Why ‘Apple Pays Twice as Much Per Stream as Spotify’ Is Misleading

Early Friday, Apple Music sent a carefully worded letter to artists, music labels and publishers that briefly explained “how creators earn royalties” from the service, which is the world’s second-largest, behind Spotify. The letter, which was not sent to the media, was obtained by the Wall Street Journal, which published a report that was not inaccurate but, since it became the only reliable source of the news for media outlets, was often inaccurately reported — most frequently in multiple headlines stating that Apple Music pays twice as much per stream as Spotify.

Variety has obtained the letter from three different industry sources, and while it makes no direct reference to Spotify and no direct claim that Apple Music pays twice as much per stream, the Swedish company — and particularly a public report it issued last month attempting to clarify its royalty policies — is clearly the target of some of its more barbed statements. More to the point, some of the statements in the letter were not fully conveyed in the initial reporting. (Reps for Apple Music and Spotify declined Variety‘s requests for comment.)

The per-stream rate is addressed in a brief paragraph in the letter, which reads in full: “Our average per play rate is $0.01. While royalties from streaming services are calculated on a stream share basis, a play still has a value. This value varies by subscription plan and country but averaged $0.01 for Apple Music individual paid plans in 2020. This includes label and publisher royalties.” (It does not provide details on how that average was reached.) The letter also states elsewhere that Apple Music pays “the same 52% headline rate to all labels.”

The WSJ article unpacks that paragraph more or less accurately, writing: “In the letter, Apple says it pays 52% of subscription revenue, or 52 cents of every dollar, to record labels. Spotify, which generates revenue both from subscriptions and its free ad-supported tier, says it pays ⅔ of every dollar of revenue to rights holders, with 75% to 80% of that going to labels, which translates to 50 to 53 cents on the dollar, depending on agreements between the service and different labels.”

However, nuances were lost in some of the wording: The first sentence of the article reads: “Apple Music told artists it pays a penny per stream in a letter reviewed by The Wall Street Journal” — which does not specify who it pays a penny per stream — and while the main headline on the article reads, “Apple Music Reveals How Much It Pays When You Stream a Song,” a secondary headline reads, “Apple Music pays artists twice as much as Spotify per stream.”

It is not hard to see how the inaccurate interpretations, which were not stated but may have been inferred from the letter and the article, could have been interpreted incorrectly — and could lead some artists to think that they’ll be getting a penny from Apple every time their music is streamed — or even that the company has increased its rates to pay artists a penny per stream. In reality, the variables make apples-to-apples comparisons (sorry) nearly impossible, but the multiple sources say the two companies’ rates are actually much closer than Friday’s inaccurate headlines would imply.

But more to the point, the confusion plays directly into widespread confusion or lack of knowledge about how artists earn money from streaming services, and how misleading per-stream rates can be (Spotify states the latter point clearly in its report of last month).

First, in actuality, streaming services rarely pay artists directly: They pay rights-holders, usually labels and publishers, which take their cut and then pay artists their share.

Secondly, multiple industry sources also tell Variety that although the per-stream model may seem to be the least-baffling streaming royalty metric to grasp, it is an antiquated and even inaccurate way of measuring a streaming service’s power.

“Nobody looks at per-stream [metrics] anymore, at least not internally,” one source from a major music company tells Variety. “What we look at is overall subscription growth, the churn rate — with a low rate being the goal, because it means people are sticking around — and the conversation rate, which is how many people stay past the free trial or, in Spotify’s case, switch from their ad-supported platform to a paid one.”

The source concludes, “What we want to see is a lot of users streaming a lot of music” — which seems blindingly obvious. But more users and more streams can actually mean a lower per-stream rate. For example, if one artist were racking up a high percentage of streams on a less-popular streaming service, their per-stream rate would actually be quite high — but they’d actually have fewer streams than they would on a site with more users. (Spotify has an industry-leading 155 million paying subscribers and 345 million active users, according to its most recent report, while Apple last reported more than 60 million Music subscribers in June 2019.)

In reality, there are far too many factors involved in streaming royalties to be boiled down to a single, simple formula: In addition to the subscription plan, the country of origin, the number of users on the site and multiple other factors, some labels may have different deals with different streaming services. In one of its veiled digs at Spotify, Apple Music states in its letter that it pays “the same 52% headline rate to all labels”; sources tell Variety that Spotify has different deals with different labels, although specifics were not readily available. (In the U.S., publishing rates are set by the Copyright Royalty Board and ostensibly are the same for all music-streaming services.)

Most countries’ economic policies are based on the premise that healthy competition is good for business, and there’s little question that streaming has in many ways saved the global music industry. But as artists struggle to understand streaming’s extremely confusing royalty payment processes, the last thing they need is more misinformation.

 



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