How Spotify’s Broken Model Undermines the Artists Who Built It

Introduction 

Technology has reshaped the music industry over the past few decades, yet its impact on artists often goes unnoticed by the general public.¹ The shift from physical formats like CDs and vinyl to digital streaming platforms has completely changed how we listen to music.² But while fans enjoy unlimited access at the tap of a button, few stop to consider how these changes have affected the people creating the music.  

Unlike most industries, music is consumed at an unprecedented rate, yet, over time, it has become seen as something with far less monetary value.³ That perception is partly due to the rise of piracy in the early 2000s and, later, the widespread availability of music through affordable or even free streaming subscriptions.⁴ Major streaming companies, particularly Spotify, have the power to reshape society’s perception of the monetary value of music.⁵ This piece argues that Spotify’s current model systematically undervalues musicians and must evolve to ensure fair compensation.  

While Spotify is the primary focus of this piece, it isn’t the only factor driving low artist pay.⁶Record label contracts, publishing agreements, and outdated royalty structures with rights-holders play a significant role.⁷ However, because Spotify is the world’s largest streaming platform with a substantial influence on the industry, this analysis focuses on its specific model as a critical piece of a larger puzzle.⁸

A Tech Company, Not a Music Company  

Since launching in 2006, Spotify has grown from a small Swedish startup into a global powerhouse.⁹ However, it has continuously operated more like a tech company than a music one, as also emphasized by the platform’s focus on artificial intelligence and algorithmic reliance.¹⁰ It was designed with user experience, data-driven engagement, and ad revenue in mind, which are priorities borrowed from Silicon Valley, not a music-focused goal.¹¹ Its leadership and early investors came from venture capital circles, not the music world.¹² Spotify prioritized scaling its platform over ensuring fair pay for artists.¹³ CEO Daniel Ek’s now-infamous comments suggesting that musicians cannot expect to succeed if they only release new music “every three to four years” and that content creation costs are “close to zero” only reinforce the idea that Spotify sees music less as art and more as endlessly renewable content.¹⁴ 

Spotify’s Revenue Model  

As the world’s largest music streaming platform, Spotify has made significant contributions to the industry, including helping to curb piracy, exposing fans to new artists, and making music more accessible than ever.¹⁵ However, problems arise when the expectation of “free” music meets the reality of running an expensive platform.¹⁶ Spotify’s success has come at a cost, particularly for the artists whose work drives the entire ecosystem.¹⁷  

Spotify’s revenue model is complex and lacks transparency, which puts musicians at a clear disadvantage.¹⁸ Spotify does not pay per stream directly; instead, it distributes revenue based on a pro-rata model, meaning the amount an artist is paid is based on the total number of streams on the platform rather than the exact streams of an individual artist.¹⁹The company retains 30% of its subscription revenue, with the remaining 70% distributed among various rights-holders, including record labels, publishers, and distributors.²⁰What’s left for artists who are signed depends heavily on their contracts, and for many, it's minimal, typically falling between $0.003 and $0.005 per stream.²¹ This system creates a hierarchy where musicians, the ones actually making the music, often end up with the least.²² 

Spotify’s payouts favor a small group of top-earning artists. In its 2024 Loud and Clear report, Spotify proudly announced it had paid $10 billion in royalties.²³ On the surface, that number sounds like a win for the creative side of the business. But dig deeper, and it becomes clear that most artists see very little of that money.²⁴ According to the report, just 4.4% of musicians have a chance of making $131,000 or more annually from Spotify.²⁵ Moreover, the $131,000 might be enough for a solo artist, but for a four-member band, that breaks down to just $32,750 per person before expenses.²⁶ Touring and merchandise have become essential for making ends meet, even for popular artists.²⁷ However, reliance on nonstop travel raises several mental health concerns, with irregular schedules, pressure to perform, and the emotional toll of life without stability.²⁸ 

Spotify’s bundling of new services, like audiobooks, has only added to the frustration.²⁹ By grouping music with other content, the company has reduced its mechanical royalty payments, costing songwriters an estimated $150 million annually.³⁰ In May 2024, the Mechanical Licensing Collective (MLC) sued Spotify over the move, arguing that the platform was using bundling.³¹ David Israelite, head of the National Music Publishers’ Association, called Spotify’s strategy “potentially unlawful.”³² The MLC was recently granted its request to file an amended complaint in the dispute, and the suit clearly shows that songwriters and rights groups are paying attention.³³ 

