In the streaming era, fans do not pay per song and no major streaming services pay per stream, so we don’t believe that a “per-stream rate” is a meaningful number to analyze. Still, we understand that artists find it useful to calculate an effective “per stream” rate or, in other words, a revenue-to-streams ratio — dividing the total size of the royalty pool on Spotify (the numerator) by the total number of music streams on Spotify (the denominator). Both of these numbers are growing incredibly quickly every year.
There are a number of factors that contribute to that ratio looking small, which we understand can seem problematic. We don’t believe it is; we are confident our model is maximizing revenue for everyone.
There are three key business decisions we make to maximize revenue to rights holders. Even though they decrease the effective per-stream rate on Spotify, we believe artists care more about a larger paycheck than a higher per-stream rate.
High Streams per Listener: First, the average subscriber to Spotify listens to more music per month than on other services. That means more listeners discovering more artists, more opportunities to deepen engagement with listeners, and more chances to convert listeners into fans who buy tickets and merch. This engagement — as well as the millions of new Spotify listeners signing up every month — impacts the denominator of the revenue-to-streams ratio.
More Global Audience: Second, Spotify is more popular in countries with lower prices, which makes our revenue-to-streams ratio look lower compared with services not focused on those markets. Meeting listeners at an affordable price for them is the way to generate revenue from these markets that wouldn’t have been captured otherwise. Growing into these territories increases total revenue for the industry and for artists, which increases the size of the royalty pool for rights holders. This impacts the numerator of the ratio.
Ad-Supported Tier: Third, unlike many of our competitors, Spotify runs both a Premium subscription service and a free ad-supported service — so looking at Spotify’s revenue-to-streams ratio next to subscription-only competitors isn’t a direct comparison. While the ad-supported service doesn’t generate as much revenue per user as the Premium service, we’ve conducted extensive testing that consistently shows that when we take the free service away, those listeners turn to non-revenue-generating alternatives, meaning the collective music industry would miss out on revenue. The 2023 IFPI report found that across the industry, revenue from ad-funded streaming increased 14% (to $4.9 billion) in 2022 and now has surpassed revenue from sales of physical formats. This also impacts the numerator of the ratio. Offering an ad-supported service is also one of our most useful mechanisms for getting listeners to pay for music: Roughly 60% of first-time subscribers start out on the Free tier and then later upgrade. Again, this means we are maximizing the revenue for everyone.