Spotify: The Next Generation of (Legal) Online Music

Since the beginning of the Internet, people have been finding new and creative ways to play, buy, and steal music online.

Napster pioneered the first mainstream pirating software, allowing users to swap individual Mp3s and malware over 1999 dial-up modems. However, the law quickly caught up with them when Metallica got angry and sued all of their fans for copyright infringement, and Napster eventually had to shut down that business model. So went the way of Kazaa and Limewire.

Next, websites like PirateBay introduced torrents, allowing users to download full high quality albums at faster speeds for a superior music stealing experience. However, this led to more legal battles, and even some international arrests. Still, the U.S. has had a hard time shutting down many of these oversea artist-starvers.

Somewhere along the way, iTunes began offering a legal alternative where users could download individual songs and albums for a small fee, though many still found this to be more expensive than music stealing.

Fortunately, today there is a new player on the block that delivers free music with all of the ethics of being a law-abiding citizen who compensates artists for their work. Meet Spotify.

What Is Spotify and How Is It Legal?
Spotify is the new music streaming software that allows users to play just about any song ever on their computer for free. For premium service (at $9.99 a month) users can even make and share playlists and stream music from their phones, cars, TVs, and other mobile devices without ads.

Spotify makes this all legal by contracting with countless record labels and artists for the rights to stream music in exchange for royalties.

Each month, Spotify takes in revenue from user fees and ads. Spotify then keeps 30% percent of the revenue for themselves and divvies up the remaining 70% to the record labels and artists.

The record labels and artists each receive a small portion of the distributed royalties based on the percentage of Spotify “plays” they received that month.

Thus, artists don’t earn a set fee per Spotify play. Rather, their total play-count is calculated as a percentage off all the plays on Spotify, which then determines their cut of the revenue.

For example, a band that receives .001% of all the Spotify plays in a month will receive .001% of the distributed royalties that month.

So Artists Are Making Lots of Money from Spotify?
Not really. Currently Spotify is not generating enough user revenue to offer very substantial royalty distributions. Further, most of the music on Spotify is contracted through record labels, so record labels are generally getting a large cut of the royalty distribution before the artists get anything.

However, with only 30 million users, Spotify has a lot of room to grow as people catch on. The more users Spotify has, the more revenue Spotify will generate, and the more artists will get paid. But, for now, you can at least enjoy free music without having to litigate Metallica.