The Updated Free Tier  

Spotify recently released additional benefits for users of the free tier, enabling them to search for songs and manually play tracks from playlists and albums.³⁴ In contrast, previously, they were only able to shuffle.³⁵ Free users will be limited to a certain number of minutes of on-demand playback and will still receive audio ads.³⁶ Spotify is hoping its new free tier will “increase engagement, boost ad revenues, help retain free users, and ultimately convert ad-supported users to Premium subscribers.”³⁷ However, these additional benefits to the free tier undermine the value of music when considering that ”nearly two-thirds of Spotify’s active users pay nothing to use the service.”³⁸ 

 The AI Issue 

Daniel Ek’s $694 million investment in AI military defense company Helsing has recently prompted artists such as King Gizzard & the Lizard Wizard, Deerhoof, Xiu Xiu, and Massive Attack to remove their music from Spotify.³⁹ Additionally, Spotify’s embrace of AI has led to recent reports of AI-generated fake tracks being uploaded to artists profiles without their consent.⁴⁰ The rise of AI-generated acts, such as The Velvet Sundown, which generated over a million plays on Spotify, has increased concerns that the platform is favoring algorithmic content over human artistry.⁴¹ Spotify has made recent efforts to try to combat issues with the technology, as seen through its recent policies of ”improved enforcement of impersonation violations, a new spam filtering system, and AI disclosures for music with industry-standard credits.”⁴² The shift towards AI ultimately threatens artists financially as it redirects earnings away from the creators and decreases the value of original music, especially when considering Spotify’s pro-rata model.  

Artists Fight Back 

Artists and advocates are taking action. In addition to removing their music from the platform, some have boycotted Spotify-sponsored events like the Grammys.⁴³ Others have pushed for legislative change.⁴⁴ The Living Wage for Musicians Act, reintroduced by Representative Rashida Tlaib, aims to establish a new streaming royalty paid directly to artists, funded through an additional subscription fee and a 10% levy on non-subscription revenue.⁴⁵ The bill demonstrates growing momentum behind efforts to build a fairer system. Musicians aren’t asking for millions per stream, but a transparent system that respects their labor.  

Solutions 

1. Streaming 2.0 

While a complete solution would likely require a total restructuring of the industry’s royalty system and rights-holder relationships, promising innovations are offering a more equitable streaming future. Some of these may include artist-centric superfan strategies within the “Streaming 2.0” model, as highlighted in a multi-year agreement with Universal Music Group and Amazon Music.⁴⁶ Spotify could introduce new subscription tiers with higher payouts and enhance user experience through “superfan” features, such as priority access to concert tickets, exclusive merchandise, artist Q&A sessions, or voluntary tipping mechanisms. Spotify has recently introduced new features like direct messaging and lossless audio, in connection with these efforts.⁴⁷ 

Platforms like Patreon and Bandcamp reflect a growing consumer interest in pay-what-you-want pricing and superfan support, which King Gizzard and the Lizard Wizard embraced by pivoting to Bandcamp and allowing fans to name their price for new albums.⁴⁸ To address the underpayment of independent artists in the pro-rata system, several platforms have adopted a user-centric payment model, where a subscriber’s fee is distributed solely to the artists they actually listen to.⁴⁹  

2. The Free Tier 

Regarding the free tier, Spotify could cap the number of monthly listening hours, increase the share of ad revenue towards artists, or even phase out the free tier altogether to reinforce the idea that music holds real economic value, like the model of Netflix.⁵⁰ Much like Netflix has done, raising subscription prices could generate additional revenue that, if distributed fairly, would benefit artists directly.⁵¹ 

As stated by Tim Ingham, ”If Spotify dumped free and started charging $2.50 per month for accessto ‘Premium with ads’ in just North America and Europe, and if just 25% of current ‘free’ users upgraded, it would result in a ~$1 billion annual windfall into Spotify’s coffers.”⁵²

3. Increased Transparency and Artist Collaboration 

Additionally, greater transparency through blockchain-based royalty tracking could help artists better understand where their earnings are going. Support for unions such as the United Musicians and Allied Workers and new laws mandating a fair minimum per-stream rate could also create pressure for change. Finally, a simple solution would be to give artists a seat at the table, as creating artist advisory boards within streaming companies would allow musicians to influence platform decisions directly.  

Conclusion 

Spotify, and the streaming industry more broadly, can evolve into something more equitable or continue to risk driving away the very artists that make its existence possible. Music streaming doesn’t have to come at the expense of musicians. However, for that to change, the system must start valuing the people behind the songs as much as the convenience of hearing them. 

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