Spotify pays rights holders (record labels, music publishers and distributors), who then pay artists under their own contracts. Its cost of revenue, mostly those royalties, was β¬11.7B in 2025, 68% of revenue (calculated). Spotify stated it had paid more than β¬34 billion in royalties since launch by the end of 2022.
Sources: Spotify Form 20-F for 2025 and earlier Spotify annual reports (SEC EDGAR). Analysis by The Business Engineer.
How we source: figures on this page come from the company’s own filings (SEC 10-K, 10-Q and earnings releases, or its annual report), with the period stated next to each number. Last refreshed October 2026. Our methodology.
How Spotify pays: β¬11.7B to rights holders first. Source: Spotify Form 20-F, 2025 (year to 31 Dec 2025), SEC EDGAR: cost of revenue (royalty and distribution costs; record labels, music publishers, audiobook publishers, other rights holders), revenue, licence risk factors; earlier 20-Fs for cost-of-revenue history (revenue β gross profit). Shares calculated. Columns to scale. Artist payouts depend on rights-holder contracts not disclosed in filings. Analysis by The Business Engineer.
Source: Spotify annual reports on Form 20-F (each linked). *As stated by Spotify.
How the money flows
Pro-rata pool. Spotify pays rights holders a share of the revenue in each market, split by their share of streams; labels and distributors pay artists by contract.
Scale. Premium revenue (β¬15.3B) and ad revenue (β¬1.8B) both feed the royalty pool (20-F).
Earlier analysis and background (pre-2026 figures)
The text below is the earlier version of this page. Its figures refer to earlier periods and some were corrected above; the current, sourced figures are in the sections above.
Founded in Sweden in 2006, Spotify has risen to become one of the worldβs largest music streaming service providers. The platform can now boast 356 million active users, with approximately 44% of those being paid subscribers. The company has a mission to unlock the potential of human creativity and allow billions of listeners to enjoy and be inspired by music. Spotify plans to fulfill this mission by paying 1 million artists enough money to live off their creative work through royalties based on stream shares.
Royalties
Musicians and related professionals on the Spotify platform earn two different types of royalties:
Recording royalties β this is money owed to rights holders for tracks streamed on Spotify that is paid through the licensor delivering the music. In most cases, the licensor is a record label or distributor.
Publishing royalties β these royalties describe money paid to a songwriter or owner of a composition. Publishing royalties are issued to publishers, collecting societies, and mechanical agencies based on usage territory.
Itβs important to note that rightsholders receive royalties whenever a qualifying song is played on Spotify.
The song does not need to be played as part of a premium user subscription.
Users signing up to Spotify Premium and paying a monthly subscription fee.
Brands paying to advertise to users on the free version.
The company says that approximately 66% of the revenue from these two sources is paid to music rights holders.
In 2020, this equated to over $5 billion.
Taking 2020 as an example, the $5 billion royalty pool is then divided amongst rights holders based on their respective streamshare.
Streamshare is calculated by:
Determining the total number of streams each rights holder receives, and then:
Dividing that number by the total number of streams in the applicable market. Spotify markets are typically represented by countries or geographic regions.
In terms of the royalty pool itself, the share each market receives depends on the total revenue it earns from advertising and premium user subscriptions.
It should also be pointed that royalty pool fund distribution is not based on each musician’s streamshare alone.
In other words, musicians do not earn a fixed dollar amount per stream because Spotify Premium subscribers do not pay to listen to music on a per-stream basis.
Funds are usually distributed to eligible artists once per month. In some cases, they may be distributed to record labels and distributors first and then shared with musicians as per contractual agreements.
Key takeaways:
Spotify pays artists through a combination of premium subscription and advertising revenue.
Musicians and related professionals earn two different types of royalties on the platform. Recording royalties are paid to record labels and distributors while publishing royalties are paid directly to the songwriter or owner of a composition.
Spotify claims to pass on two-thirds of all its revenue to musicians. In 2020, this amounted to over $5 billion. Musicians are not paid on a per-stream basis because premium users pay a flat subscription fee for access to ad-free content.
Key highlights of Spotify’s royalties and payment system:
Spotify has 356 million active users, with approximately 44% being paid subscribers.
The company’s mission is to unlock the potential of human creativity and support artists by paying 1 million of them enough money to live off their creative work through royalties.
