If you've been on social media this week, you'll have undoubtedly come across Spotify Wrapped — the annual summary, and judgement, of who listened to what music on the streaming platform. The event has been unusually successful in making data collection and tracking cool / fun — but how does Spotify make its money?
Freemium
Spotify makes good use of a "freemium" model, offering up most of its services to users who don't want to pay... as long as they don't mind being constantly interrupted by adverts. In fact, of Spotify's 380 million active users, less than half (172 million) actually pay for Spotify. The rest (more than 200 million) are ad-supported users.
But, as shown in the chart above, Spotify has a big incentive to convert those free users into paid. Paid users brought in almost €2.2bn of revenue (~$2.5bn USD), almost 7x what Spotify made from advertising revenue on the free users.
What about the artists?
About 73% of Spotify's revenue went on what it called "costs of revenue" — which is primarily what was distributed to record labels, artists, music publishers, and other rights holders, for the right to stream their music or podcasts.
_Exactly_ how much Spotify pays artists is a) hard to find and b) likely to vary a lot from artist to artist, but most estimates suggest that 1,000 streams of a song will net $3 to $5 to the rights holder. That means you need to be racking up hundreds of thousands of streams per month to earn a reasonable wage.
