Not You, ARPU: Another way to value streams on Spotify

I recently co-wrote with the noted international economist Professor Claudio Feijoo a paper for the World Intellectual Property Organization on a new “streaming remuneration” royalty to be paid to all musicians and vocalists by streaming services. Part of our justification for the new royalty is that these creators, especially “non-featured” musicians and vocalists are not paid at all for streaming which is rapidly replacing radio (for which they are paid through SoundExchange). The value that the streaming remuneration would try to capture is not just revenue based (which is how all streaming royalties are derived currently) but also derived from the market valuation conferred on companies like Spotify. Spotify remember is more like YouTube would be than say Google because it is essentially a “pure play” music stock, kind of like Pandora was.

Claudio has done considerable work on trying to capture and express this value, so for today let’s do some rough justice using one of the approaches from the paper. There are more bells and whistles to the calculation than I’m going to give you here, but you’ll get the idea that a stream is assigned a much, much lower value when calculated on the revenue side of loss-making organizations than when calculated on the extraordinary wealth-making side of the public markets valuation of Spotify. And if you want to make a causal connection between low royalties and high market value, who am I to stop you?

The formula is simple: Divide Spotify’s market capitalization by the number of royalty bearing streams in a month and you have a rough idea of how much value each stream confers on the monopoly streamer.

Spotify’s recent market capitalization is $41,056,000,000 give or take an Arsenal in the rounding. A recent number of monthly plays as reported by the MLC is 24,815,407,149.

Divide market capitalization by number of streams. The result is $1.65 per stream in market valuation. According to the last Trichordist streaming price bible, Spotify’s per-stream rate was $0.00348 and for songwriters, even less.

$1.65 versus $0.00348. Where oh where might that delta go? It goes somewhere and it’s not to the people who made them rich. Not a perfect metric, but you get the idea.

You might say how do they sleep at night? The answer? Sleeping very well on much nicer sheets than you, thank you, and for one reason–they do not give a flying hoot about your problems because Daniel Ek doesn’t think you’re working hard enough to make him and all his employees richer.