Part 18. The Streaming Paradox — Listening More and Earning Less

The Genealogy of Payment Habits — A Historical Hint Book for New-Content Business Models Volume 2 · Part 18

Did What Saved Music Also Ruin It?

When Spotify, launched in Sweden in 2008, began service, the music industry was in crisis. Record sales had declined for a decade under illegal file sharing, while P2P services after Napster eroded established labels’ revenue.

Spotify solved the problem. Cofounders Daniel Ek and Martin Lorentzon offered a convenient way to access music legally. It began as a Europe-only service in 2008 and entered the United States in 2011. By 2023 it had 600 million monthly active users. Illegal sharing declined, and global music-industry revenue began recovering after 2015.

Yet artists say they earn less. How can creators’ income fall while the market grows?

This is the streaming paradox.

Spotify’s Structure — AVOD and SVOD in Parallel

Spotify’s business model has two layers.

AVOD, Advertising Video/Audio on Demand: Free users stream music while seeing and hearing advertisements. Advertising produces revenue, part of which returns to artists and labels.

SVOD, Subscription Video/Audio on Demand: Paid subscribers pay a monthly fee—$11.99 in the United States as of 2024—for ad-free listening and offline playback.

The core of this parallel strategy is a paid-conversion funnel. Users experience the service for free, then the inconvenience of advertising encourages some to subscribe. The concept of freemium is embodied in the transition from AVOD to SVOD.

In 2023, Spotify had about 379 million free users and 236 million paid subscribers, a conversion rate of roughly 39 percent. Premium subscriptions generated 87 percent of its revenue. That year it recorded about €13.2 billion in sales but an operating loss of roughly €450 million. Streaming saved the music industry, but the profitability of a streaming company itself is a separate problem.

The structure follows the same logic as free-to-play games: admit everyone for free and convert a portion to payment. Music found this solution in 2008, while games had already tested it through Nexon’s free-to-play conversion of QuizQuiz in 2001 and expanded it when MapleStory launched in 2003 with free play and paid items. Which industry came first matters less than the repetition of the same logic.

Royalty Structure — Why Do Artists Earn Less?

Spotify distributes about 70 percent of revenue to artists and labels. Apple Music distributes 71.5 percent. The numbers do not look bad by themselves.

The problem is the structure.

Spotify calculates royalties through pro-rata distribution. Suppose Spotify earns $100 in one month. The platform takes $30 and distributes the remaining $70 according to each song’s share of all streams. If one track accounts for 0.001 percent of global Spotify streams, its artist receives $0.0007.

Even when a subscriber pays $10 a month, that money does not go only to artists the subscriber actually heard. It enters a common pool and is divided proportionally. The $10 paid by someone who listens only to classical music is also distributed to pop artists.

Actual revenue per stream is about $0.003–0.005. One million monthly streams produce $3,000–5,000, which is then divided between artist and label. A new artist under contract may see 85–90 percent go to the label and receive only 10–15 percent: an actual payment of $300–750.

According to a 2021 report, a US Spotify artist needed more than 2.5 million monthly streams to take home $1,000 after label and distribution deductions. Apple Music paid about $0.008 per stream, roughly twice Spotify, while TIDAL paid about $0.013. Differences in subscriber counts, however, make total revenue comparisons more complex.

The gap between megastars and independent artists. Pro-rata distribution favors megastars. An artist who takes a larger share of all streams takes more of the pool. A new independent artist with only 0.0001 percent receives only that proportion, even if one subscriber listens exclusively to that artist.

Korea’s Melon and Genie use a similar multistage settlement. Music-service revenue goes to the distributor, which takes 60 percent; through the agency, which takes 60 percent under the standard contract; and the artist receives 6–10 percent of the agency share. The artist’s final portion is about 3–6 percent.

In response, Deezer pursued a user-centric payment system, or UCPS, for years, directing each subscriber’s fee to the artists they actually heard. It failed to secure agreement from labels. The “artist-centric” model introduced with Universal Music in France in 2023 is different: it preserves pro-rata foundations while giving greater weight to active artists and intentional listening.

