[Some of this article is a reworking of a piece I wrote in late 2011, when things looked more hopeful. The numbers haven’t changed too much since then, by my opinions most certainly have.]

If you’re in any way connected with the music industry it cannot have escaped your attention that Spotify is again in the news. And, yet again, all this media interest has come from an artist backlash; back in 2008 there were claims that Lady Gaga only received £100.76 for a million streams of Poker Face, and in November 2011 John Hopkins spoke out on Twitter about getting only £8 for 90,000 plays. This time Nigel Godrich – longtime Radiohead and Thom Yorke producer – has hit out at the streaming platform, but unlike those that came before him, Godrich (with Yorke’s support) is not complaining about his specific stream-based earnings, but about the ability of the platform to support new artists. It’s all very well for acts like Radiohead with a massively successful back-catalogue to generate streaming revenue, he says, but the pittance Spotify and the like pay per-stream means new bands are getting a rough deal, and an unsustainable one at that.

In protest, all Godrich and Yorke’s solo albums, along with the recent record from their collaboration as Atoms for Peace, have been removed from Spotify. In Rainbows is also not on the service, but the rest of the Radiohead canon – owned by EMI – remains available for streaming.

For once, all the media hype is actually justifiable. Yorke and Godrich are grabbing headlines to hopefully spark a reasoned debate, and one that is badly needed. If Spotify et al really are the saviours of the music industry, then new bands must be happy with the system. A world awash with back-catalogue but with no new music would be a terrible thing. And with indie labels increasingly struggling to afford to operate, that world is exactly what Godrich and Yorke are seeing on the horizon.

The History

So why is Spotify seen as such a revolution for the digital music industry? Cast your mind back half a decade to a pre-streaming world, and there was no middle ground for those who couldn’t (or wouldn’t) buy downloads, but who were already indoctrinated to the always-on, everything-at-your-fingertips mentality of the internet. You wanted to hear a song your mate had just recommended, but didn’t want to splash out on a download (79p) or a cd15); why wait – potentially in vain – for the track to come on the radio when you could just pop onto your file sharing service of choice and hear the song in seconds (or minutes, if you were still on dial-up)? The legal, label-sanctioned Spotify filled that niche, and ad revenue paid the artists.

The fractions of a penny the artists actually earned per-stream was less than the income from a download, but more that nothing. And thus Spotify could sleep at night, safe in the knowledge that it was doing a good thing.

But not everyone saw it that way. Many - including Hopkins, Gaga and other streaming-refuseniks like Coldplay, The Beatles, and Pink Floyd, saw the streams as lost album sales. Why would someone pay for a download when they could stream the song whenever they liked for zero marginal cost? Seen in that light, the ‘something is better than nothing’ argument held less water. If streaming was hoovering up listeners who would otherwise have bought a download, then the monies paid to artists had better be more substantial.

The Facts: Actual Numbers

So Lady Gaga only received £100.76 for a million plays of Poker Face in 2008, eh? That claim has since been proven to be false (in fact, Spotify paid out £201.53), and the streaming service claims the low payout was because at the time the platform was still in its infancy, but confusion still abounds.

The fact remains that the only way to know how much Spotify pays out is to actually receive a cheque from them, and even then the numbers are tricky to interpret. The first cheque I received from Spotify came in April 2010, and it showed that I was earning different per-play rates based on geographical location and whether or not the listener was a subscriber or ‘freemium’ user. For plays in the UK by non-subscribers (a.k.a. ad-funded royalties) I was getting roughly 0.04p for each stream, and for plays by UK-based Spotify subscribers I was getting about 0.5p per-stream. My most recent Spotify royalty cheque is from May this year, and while rates have varied a little since 2010 the average pay-out per-stream is still somewhere between half a penny and .04 of a penny. Sadly not enough to retire on.

[It should probably note at this stage that as a self-released artist I see 100% of the income generated by my streams. A band going through a real label will see less than my half-a-penny as that money has to be shared out between the label, band, manager, etc.]

Spotify Pays Better Royalties Than Conventional UK Radio

So it’s clear to see I’m getting ripped-off, right? Well, maybe not. At the current rate, it takes over 150 Spotify plays to earn what I get from just one download on iTunes, and the exchange rate looks even worse when you compare the £8 Jon Hopkins made for his 90,000 streams (his label were clearly shafting him, as I’d earn £180 for that many streams) to the £50 he’d get from just one play on Radio 1. The figures are all accurate, but do they actually tell us anything? These kinds of comparisons aren’t really comparing like for like, and as such they’re of little use. If you take into account the number of listeners to Radio 1 and count each of those as a single stream, then the figures look a whole lot more favourable.

According to RAJAR, Radio 1 reached just over ten million people in the quarter ending March 2013. If we take a massive leap and assume that every single one of those ten million people heard every song played on air, then Radio 1 would be paying a per-listener rate of 0.00000005p; much lower than Spotify’s per-listener figure of 0.5p. Even assuming a more realistic listening figure (there are a lot of assumptions in that calculation and Radio 1 pay more than most radio stations) it’s still safe to say that Spotify is much the same as (if not a little better than) terrestrial UK radio play, and we shouldn’t get too upset about it.

Adjusting for ‘Breakage’

Of course, just because online streaming pays out royalties that match up favourably to radio doesn’t mean we can stop worrying. The argument gets a little more tricky when you consider that people are using Spotify not as a radio service, but as a replacement for actually buying records. This is the argument made by Godrich et al, and it’s one that looks less kindly on Spotify’s model. How many times do people listen to albums on average?

Someone would have to listen to a ten-track album end to end nearly 2000 times to equal the £7.99 one would pay for an album download (again, lots of assumptions here). Not an unreasonable task for my Desert Island Disks, perhaps, but the majority of albums in my collection have only been listened to a handful of times at least, and many have never been listened to end to end.

In the physical world, these records – bought but never played – fall under the category of ‘breakage’, and constitute a not-inconsiderable proportion of the income for old-fashioned labels. What the try-before-you-buy nature of the current market is doing is effectively eliminating this kind of breakage from the system. For years now Spotify have been promising that the royalties will go up as their business grows, but I’ve seen little evidence of that.

The only way to make money through the system as it stands now is to be a major label, and surprise, surprise, the original Spotify refuseniks (the ones with the super-popular catalogues) have finally overcome their misgivings and are now mostly available to stream. The trick, it seems, is to negotiate yourself some favourable rates with Spotify (something indies and self-releasers like myself could never do) and rack up plenty of streams from your massive archive. New bands can’t do this, and unless things change drastically, self-starters – what I see as the life-blood of the industry – will be squeezed out entirely.

Four Tet agrees with Godrich

Something Needs To Change

I used to think that the move toward streaming as the primary method for consuming music was scary for those who stand to lose a substantial portion of their income (a.k.a. the majors), but ideologically better suited to smaller acts. A world where music is paid for on a per-play basis is a more equitable one, surely? But now the naïve and idealistic idea of a musical meritocracy is threatened by the tiny payouts that can only benefit those who can supply content in bulk. If streaming really is the future of music consumption, then things need to change fast.