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How Can Recording Artists Make a Living in the Spotify Era?

When an artist friend of mine shared a news story on his Facebook wall echoing the familiar 'my-song-has-been-played-a-million-times-and-I-earned-nothing' lament of the post-Napster music industry I thought I would ask Spotify directly - just how do artists get paid when their songs are played on Spotify?

What's the deal with music streaming service Spotify? AC/DC refuse to list their music on the service and prominent artists like Thom Yorke of Radiohead have dismissed it in terms that only require a single syllable.

When an artist friend of mine shared a news story on his Facebook wall echoing the familiar 'my-song-has-been-played-a-million-times-and-I-earned-nothing' lament of the post-Napster music industry I thought I would ask Spotify directly - just how do artists get paid when their songs are played on Spotify?

Mark Williamson is the artist services spokesperson for Spotify and he first talked to me about how independent, or DIY if you prefer, artists can get their music onto the system: "It's really easy. If you don't have a deal with a label you can get onto Spotify in a number of ways. We have deals with a number of aggregators like CDBaby or organisations like AWAL (Artists Without A Label). Generally you pay a small upfront fee of about $25 a year then you get 100% of the royalties from Spotify. Alternatively, you can take the distribution upfront for free and then just pay a small royalty to them [if you get played]."

That sounds simple, but why is there so much confusion over the amount artists get paid on Spotify? Williamson explained to me that it's not as simple as just getting paid a certain amount each time one of your songs is played.

"Like with any new business model there are always a few things to get your head around. We operate using a revenue-sharing model. We pay around 70% of the total revenue of Spotify to rights-holders each month. This means that how much the artist gets is based on how much we make in total, not how many clicks you get, so there are a lot of variables around how much each artist will earn," he said.

This is a very important point. When artists complain about Spotify in the media, it is often based on an expectation that they deserve a royalty per play. This is how music has always worked in the past - a royalty per record sold, or a royalty per track downloaded from iTunes. Spotify doesn't work this way. It's easier to think of it as a big collection of music with income coming from premium subscribers and advertising. If your songs account for 1% of the songs streamed on Spotify last month then they will pay you 1% of all the money they pay out that month.

This can be complicated if the cash is paid to a record label and then passed on to the artist, but if the artist holds the publishing rights to their material then whatever Spotify pays out will go to them directly.

And there is cash in this model. Spotify revenues in the UK for 2012 were £92.6m, a slight fall on 2011 at £96.5, with the fall attributed to a change in the way revenue from premium subscribers was accounted for. But regardless of this slight drop in income, there is clearly money in streaming.

But to some artists this doesn't seem fair. Surely their income should be directly related to how often their music is played, rather than relying on how much Spotify is making and then taking a share of that? Williamson argues that their business model more closely reflects the way people consume music today: "What we are trying to do is create a model that fits with modern consumer behaviour. This industry was decimated by piracy and we have been successful in getting people to pay for music - we need to grow that pie. It does take time to understand the model, but if we can grow the size of the pie then we can pay more money out to artists."

Williamson explained how their 'freemium' model encourages the legal sharing of songs. Non-subscribers can still listen to songs on Spotify, though they have to tolerate advertising in between tracks. Over 80% of their entire catalogue has been listened to, which compares to around 20% on regular digital download services.

The flip side of all this availability is that it can feel like there is too much music out there. Back when you needed a record or CD to listen to music, what you could play depended entirely on what you had in the house or in your car, now Spotify offers pretty much anything you want at anytime. How can a new or relatively unknown band be found in such a sea of music?

I asked Ronan McManus, lead singer of London-based rock band The BibleCode Sundays (BCS). The BCS has a great reputation on the live circuit in London, but are relatively unknown internationally even though they have opened for acts such as Thin Lizzy, The Dropkick Murphys and Van Morrison in the past year and are about to release their third album this week. He explained: "It is partly to do with the advent of digital release and the availability of industry-standard home recording equipment. It means people can self-release for next to no cost and the market is flooded. It is harder for a consumer to discover new music, as there is too much choice now. There are too many media outlets for people to get their heads, or ears, around. In the UK you used to only have four TV channels and only one main weekly music show, Top of the Pops, that was your only shop window as a band, so a record label only had to get their artist on that show for nationwide exposure."

Nobody wants a return to the days where there was only a single promotional vehicle for bands, but as McManus says, if everyone with a guitar can now publish their album, how do you find the good stuff - without assuming that the only good new music is coming from talent shows like the X-Factor?

Williamson believes that the recommendation and sharing tools built into Spotify are a part of the answer: "We have our algorithmic tools to recommend new songs and the artist tools where you can promote your work and build followers, and we also recommend gigs that are local to the listener within our discover feed. When you are a small and undiscovered act then your fans really are your marketing machine and Spotify helps artists with this. Your fans can share and recommend your songs allowing for more viral growth. Our viral chart is focused on what is shared rather than what's purchased and it's usually radically different to what you will hear in the top 40 radio chart."

Williamson added: "We have an integration with Songkick where we look at the music people are listening to and we can pull custom gig listings from Songkick for that user. Advertising your gigs is no longer about pasting up a flyer in the right part of town. We know which artists users are listening to, how long they have listened to them and we can really recommend a ton of relevant gigs to those users. Songkick do a great job of getting people to those live shows."

None of this should come as a surprise. In his 1995 book 'The Road Ahead', published before most people were even using the Internet, Bill Gates predicted that movies and music would move to a streaming model as soon as it was common to have enough bandwidth - remember those 14.4k modems? We have moved a long way since then.

The music business has moved away from revenue from physical artifacts - records and CDs - to live events and merchandise. For an artist to make a living in music today relies on them having a much closer relationship with their fans. But the Spotify approach is based on a community of music and Ronan McManus believes that this is the way forward for artists today: "The business model for artists today involves building a community of loyal fans that will pay for the music you produce. Matt Cardle is a great example of someone who is doing just this. He was a musician before he won the X-Factor, playing in pubs and clubs. He used the TV show as a platform, then shed the 'Cowell shackles' and is now left with a large fan base of loyal followers - he has over a million fans on Facebook. We don't all have the luxury of a TV show to boost our audience, but Matt has proven that the model works if you can achieve the numbers."

If Matt Cardle can make just a few pounds per year from everyone in his Facebook community then that's a great income. More realistically if a band can aim to make a fiver a year from a community of twenty or thirty thousand fans then that's still enough to make a good living from playing music.

And that's the real aim here. Getting to a point where it's possible to make a living from making music in a time when nobody buys records. Spotify comes in for criticism from artists who are still waiting for a royalty on each song, but if they look to these new community based business models it's clear that streaming can help them to make a real living from their music.

The Biblecode Sundays launch their new album 'New Hazardous Design' at Under The Bridge in London on Friday 22nd November. If you want to support artists who are making great music and trying to build a community of fans then you can get a ticket for the show here...