Spotify is one of the most popular streaming sites in the world. You are able to make money from digital royalties through Spotify at a rate of $.0034 per stream. You might have wondered how Spotify pays you this money in the first place. It is simpler than you think, but may not be obvious.
The 2 Ways Spotify Royalties Actually Work
1. Advertising
You might be wondering what advertising has to do with anything. The first way Spotify generates profits is through its advertising. "Isn't Spotify free though?" Yes, Spotify is free for you as a listener, but the "freemium" model consists of ads that interrupt your listening from time to time. The companies ads that you see all pay Spotify for the ability to advertise to you. This is the first part where your royalties come from.
2. Paid Subscriptions (Premium)
The second way Spotify drives the majority of its profits comes from paid subscriptions. This takes up a large portion of how Spotify makes most of its money. People pay for the luxury of eliminating ads having an uninterrupted listening experience in exchange for $9.99 a month. The money from paid subscriptions also is put into paying music creators like you royalties.
Royalties Payout
Picture both Spotify advertising and premium subscriptions profits into one big pie. This is Spotify's total revenue. You are given a slice of this pie called "royalties". Your royalties are related to how many streams you generated on the site. An example of this is If Taylor Swift generates 100 million streams from her music and you generate 10 thousand. She will receive a bigger slice because more of Spotify's listeners streamed her music. Therefore Taylor Swift provides more value to Spotify because she brings more people to stream her music on the site. Which holds the possibility of them signing up to Spotify premium.
The more value you are to Spotify, the more they pay you. The value you and other music creators primarily provide is through the people who stream your music. The more people you get to stream your music, the more Spotify has to gain in the process. Which means the higher they can charge companies to advertise and the more people who will buy a premium subscription.
Conclusion
The 2 ways Spotify royalties actually work comes from the profits that they make. The two ways Spotify profits is from advertising and Spotify premium. That money is then distributed to you as a music creator called "royalties". When it comes to royalties someone always has to be on the end of paying. In this case, it is the advertising company and the premium subscribers.