You use Spotify to listen to music. Here’s how money from ads and subscription fees gets to artists

LOS ANGELES — Every day, millions of people use Spotify to stream music. A few years ago, this would have seemed impossible: one click and bam, a seemingly endless catalog of recorded music opens up, at your fingertips.

Streaming now accounts for the majority of the money generated by the music industry — 84% in the United States, according to the RIAA, and 67.3% worldwide, according to a 2024 report from the International Federation of the Phonographic Industry, which tracks global sales.

Spotify is the largest platform of all, representing about 31% of total market share — with 626 million users and 246 million subscribers reported across more than 180 markets.

In July, Spotify increased the price of its monthly subscription. So how do advertiser money and subscription fees flow from Spotify to artists’ wallets?

Short answer: they don’t. Spotify pays about two-thirds of every dollar it makes from music streams — a collection of paid subscriptions and ad revenue — to the rights holders of the music on its platform, paid between recording and publishing deals.

These rights holders typically include a combination of record labels, distributors, aggregators and collecting societies — think Sony, Warner, Universaldigital music licensing organisation Merlin which represents independent labels – who then pay their artists based on their contracts.

If an artist is self-distributing, they can pay a small fee to an aggregator or download service (popular ones include DistroKid and TuneCore).

An artist who self-distributes their work keeps “the vast majority (of royalties),” says Charlie Hellman, vice president and global head of music products at Spotify. Or, “those royalties go to their label and publisher.”

Payments to rights holders are determined by a process called streamshare.

Once Spotify pays rights holders, “we kind of lose visibility into what exactly happens after that,” Hellman says.

When you walk into a store and buy an album, a percentage of that money goes directly to an artist. When it comes to streaming, subscription dollars are collected in a large pool and paid out via Streamshare, a figure Spotify calculates by adding up the number of times music owned or controlled by a particular rights holder was streamed in a month, in each market, and dividing that number by the total number of streams in that market.

Most streaming platforms use Streamshare: Spotify, Apple MusicAmazon Music, etc.

Hellman explains that “the fraction of streams” a rights holder has on Spotify is “the fraction of total payments that are made to them.” “We calculate that by market,” he says.

So if a rights holder like Universal Music Group accounted for half of all streams in the United States, it would “get half of all revenue generated in the United States.”

Liz Pelly, a journalist whose first book, “Mood Machine: The Rise of Spotify and the Costs of the Perfect Playlist,” will be published in 2025, says the streaming system has been criticized for “benefiting the artists who generate the most streams” and “the major labels who already have so much market share.”

In recent years, she’s seen artist organizations and independent artist unions call for a shift to a user-centric system. In this system, royalties would be paid directly to rights holders based on what each user streamed. Essentially, if you only listened to Charli XCX This month, she and the rights holders of her music would receive about two-thirds of the revenue generated by your subscription.

You may have heard of a popular metric that suggests artists earn between $0.003 and $0.005 per stream on average. But since streaming platforms don’t pay artists directly, that number isn’t entirely accurate.

“The concept of per-stream pricing is one of the most misunderstood aspects of the music industry,” Hellman says. “There is no such thing as per-stream pricing.”

He uses an example: Let’s say, for ease of understanding, that a listener spends $10 on his monthly subscription. Three of those dollars go to spotifythe other seven go to rights holders. (Currently, the individual subscription costs $11.99, not $9.99.)

“If they only watched one stream in a month, the pay per stream would be $7 per stream. But if they watched (700) streams in that month, the effective pay per stream would be one cent,” he says.

According to Pelly, artists infer that they are earning “fractions of pennies” in royalties by looking at their statements. “And it makes sense.”

They are “symbolically important,” she adds, even if inaccurate, “because they communicate the reality that many artists are very poorly compensated by digital services.”

Los Angeles Experimental artist Julia Holter, whose sixth studio album, “Something in the Room She Moves,” was released in March, says artists receive what amounts to fractions of a cent.

“The current Spotify model doesn’t work for most artists because it’s hard to make a living from streaming alone,” she says. “The math is very complicated, and that’s part of the problem.”

“There are so many artists who struggle to make a career in the streaming age because things are organized in an inaccessible and opaque way,” Pelly adds.

And many musicians aren’t making music in a way that’s “specifically tailored to how streaming services make money… The system is designed to reward artists who generate massive numbers of streams.”

Not all music works that way, she says. “There are artists who make the kind of music that you wouldn’t listen to in the background for hours, or who make music that is long-form, not two- or three-minute short pieces that you could use to fill a playlist.”

In 2024, Holter is one of those artists: It’s been five years since her last solo album, and her latest release includes a handful of six-minute tracks. While streaming requires producing short songs, treating “music as content,” she says, is “anti-creative.”

In April, Spotify began eliminating all payments for songs with fewer than 1,000 annual streams in an effort to generate revenue for what it calls “emerging and professional artists”As a result, those with a higher percentage of stream share revenue will receive an even larger share, coming from artists with fewer streams.

Hellman argues that because there is a minimum threshold to get money from a distributor, artists with fewer than 1,000 annual streams can’t collect their royalties. (At DistroKid, it’s $5.35; at TuneCore, it’s $1 via PayPal.)

“There were more and more people who had $0.03, $0.08, $0.36 in deposits,” he said. “All these pennies sitting in bank accounts all over the place were taking money away from the artists who were actually doing this as budding professionals.”

In May, Spotify announced it would add audiobooks to its premium subscriptions, which would result in a lower royalty rate for U.S. songwriters, according to Billboard. They estimate that songwriters and publishers will earn $150 million less in mechanical royalties in the United States on premium, duo and family plans during the first 12 months of its implementation.

Politicians are taking notice. In March, U.S. representatives Rashida Tlaib And Jamaal Bowman introduced the Living Wage for Musicians Act in partnership with artists and industry workers in the United Musicians and Allied Workers organization.

The bill proposes a new streaming royalty, which would go into an artist compensation fund, which would ensure artists receive at least one cent per stream. This is a direct payment from streaming services to artists, without an intermediary.

The new fee would be funded by a 10% levy on streaming platforms’ non-subscription revenues and additional subscription fees.

According to Pelly, this law “suggests that the current system is not working for artists.”

Holter, who works with UMAW, is optimistic about the bill, suggesting that “if streamers are going to raise prices anyway,” it’s an opportunity to ensure that artists, and not just major label artists, are compensated fairly — without fundamentally changing how the system currently works.

“I think it will benefit everyone,” she said. “Including streamers.”

Earlier this year, Hellman had no comment on the law, but noted that the easiest way to get a penny per game was to get people to stream less.

“I think focusing on what that ‘average revenue per total stream’ looks like really distracts us from what we’re trying to do as an industry, which is get more people to pay more money for music so that we can pay that money to artists and rights holders,” he says.

“Spotify has a vested interest in maximizing its revenue, because we get 30% of it. So we raised our prices,” he explains.

“We’re going to continue to raise prices as much as we can. That’s going to maximize revenue. But if you raise prices too much or limit value too much, you’re going to incentivize people to drop their subscriptions and revert to less productive behaviors like piracy. And I don’t think anyone wants to see that happen.”