Spotify: How does it work and why is it mentioned everywhere

    This post opens the section “News and current affairs”, which will be focused on what is happening right now in the cultural-related industry and topics that might be of interest for all of you. And, why do I talk about cultural industry  and not just about culture? Well, I think that we should be clear that mainly in music, but as well as theater, dance and other disciplines; money, marketing, finances, the production,  … are essential and a huge part, like it or not, of them. The first topic I’ve chosen is Spotify, especially how it works and why it is mentioned everywhere. Let’s start then!

    As we all know, Spotify is a streaming platform that gives us access to a huge variety of music, podcasts, and recently, videos. Ok then, so how do composers and artists earn money from this platform? Let’s talk about royalties. To stream a recording, Spotify requires two separate licenses, Sound recording and Composition/song; and each of those result in two different royalties, which are:

  • Recording or mechanical royalties. These refer to the royalties that are generated when a composition is reproduced, either digitally or physically. Behind every title, there are also two sets of copyright: musical composition, that belongs to songwriters; and the master recording, which is the audio expression. In these royalties, songwriters and publishers are paid usually through record labels acting as the owners of the master copyright. When there’s no record label, the artist controls their Sound Recording, acting as their own record label. In this case, we need a second license to authorize the platform to play the Sound Recording. The artist needs to grant the right to stream their sound recording on Spotify to their distributor, and this distributor licenses the right to stream the record ‘s Sound Recording to Spotify.
    So, depending on how Sound Recordings were licensed to Spotify, these royalties can be paid to the record label, the entity that works for the artist as distributor or the distributor working for the record label.


  • Publishing royalties. Money paid to the owners of a composition or songwriters. They are issued to publishers, collecting societies and mechanical agencies depending on the territory of usage.

    And here we have the two big questions about royalties: How are they calculated and how much do artists and songwriters get paid? Spotify doesn’t pay royalties according to a per-play or per-stream rate. Net revenue from Premium subscriptions and ads are distributed among the rightsholders. It is calculated by subtracting the money they can’t keep (taxes, billing, sales commissions, credit card processing fees, …) from what they collect, and what the rightsholder gets of this net revenue depends on streamshare. This streamshare gets calculated by counting the number of streams in a month and defining what proportion of that stream were people listening to songs controlled or owned by the rightsholder. The amount artists and songwriters get paid relies on the agreements they have signed with their distributor, collection society or record label.





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