment is in some ways more fair, it still might not be a good idea. A paper co-written by Spotify’s Director of Economics suggests that implementing a user-centric model would be so expensive to manage that it might reducing overall revenues for artists (pdf), outweighing the benefits of a more equal distribution. Figuring out the share of each user’s streams that went to each artist is much more computationally intensive, and thus expensive, than just summing up all the streams.
Many in the music industry think that a user-centric system is still the way to go. It seems more fair, and as computing power improves, it will become less expensive to manage. Perhaps most importantly, it will ensure that fans feel that their listening habits are directly connected to the success of their favorite artists.