In June 2015, the service reported 75 million active users, of which 20 million were on a paid plan (that’s over 25%). Recently, their chief revenue officer shared that they were on track to hit the 100 million active user mark before the end of 2015. Consumers have adopted the Swedish service en masse, with Scandinavian countries leading the way, followed by the rest of Europe and now the rest of the world. By allowing people to experience the platform for free through their ad-supported freemium model and over-delivering on user experience, Spotify’s initial growth was largely driven by word of mouth instead of advertising.

Songs On Spotify Royalty Free Sound
Royalty Free Music Playlists
Spotify Free Music Streaming
Spotify Free Music Playlist
Royalty Free Playlist Spotify

Now, having captured the majority of market share in Europe and with the competitor Apple Music entering the scene, Spotify has attracted more venture capital and is beginning paid advertising campaigns to win users in territories such as the USA.

Spotify do not publish an official per stream rate of pay as this is not the way they work out their royalty payments. Spotify pay the majority of their revenues earned through their subscriptions and advertising back to the music rights-holders (Record Labels, Publishers and PROs). Spotify says that it would not charge anything upfront to make sure that the tool is accessible to all artistes at any stage of their careers. Instead, labels will have to agree to be payed a lower, “promotional recording royalty rate” if they want to make use of the service.

This is interesting for artists and labels alike, as it means that streaming is now getting more exposure than ever.

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Personally, I’m a fan.

Two years ago I started using Spotify, immediately subscribing to a paid plan after discovering the smooth user experience, nice interface, large catalog of music and ability to stream at 320kbps MP3 quality (yeah, Netherlands mobile networks rock).

Before, I had been an iTunes kind of guy, downloading music and syncing it to my iPhone to listen on the go. It worked, but the process was far from optimal – because of the set-up time of downloading and migrating the files to my phone, in reality, I ended up listening to the same collection of music for extended periods of time.

The switch to Spotify reminded me of my initial migration from Windows to OSX… awkward at first but much more efficient once I got accustomed to the interface.

The new paradigm

I think the popularity of streaming services such as Spotify, Apple Music and even Netflix are symptoms of a new paradigm: accessibility over ownership.

Consumers prefer easy access and a comfortable user experience over actually owning products and services.

After all, why would you purchase CDs if you can stream high-quality music on your desktop or smartphone, with your whole collection being accessible cross-device and have the option to sync for offline listening? It’s simply a better user experience.

Sure, some people still purchase CDs and vinyl because to them nothing beats the experience of having a physical product. Others still purchase CDs or download lossless quality files because the audio quality is better. Both are valid arguments, I get them, however percentage wise this is just a minority of all the music listeners.

Streaming is changing the game and with Spotify being at the forefront, I wanted to dedicate a post to talk about how you can get the most out of it.

Getting your music on Spotify

You can view Spotify as a store similar to iTunes and Beatport, falling in the category of DSPs (digital service providers).

To get your music up on the platform, you need to make sure you have all the rights (no unofficial remixes, uncleared sample usage, etc). From there, you will need either a direct distribution deal with Spotify (reserved for large record labels) or a connection with a distributor or aggregator that does.

For those of you unclear about the distinction, an aggregator is a company that provides distribution services to a large user base, supplying the content to multiple digital service providers (DSPs) (iTunes / Spotify / Beatport / Apple Music etc).

Distributors essentially do the same thing, but at a smaller scale (fewer clients with bigger catalogues) and work closer with specific record labels and artists and can assist in facilitating marketing placements on the stores.

In terms of the time it takes for your music to be live on the store, Spotify is one of the quicker DSPs and depending on your distributor’s processes, your music can be up on the store within 1-3 days after delivering the content.

Spotify royalties

There’s been a lot of fuss in respect to Spotify’s royalty payments.

Firstly you will have to understand the difference between the freemium and premium models. The one is free to use and shows ads (display and audio) to users, whereas the premium model is ad-free and requires a monthly fee.

Plays are not treated equal on the platform. Plays of premium users result in a higher payout to rightsholders than those of freemium users.

How it works – roughly – is that Spotify takes all the subscription (premium) and advertising (freemium) revenues over a said period, dividing those monies by the total amount of streams.

Rightsholders are paid out based on those rates and from what I understand these are corrected by the percentage of plays that came from the freemium / premium users (so larger % of streams from paid users = higher royalty rate and vice versa).

Songs On Spotify Royalty Free Sound

Of course, that imposes a problem.

With their tremendous growth, going from 60m active users of which 10m paid in late 2014, to 75m active users of which 20m paid in mid 2015, the growth of free users is larger than paid users, thus diluting the per-stream royalty rate.

The more users Spotify acquires, the lower the per-stream royalty rate, unless the paid-to-free subscription ratio maintains or rises. It’s like inflation.

The rates are also influenced by the country of which the streams originate (because of territorially dependent advertising buys and currency value) as well as the price of paid subscriptions, which may vary because of discount and package deals.

Spotify officially reports their average composite per-stream rate to be between $0,006 and $0,0084.

Our rate with Heroic over 2015 Q3 was approximately $0,00475 per stream, without including any distribution fees. This is the pure rate we received from Spotify via our distributor. For clarity, these are Spotify royalties over the master.

For songwriters it is different. Internationally, parties have decided to consider a stream roughly 75% public performance and 25% mechanical reproduction. Spotify pays these rates on behalf of the label (by withholding it from the master royalties) and allocates it to the PRS’ whom in turn collect for the publishers or songwriters directly.

Can you access spotify without the app on phone. These rates are much lower, with some songwriters reporting receiving roughly $0,00009 per stream. That’s $90 for 1.000.000 plays.

Nonetheless, Spotify is becoming a significant revenue stream for record labels and performing artists. With Heroic, we’ve seen Spotify’s share of our distribution income shift from 10% to over 55% in the last two and half years.

Pair that up with a decrease in iTunes (Apple is pushing consumers towards their Apple Music streaming service) and Beatport sales (their new streaming service is terrible, the pro.beatport.com store is confusing and SFX stock has plummeted) and you can see how streaming is going to account for the lion’s share of (digital) recording revenues in the coming years.

Playlists

The biggest driver of plays on Spotify are playlists and charts.

These are lists that are curated by both consumers and companies, which list tracks that they enjoy. Spotify’s playlists are cool because when you follow one, you’ll get a notification every time a track is added to that playlist. That’s what drives the plays.

Every user has the ability to create playlists and retitle them, however the ability to customize artwork and add a description is restricted to VIP / verified ac