(If you haven’t read Part 2 of my series “How to actually make money from your music”…. then LEAVE NOW, YOU’RE NOT WELCOME HERE.
I’m just joking, but it does set the stage for what we’re going to discuss today, so it might be worth jumping back and giving it a quick read. If not, that’s fine, but it’s definitely going to impact our personal relationship.)
OK… today we’re ditching the creative writing and digging into some boring (but necessary) education on the music industry that will help you to understand exactly how to start making money from your music.
I’ll make it as entertaining and informative as I can, but this is going to be a very “eat your vegetables” type of article, which means it’s best to choke it down for now. You can focus on what you’re having for dessert later.
Today we’re discussing the streaming industry.
Almost every artist seems to judge their “success” nowadays by their streaming numbers, and often spend most of their time and money trying to build their presence on Spotify, Apple Music, etc.
(For the sake of this article, I’ll focus on Spotify, but the concepts are universal and can apply to pretty much every streaming service.)
So let’s start with a fundamental truth we all already know.
Spotify pays like sh**.
We all know that already… it’s been talked about to death.
It’s been said in every quirky, humorous, jaded, creative way, and now it’s time to move the conversation along if we ever intend on changing things.
To do that, we need to understand WHY Spotify pays like sh**, beyond just screaming “THEY’RE GREEDY!” on a reddit forum.
Let’s start by first learning how Spotify makes money from your music.
To keep it simple, I’ll focus on Spotify’s two main products:
Free subscription (with ads)
Premium subscription (without ads)
In a nutshell, Spotify makes money by either selling advertising space to brands to market to their free listeners, or by charging listeners a subscription fee for an ad-free experience.
Either way, like almost all tech platforms, they generate almost all of their income by maximizing attention on their platform.
If they are successful at bringing people/attention to their platform, they can either
A) sell advertising space or
B) sell premium subscriptions (cause ads are annoying)
The more attention they can get, the more ads and premium subscriptions they can sell… and the higher the total revenue.
Now put yourself in the shoes of Daniel Ek, Spotify’s CEO.
Congrats, you are bald and extraordinarily rich.
As CEO, your goal is to maximize profits for your shareholders.
(I know that is 🤮 for a music company, but even if you want to change that, then you still need to understand this.)
If your goal is to maximize profits, then you need to maximize advertising revenue and paid subscribers, since these are your two products.
And as we just said, to maximize advertising and paid subscriber revenue… you have to maximize attention on your platform.
So my question for you, sweet dear bald Daniel, is…
How do you maximize attention on Spotify?
Don’t keep reading until you answer that question in your head.
*Jeopardy theme song*
….
…….
(Don’t skip this until you have a guess…….)
…..
Do you have your answer? Are you lying to me? I thought we were closer than that….
……
…..
OK TIME’S UP.
THE ANSWER: You maximize attention by paying for music thats gets/keeps users on the platform.
Now, you may be saying to yourself “yeah no kidding you dumb clown, I know that already” (which, ok rude), but let me finish.
It’s not as simple as paying for music to get/keep people on the platform. After all, you don’t have an endless supply of money… which means you have to pay the right price for the music.
And how much you pay for that music has to be a function of how good of a job it does getting and keeping people on the platform, right?
Take a quick stretch, blink your eyes, get a drink of water. We are getting close to some “ah-ha” moments…. just bear with me.
So how can we measure how much a song is worth to Spotify?
Well, the two simplest metrics we can use to measure a song’s worth to Spotify are:
Marginal*** new users (free and paid)
Marginal*** increase in app usage
(***You’re probably asking what marginal means from a business perspective. Maybe you already know, in which case congrats on your supreme intellect, but if not, here’s a quick breakdown.)
“Marginal” simply means “on the edge”.
That’s why the edges of a piece of paper are called “margins” (don’t say this SubStack never taught you anything).
So what does it mean when I say “marginal new users” or “marginal increase in app usage”, etc?
Well, if I just said “new users”, I’d be referring to total new users.
But when I say marginal new users, I’m referring to only the new users that joined the platform because of that specific song, or users that were pushed over “the edge” by the new music.
For example…. let’s say telco (my now defunct band) releases a new song on Spotify in June.
And, for this example, let’s also say that Spotify adds 200,000 new total new users in June.
Now… as much as I’d love to take credit for that spike in new users…. it’s probably safe to say that 200,000 people didn’t join the platform to listen to me sing about my OCD (again rude).
Of those 200,000 new users, let’s say only 2 of them joined the platform because of my new song (shout out Grandma and Uncle Joe).
