Apple pays music artists twice as much as Spotify

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    How much money do artists get when their music is streamed online?

    The exact rate per stream has been a closely guarded secret and the topic has been controversial as streaming changed the music industry.

    It has long been suspected that Apple (NASDAQ: AAPL) pays more generously than Spotify (NYSE: SPOT) – the leader in paid music streaming – but now investors are getting a better sense of how much …

    Apple reportedly pays about twice as much as its Swedish rival.

    A penny for a song

    The Wall Street Journal reports that Apple pays about a cent per song streamed. That’s roughly twice the Spotify rate per stream, which is typically between a third of a penny and a half penny. The WSJ cited a letter Apple sent to artists and record labels to demonstrate that it is more economically supportive of the broader music industry.

    Artists only receive part of the streaming revenue generated from playing their songs as the record labels they represent make a cut. However, the per stream rate is a critical starting point for monetization, and a higher rate inevitably leads to more money going to the artist.

    Why Apple Can Afford to Pay So Much

    To understand the gap between Apple and Spotify’s pro-stream rates, you need to understand the differences between the two companies.

    First and foremost, Apple is the richest, most profitable company in the world, so it can easily afford to pay more. Additionally, Apple Music is a side business that complements and supports Apple’s hardware sales so the company doesn’t need the service to generate money directly as it has another strategic value. Finally, Apple doesn’t offer a free tier backed by ads that offer weaker monetization than paid subscriptions.

    In contrast, Spotify is a pure music streaming company, so it has to rely on its core service to make a profit. And the company doesn’t have the deep pockets that Apple does. Additionally, Spotify has an ad-supported tier that is used as a funnel for customer acquisition, converting free users into paid subscribers.

    Still, Spotify is the dominant player in the music streaming business with 155 million premium subscribers at the end of 2020. Apple doesn’t offer regular updates to Apple Music subscribers. At the time of its last release in summer 2019, the company had 60 million subscribers.

    How Covid Affected the Music Industry

    The way people use music streaming services has evolved during the Covid-19 pandemic. While people commute less, they listen to more music and podcasts at home. Spotify has gone to great lengths in recent years to create podcasts, sign exclusivity agreements, and attract various podcasting startups.

    But the pandemic has also devastated the live music industry, which is one of the main sources of income for artists. It is hoped that demand for live events will soon recover as vaccine distribution speeds up.

    “The supply-demand fundamentals of the concert business remain strong. Artists are ready to take the streets again, and fans are eager to reconnect at events.” Live nation (NYSE: LYV) CEO Michael Rapino said during a February earnings call. “All of our data continues to show that there is considerable pent-up demand for concerts on the consumer demand side.”

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