How Spotify Makes Money?

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Spotify is the largest music streaming service in the world, but how do you make money and pay artists?

Spotify logo
Spotify is arguably the largest music streaming service in the world. You can pay for Spotify with a premium plan, or not. There’s a Student Plan where you pay less, a Family Plan where others pay, or a free option, where you stream with ad breaks between your music.
If there are so many users streaming on Spotify without paying, how will Spotify, and the artists on the platform, make money?
Music Streaming Services and Spotify
Music streaming services have become the primary way we consume and enjoy music, and are slowly, but surely, taking over the market for selling physical music such as CDs and LPs.
Today, Spotify dominates the music streaming industry, followed by Apple Music, Amazon Music, Tidal, and YouTube Music. This lesser-known music streaming platform is also a great choice and is growing in popularity.
What each service offers looks similar, so how has Spotify managed to beat its competitors to maintain its dominance and make money in the process?
Spotify Subscription Plan
Spotify has two main subscription plans, Spotify Free and Spotify Premium.
As the name suggests, Spotify Free is the first version you get when you first download Spotify on your mobile or desktop. You have seamless access to millions of songs and podcasts, but what’s interesting is that you have to listen to commercial breaks in between. There is also a limit on the number of times you can skip a song.
If you can’t stand being bombarded with ads, you can use Spotify Premium, for which you pay $9.99 per month. With this subscription plan, you can listen to any song without ad breaks. You can skip any song anytime, whenever you want, and even download songs for offline listening. Under Spotify Premium, there are various plans designed to meet the needs of different users. Get 3 free months of unlimited music for a limited time

How Spotify Generates Profits?

 

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Spotify has two main revenue streams: ad revenue and subscriptions</b >.

With around 200 million subscribers worldwide, it is reported that more than 90 percent of Spotify’s revenue comes from its Premium subscriptions. The remainder is money from advertising.
What’s interesting here is how Spotify distributes its revenue to artists, songwriters, publishers, record labels, and others involved in the creative process. This is how the payment system works.
Spotify claims that it currently pays artists around $0.00348 per stream on a song. For a stream to count, users must listen to the song for at least 30 seconds.
Furthermore, after calculating the total money earned for a song, Spotify starts dividing the payment in the form of royalties. After paying the royalties, the remainder goes to the record label, distributor or album of the song, and finally the artist.
But this is also where things get complicated. The amount each party pays varies greatly and depends on factors including the payment agreement that exists between the record label and the songwriter, composer, and producer; which country the song is being played in. streamed, and what type of subscription service the listener uses to stream the song.

Does Spotify Really Make Money?

Samsung tab with Spotify app

 

In 2020, Spotify will increase the number of premium users to 138 million, an increase of 27 percent from the previous year.

But despite its growing subscriber base, Spotify has actually posted losses in most of the financial years since its launch in 2006.

Spotify went public on the New York Stock Exchange in 2018 with an initial public offering (IPO) of $165.90, the highest for a technology stock. However, in the years prior to its IPO, Spotify had suffered net losses.< /div>

The company posted a net loss of $26.7 million in 2009, and the numbers continue to swell. In 2015, Spotify’s revenue surpassed $2 billion for the first time, but still had a net loss of $197 million.

In 2017, the year before the IPO, Spotify suffered one of its worst net losses in years with nearly $1.4 billion in loss in pre-tax revenue.
But why are investors still betting their money on Spotify?
The answer is simple. Music streaming has changed the way we support our favorite artists, and it will remain. In September 2020, the Recording Industry Association of America revealed that in the first half of 2020, streaming generated 85% of revenue in the US music industry, while physical sales only reached 7%.
It’s not just the music streaming industry that’s significantly changing the way we consume content.
In 2020, Spotify signed a deal worth $ 100 million with podcasting the most recognizable name, Joe Rogan, to bring the series is very popular, The Joe Rogan Experience, to platform. In addition, the recently also get the right to produce Michelle Obama’s podcast.
Therefore, even under satisfactory financial performance, music streaming services like Spotify are still in high demand, and the industry will only grow bigger in the next few years.

Most Streamed Artists and Songs on Spotify

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Artists with the most streams on this platform change very often, but you’ll usually see names -Big names like Justin Bieber, Ariana Grande, Ed Sheeran, and Drake occupy the top spot.

At the time of writing, the most streamed song on Spotify is Shape of You by Ed Sheeran, with over 2.6 billion streams . Other top songs include Blinding Lights by The Weeknd, One Dance by Drake, Sunflower by Post Malone, and Dance Monkey by Tones and I, all of which have over 1 billion streams.
Spotify is a great revenue stream for these artists and serves to give an extra boost to their fame. But what about lesser-known indie artists trying to make a living?
How much do artists earn on Spotify?
Spotify’s revenue distribution has long been the subject of controversy among the thousands of creators on the platform. With such a small salary level and many cuts in the money distribution process, you can imagine how much — or how little — indie musicians make in the end.
The platform’s algorithms haven’t helped either. In November 2020, Spotify announced it would launch a new “experiment” on its algorithm to “[give] artists opinions on how their music is discovered.”
Artists and record labels will be given the option to take a “promotional recording royalty rate,” which many understand as a lower streaming payment rate in exchange for a higher chance of getting their music noticed and heard on the platform.
No doubt, this move has received a lot of criticism from musicians in the industry. Many believe this scheme will only widen the existing inequality among artists. For example, an established record company will be able to pay to increase the visibility of singers under its label, but indie musicians just starting out may not be able to do the same.
 
Spotify’s place in the Digital Age
While Spotify as a company isn’t as profitable as we’d like it to be, its existence represents something bigger: a revolution in the way we consume entertainment in the digital age.
As long as we have access to the internet and seek the convenience and affordability of technology, services like Spotify, Apple Music, Amazon Music, and YouTube aren’t going anywhere anytime soon.