Therefore, my song generated 2 new users at the margin who otherwise wouldn’t have joined, or 2 marginal new users.
(If that doesn’t make sense, re-read that section until it does, this is important).
Now, let’s also assume in this example that Spotify’s app usage across all users in June also increased by an average of 26 seconds/day.
Again, my new single can’t take credit for that entire increase. Instead, I need to calculate what share of that 26 second increase across all users was a result of my new song being on Spotify.
Assuming I get 100,000 streams on my 3-minute single (300,000 total minutes), that is still only a drop in the bucket compared to the total app time that artists like Taylor Swift, Harry Styles, etc probably drove to Spotify in June.
Therefore Spotify’s marginal increase in app usage from my new song is probably something like 0.0001 seconds.
So, according to Spotify, the most important metrics for my new song look something like:
Marginal new users: 2 free, 0 paid.
Marginal increase in app usage: 0.00001 seconds/user.
Suddenly it’s easy to see why Spotify doesn’t give a crap about my music.
(Join the club, Spotify.)
With metrics like this, I probably generate more money for Spotify by paying my monthly $9.99 subscription (as a listener) than I do from putting my music on their platform.
Because unless I’m driving loads of new users to the platform, or significantly impacting the amount of time existing users are spending on Spotify, then my music is essentially worthless to Spotify.
In fact it’s probably worth somewhere around…. oh I don’t know…..
Now… before you get all huffy that I’m “defending Spotify”, let me be clear about something.
Understanding why Spotify pays you so little doesn’t mean defending their business model.
In fact, it arms you with the knowledge you need to actually fight back (or change strategies).
Because here’s the sad truth: no matter how much you complain, Spotify’s entire business model (and all major streaming platforms’ for the most part) is centered around new users and total app usage.
Which means they’re only going to pay for content that materially increases those two metrics unless they completely change business strategies or become incredibly charitable…
And judging by recent headlines like this, neither seems likely anytime soon.
In fact, the problem seems to be getting worse.
Is this right? No.
Does this dilute the value of art and make it incredibly challenging for independent artists? Totally.
Should it surprise you? Not at all.
Because if you understand what we just discussed, then you also understand that the only way you can make a legitimate source of income from streaming is to be one of the very few that are able to materially increase marginal new users and average app usage for Spotify.
And to do that, you basically have to be in the top 1% of music makers on Spotify.
And to be in the top 1% of music makers on Spotify, you need to have mass market appeal, or an insane promotional budget (usually from a label… which won’t sign you without mass market appeal lol).
So if you’re an unsigned artist making experimental EDM, psych prog rock, jazz-funk, or any slightly nuanced music, and you keep releasing music on Spotify expecting to turn it into a career….
Then I will remind you of a quote from my good friend Albert Einstein (with whom I share my birthday, little fun fact…)
The definition of insanity is “doing the same thing over and over and expecting a different result."
The attention-driven business model that underlies Spotify (and most streaming services) incentivizes Spotify to reward artists that have mass-appeal (and marketing budgets), at the expense of the independent artist.
And until that changes, your music is (most likely) going to sit on Spotify without much traction, unless you dump loads of money into promoting it.
And at $0.003/stream, how do you ever plan on getting a return on that promotional budget?
All of this should beg the question…
Why then did you spend so much time sending your fans (that you worked so desperately hard to find), to go to a platform that has little to no impact on your careers or finances?
THE ANSWER: Because you hadn’t read this article yet, silly.
Now you can understand that the streaming platforms aren’t broken. In fact, they’re working exactly as they were intended.
They just weren’t intended to help independent artists to make a living.
If you’re not a mass-market artist with a massive promotional budget, and you want to make money from your music, you probably need to look elsewhere.
You can be bitter and yell at sweet bald Daniel Ek.
Or you can continue along into the unknown with me.
Onward ⚔️🫡
Michael from mad records
Literally the only thing I've been thinking about for the last few days after having been asked why my music isn't on Spotify several times in the last few weeks. People have always looked at me with perplexity when I've explained that I object to the streaming service business model on ethical grounds but I have noticed that more people, (mostly musicians), agree with me nowadays and are starting to get wise. I plan to use the paywalled subscription approach here on SubStack to distribute my music directly to fans, with the hope of building a modest but loyal audience of monthly listeners who are happy to pay a few quid to have access my music. Fogchaser already makes a living by distributing his music on SubStack using this model.
I'm currently working on creating enough ‘content’ (bleurgh) to launch the page soon. I think that could be an avenue lots of musicians will take now. Boycott Spotify.