Home Is Spotify Doomed By Its Low Artist Royalty Payments?

Is Spotify Doomed By Its Low Artist Royalty Payments?

Tech and music enthusiasts in the United States were overjoyed when Spotify finally launched here in July. The on-demand music streaming service had been all the rage in Europe for a few years, but its U.S. launch was reportedly delayed by ongoing negotiations with major music labels.

Spotify has been up and running in the United States for nearly three months, much to everyone’s delight. Well, maybe not everyone. A few independent record labels have pulled their music catalogs from Spotify over concerns that the service just isn’t lucrative enough for them, GigaOm reported earlier this week.

Prosthetic Records, a small label based in California, recently became the third independent metal label to back away from Spotify. After a brief run, the label decided that the minuscule payments it was getting from each stream (“fractions of pennies,” as one of its co-owners described it) weren’t worth it.

As popular as all-you-can-stream services like Spotify are with music fans, they are nowhere near as lucrative for artists as selling music directly, a fact that this infographic so boldly illustrates. An artist’s song would have to be streamed 4,053,110 times per month in order to make them the equivalent of minimum wage.

Of course, the labels that have jumped ship so far are smaller, independent niche labels. While that may upset fans of a band called Skeletonwitch and other metal bands signed to Prosthetic Records, it’s unlikely to make a dent in the service’s overall usage. Spotify signed deals with all four major music labels before launching in the United States, so the bulk of the service’s music library is probably safe for now.

That said, if this displeasure over the low fees paid to labels and artists causes more smaller labels to think twice, the service could be in trouble down the road. In addition to the four major labels, Spotify also signed on with Merlin, a nonprofit network of over 12,000 indie music labels. If dissatisfaction over this lack of a viable revenue stream for smaller artists bubbles up through that organization, Spotify could lose a sizable chunk of its library.

Small labels aren’t the only ones who are nervous about low levels of revenue they stand to gain from online streaming services. This is one reason major labels were so hesitant to get on board with Spotify in the U.S. In 2010, Warner Music CEO Edgar Bronfman Jr. was quoted as saying that free music streaming services were “not net positive for the industry.”

As it nears its third month of operation in the United States, Spotify is still growing and this small exodus of indie labels probably doesn’t constitute a major threat to its success. But it’s a trend worth keeping its eye on for Spotify and its competitors.

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