Musicians and related professionals earn two types of royalties: recording royalties and publishing royalties.
Recording royalties are paid to rights holders (usually record labels or distributors) for tracks streamed on Spotify.
Publishing royalties are paid to songwriters or owners of compositions and are issued to publishers, collecting societies, and mechanical agencies based on usage territory.
Rightsholders receive royalties whenever a qualifying song is played on Spotify, irrespective of whether it’s played as part of a premium user subscription.
Spotify generates revenue from users signing up for Spotify Premium and paying a monthly subscription fee, as well as from brands advertising to users on the free version.
Approximately 66% of the revenue from these sources is paid to music rights holders, amounting to over $5 billion in 2020.
Streamshare is used to calculate how the royalty pool is distributed among rights holders. It’s based on the total number of streams each rights holder receives compared to the total number of streams in the applicable market (usually represented by countries or geographic regions).
Musicians do not earn a fixed dollar amount per stream, as Spotify Premium subscribers do not pay on a per-stream basis. Funds are distributed to eligible artists once per month, often through contractual agreements with record labels and distributors.
The multi-billion music streaming company Spotify is primarily owned by its founders, Daniel Ek and Martin Lorentzon. As of 2023, Daniel Ek has 15.3% ownership of ordinary shares and 30.5% of the voting power. Martin Lorentzon has 10.9% of ordinary shares and 42.7% of the voting power. Another key shareholder is Baillie Gifford & Co, a Scottish-based money management firm (12% ownership ), followed by Tencent (8.4% ownership).
Spotify is a two-sided marketplace, running a free ad-supported service and a paid membership. Founded in 2008 with the belief that music should be universally accessible, it generated β¬13.25 billion in 2023. Of these revenues, 87.3%, or β¬11.56 billion, came from premium memberships, while over 12.6%, or β¬1.68 billion, came from ad-supported members. By 2023, Spotify had over 600 million users, of which 236 million were premium members and 379 million weread-supported users.
Spotify Audience Network is the underlying advertising infrastructure that supports its ad-supported user base. The Spotify Audience Network was born as the result of the acquisitions of Anchor and Megaphone. By 2023, Spotify had 379 million ad-supported users.
Spotify licensing deals affect its businessmodel. The company runs on both a free service, which is ad-supported and a subscription premium service. They have different economics.
The ad-supported business had a 10% gross margin in 2021, compared to 29% of the subscription-based business. That’s because the more the content gets streamed on the platform, the more that increases royalty costs for Spotify. That is also why the company invested in developing its content. Thus, in part transitioning from platform to brand.The Spotify Model is an autonomous approach to scaling agile, focusing on culture communication, accountability, and quality. The Spotify model was first recognized in 2012 after Henrik Kniberg, and Anders Ivarsson released a white paper detailing how streaming company Spotify approached agility. Therefore, the Spotify model represents an evolution of agile.
Spotify generated β¬11.56 billion from premium members and β¬1.68 billion from ad-supported members. The premium membership revenue cost was β¬8.23 billion and β¬1.62B billion for the ad-supported segment. Thus, premium members generated a profit of β¬3.33B billion for Spotify in 2023. Meanwhile, the ad-supported segment generated a β¬62 million gross profit in 2023. The ad-supported segment, which is run almost at a loss, is critical for Spotify as it enables it to build a sustainable self-serving funnel to convert free users into paid subscribers!
Gennaro Cuofano is a CRO and tech executive who has worked in AI since late 2015, starting with bringing NLP, natural-language generation, voice and chatbot products to the marketing industry. His background is in law and finance: he holds a Master's degree in Law and an International MBA with an emphasis on corporate finance (LUISS Business School and the University of San Diego, 2012), and worked as a financial analyst at a real-estate investment firm in San Diego and as an assistant controller. His work focuses on business model strategy, business engineering and, more broadly, structural analysis: how companies make money, read from their own filings. He created FourWeekMBA and leads research there and at The Business Engineer, his newsletter on AI and business strategy, with over 95,000 subscribers and more than 1,000 published analyses. His writing has also appeared on Entrepreneur (for example, How to Digitize a Family Business in Europe) and HackerNoon. Find him on LinkedIn and Substack. See how we source.
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