The Taylor Swift-Spotify saga (1/2): streaming royalties and lifetime value

Yes, you heard correctly – Taylor Swift has removed her entire back catalogue from the music streaming service Spotify; apparently because in her words, “Music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for. It’s my opinion that music should not be free, and my prediction is that individual artists and their labels will someday decide what an album’s price point is. I hope they don’t underestimate themselves or undervalue their art.”

There are very few artists in the music industry that can cause such a stir as Taylor Swift. She is one of the most successful artists for a generation, with her new album 1989 expected to exceed 1.3m copies in its first week, beating Eminem’s The Eminem Show which was released in 2002.

Two really interesting themes emerge from this debate:

  1. The value of royalties on streaming services versus other digital music services, and whether the lifetime value of a track means these royalties are truly comparable, and
  2. The underlying value of distribution (and discovery) countering the assumed mantra of the industry that “content is king”.

Value of royalties on streaming services

Taylor’s argument is that Spotify undervalues artists by only paying a royalty of $0.005 and $0.0065 per play, which compares to a figure 100x higher when a track is downloaded on iTunes or Amazon. The graphic at the bottom of this post (a little out of date but still relevant) provides a helpful comparison of music royalties across media. This disparity in royalty payments is due to the fact that iTunes and Amazon can only charge the consumer once – at the point of download – whereas Spotify ratchets royalties every time the track is played. So if you’re a fan of a particular track, Spotify rewards the artist by adding to their royalty pool each time, whereas the iTunes download can’t differentiate between tracks that are popular and those that are not.

Ironically for Taylor, Spotify is therefore favourable to popular artists – an analysis of the release of Daft Punk’s Get Lucky track on Spotify in May 2013 (see here) estimated that for the 25.5m streams of the track in the first 4 weeks, Spotify would have paid out roughly $127k in royalties and that figure would keep building throughout the track’s lifetime on the platform.

The unanswered question is what the total lifetime value of the track might be on streaming services. If these ‘purchases’ of the Get Lucky had been downloads rather than streams, Daft Punk could have generated up to $13m in royalties (assuming all 25.5m streams were a download), but Spotify’s pricing argues the track would then be listened to on average 100 times over its lifetime.

Comparison of music royalties across different media, 2010 (InformationIsBeautiful.net)

Comparison of music royalties across media

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