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Spotify on charm offensive after royalty payouts slammed

Spotify music application
Spotify music application

Music streaming service Spotify has gone on a charm offensive to win back major artists who have criticized the way the company pays out royalties.

The Swedish business, which was valued last month at $4 billion, launched a new website that explains how royalties are paid to rights holders in an attempt to bring more transparency to the process.

Spotify came under fire from Radiohead and Atoms for Peace frontman Thom Yorke, who dubbed the service "the last desperate fart of a dying corpse", arguing that the company pays meager royalties for streaming artists' songs.

But the music streaming service said it has paid out over $1 billion in royalties to date, $500 million of which were paid in 2013 alone.

The move marks the first time Spotify has released royalty payout information in an attempt to quiet criticism of its business model.

Spotify announced that it makes an average "per stream" payment to rights holders of between $0.006 and $0.0084, meaning for every one million listeners of an artist's track Spotify pays rights holders between $6,000 to $8,400.


But once publishers and record labels take their cut, artists are left with a small amount. Spotify defended its royalty payment saying the "per stream" metric is "highly flawed indication of our value to artists" as aggregate royalty figures would grow substantially as more subscribers joined the service.

(Read more: Rebel yell: Cranky old men of rock continue war on Spotify)

The Stockholm-based company said rights holders of a "niche indie album" typically generate $3,300 in monthly income from Spotify, whilst a "global hit album" would earn $425,000. Spotify said these figures would grow as more subscribers join the service.

Spotify charges users $10, 10 euros or £10 for unlimited access to its extensive music library which can be listened to through mobile devices. Despite a 24 million global user base – including non-paying subscribers - the company is yet to make a profit as net losses widened to 58.7 million euros in 2012, compared with 45.4 million euros the year before, according to the latest financial statement filed in Luxembourg.

Under Spotify's charm offensive, the company is offering artists other concessions including plans to help sell tickets and merchandise through its app.

The company also announced it is teaming up with Next Big Sound to develop an Artist Analytics dashboard that will allow artists and managers to track data relating to their music including how much their music is being played around the world, the demographic of fans, and activity of social media.

—By CNBC's Arjun Kharpal: Follow him on Twitter @ArjunKharpal

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