Joe Sparrow : Scale x Time: How Spotify Works Right Now [Part 1]

I feel like I need to write the below down, because I have to keep explaining the maths to people who ask about it, and my maths is terrible, and I have to keep checking if I’ve got a decimal place wrong (and usually I have). 

Anyway, here’s something to get out of the way right at the start:

The old way of making money via recorded music was a unique blip.

People love how Spotify gives them all the music they want for nothing. At the same time, a lot of people don’t instinctively like how Spotify pay people.

The 18 year-old music students I talk to – who were not even fertilised eggs when the music business decided that the giant, coke-fuelled advances they handed out to artists were beginning to look a little gauche – bemoan the fact that artists don’t make much money per stream from Spotify.

(Funnily enough, very few of them – less than 5% at a guess – actually subscribe to Spotify themselves. When I ask why, they say they’re skint, and anyway, don’t the ads they have to sit through pay the artists?)

The internet’s revolution has given new businesses once-in-a-lifetime opportunities to gain unique footholds; the desperate rush has meant that it has hinged on giving it away for free. If you charge money, you’re dead.

And being dirt-poor but in the race is preferable.

Spotify seems to be doing a decent job making people pay money for music again: 10M subscribers as of June 2014. Still, lots of focus is lavished on this pesky average payment of $0.007/stream. It gets a lot of peoples’ knickers in a twist.

That’s because it sounds like a pittance. And it is – if you use the old way of thinking, where an LP costs £10 or £15, and you sell a million of ’em.

Which most artists didn’t do.

Here’s how Spotify is supposed to work:

scale x time = a chance at making a living.

Here’s how it works with numbers:

1 average stream = $0.007

1 average LP = 10 songs = 10 streams = ($0.007 x 10) = $0.07 per LP play

7¢ for playing an album still sounds like a pittance. But how many times have you played your favourite LP? 100 times? How many times might you play it in the future? Another hundred?

If you’ve streamed your favourite LP 100 times already, that LP will have earned ($0.07 x 100) = $7.

Seven bucks. Is that a reasonable enough deal?

What if, after you’ve played it another 100 times, and accounting for inflation, the next 100 plays earn the artist $9?

That’s $16 that LP has earned from you alone – and possibly more than if you’d walked to the shop and bought the LP before all this streaming malarky took place.

Now multiply all those streams by how many people like the band as much as you do. Now record another LP that people love as much, and you’ve doubled your income.

That’s how Spotify works. If you don’t write an LP good enough to convince lots of people to stream it 100 times, go and record a better one.

That sounds horribly tough – and, well, it is. But that’s the new reality. Is it any better than the old reality? Maybe not, but it’s what the bulk of people want right now.

Welcome to the future. The old way of making money via recorded music was a blip.

[In Part 2, we’ll have a look at music monopolies; who it is that actually gets paid by Spotify; and why this new system is also wrong, as well as right]