By Simon Basketter
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Neil Young and Spotify — music industry bosses are the real pirates

Spotify grabbed £9 billion in revenue in 2021 yet they pay just £0.0026 per stream. Many people are asking how does the streaming service make such huge profits?
Issue 2792
Musician Neil Young at a question and answer.

Musician Neil Young tells artists on Spotify to “get out before it eats your soul”. (Ross/Flickr)

Neil Young pulled his music from Spotify over podcaster Joe Rogan’s Covid misinformation—but that won’t stop the platform’s profits. 

On Spotify musicians get paid a tiny fee per stream. Podcasters get paid up front—£73 million in Rogan’s case. Spotify recorded £9 billion in revenue in 2021. And it’s set to make consistent profits for the first time since it was set up in 2006. At that time the options were to pay for a digital or physical album or song—or illegally download music for free using a file sharing service. 

The latter was becoming ­increasingly popular. Annual US music revenues were falling. From an inflation-adjusted peak of £18 billion in 1999, they dropped to £5 billion by 2014.

Spotify now has 406 million users—180 million of whom pay. The rest provide cash for the ­company by listening to adverts. It accounts for 20 percent of all recorded music revenue, far more than competitors. 

Before Spotify the music ­industry sued streaming services out of ­existence. But they made a deal ahead of Spotify’s 2011 US launch. The big labels, including Warner Music Group, Sony, and Universal Music Group, received a combined 18 percent ownership stake in Spotify. One executive said the platform was created to solve the problem of piracy, not “to pay people money”.

So Spotify keeps a third of the royalty payments. The rest goes to music rights holders. In 2020, this share of revenues was £4 billion. That is further divided between recording rights and publishing rights.

Under the terms of most record deals, labels often retain an ­artist’s master rights, meaning they own the actual sound recordings. But artists more often retain their ­publishing rights, which means they still own the compositions of their songs—the lyrics, melodies and arrangements.

So record companies have ­recovered from the growth of music piracy and made money at both ends of the deal. Other vultures have joined the scam. When an artist “sells their ­catalogue” they sell their ­publishing rights. 

For instance Neil Young, and Barry Manilow’s publishing rights are owned by private equity companies. Some of Gil Scott-Heron’s work is in the hands of private companies, although he retained or regained publishing rights to much of his own catalogue. 

Publishing rights are what is paid whenever a bar or a radio station plays a song, or an advert or film uses it.

Currently £3 billion a year is being spent by vulture capital buying up music rights. But in 2020 the number of recording artists whose catalogues generated £36,000 or more on Spotify was 13,000. That’s out of eight million ­creators. Just 2 percent make more than £1,000 a year. The actual average per-stream payout is £0.0026 if—and it is if—these royalties make it back to the artists. Some get nothing.

The economics of podcasting is more straightforward. Spotify takes in money for hosting adverts on podcasts it owns. It is prepared to pay a fee for big name podcasts to strengthen its position as the place to go for podcasts.

 

The £73 million for the Joe Rogan Experience podcast was the equivalent of a publishing rights deal. Spotify bought exclusive rights to 11 years of the reactionary Rogan’s podcast back catalogue and future ones. More central to its podcast ­structure is that Spotify owns ad hosting platforms where you can post your podcast. 

It takes up to 50 percent of the advertising revenue off people who post podcasts without having to pay them anything. In both cases the key is to be the largest player to produce the most methods of making sure those who have wealth keep it. It seems the real pirates won after all.

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