UCPS did not become dominant because megastars and major labels benefit from pro-rata distribution. Independent artists want structural change, but the majors hold the power at the negotiating table.

The Independent-Artist Rebellion — Bandcamp and Patreon

Independent artists dissatisfied with streaming royalties began looking for platforms that let them sell directly to fans.

Bandcamp, founded in the United States in 2008, allows artists to upload music and sell it directly. Platform fees are 15 percent for digital sales and 10 percent for physical goods. By 2022, it had paid artists more than $1 billion.

Bandcamp created “Bandcamp Friday” on the first Friday of each month. The platform waived its fee and sent all sales revenue to artists, concentrating fan purchases on that day.

Its later path was turbulent. Epic Games acquired Bandcamp in 2022 and resold it to Songtradr in 2023. Large-scale restructuring followed, and 50 percent of employees were laid off. It began as a platform supporting an independent ecosystem, but ownership changes altered its character.

Patreon, founded in the United States in 2013, is a creator-subscription platform. Fans support artists directly through monthly payments, receiving exclusive content, early access to songs, and behind-the-scenes video. As of 2023, it had more than 250,000 creators and over nine million paying fans.

British musician Jacob Collier (1994–) represents this structure. He built a fandom first as a self-taught YouTube musician, then signed with Universal Music. The sequence reversed: fandom first, label later. Even after winning seven Grammy Awards, he maintained a direct connection with fans.

A similar movement exists in Korea. The number of solo artists registering releases directly with Melon and Genie through distributors has increased. Independent registrations rose 30 percent year over year in 2022.

The implication is a structure in which streaming intermediaries are removed and fans pay artists directly. The aristocratic patron system discussed in Part 16 has returned in digital form—a return to the original sponsorship model.

Streaming Eliminated the Album and Revived the Single

Streaming changed the unit of music consumption.

The LP era: An artist designed the entire album as one work, and listeners heard it in sequence from beginning to end. The album was the unit.

The iTunes era: Each song cost $0.99. Listeners bought only the tracks they liked, making sales differences among tracks visible for the first time. Artists found it harder to make an album without a hit.

The streaming era: Listeners access an unlimited library. Playlists replaced albums, but streaming platforms or users—not artists—create them. Inclusion on a major playlist can make streams explode. One playlist track has become more important than the whole album.

Single releases increased as a result. Releasing music more frequently and in shorter units is advantageous to streaming algorithms. More frequent tracks create more chances to enter playlists and be recommended.

The consumption unit changed from a song to a moment. Spotify does not count a stream unless the listener reaches thirty seconds. That rule changed song structures. Research on top year-end Billboard tracks found that average intro length fell from about twenty seconds in 1986 to roughly five seconds in 2015. A hook within the first thirty seconds became essential.

TikTok strengthened this trend. Since 2020, viral clips have increasingly determined music charts. Olivia Rodrigo’s “drivers license” (2021) broke Spotify’s daily streaming record three days after going viral on TikTok. Lizzo’s “About Damn Time” (2022) reached number one on Billboard through a TikTok challenge, with more than three million videos using the track one week after release.

In Korea, Lim Young-woong’s “My Starry Love” (2021) offers an example. The middle-aged fandom formed by his 2020 victory on Mr. Trot repeatedly played and shared the song on YouTube and Shorts, keeping it on the chart for an extended period. Fandom power amplified through a short-form algorithm.

K-pop’s Contrarian Move — Physical Sales Rise in the Streaming Era

While physical CD sales declined globally, they increased in Korea. This is K-pop’s contrarian move.

Korean album sales reached about 116 million in 2023, exceeding one hundred million for the first time, according to Circle Chart and the Korea Music Content Association. They rose sharply from roughly 42 million in 2020 and 74 million in 2022. BTS’s Map of the Soul: 7 (2020) set a first-week Korean Hanteo record of about 3.37 million. Seventeen’s Face the Sun (2022), released in five versions, sold about 2.06 million in its first week. How did physical records sell more during the streaming era?

Because the album became a tool for fandom participation, not a means of consuming music.

K-pop album components show the evolution. CDs are accompanied by photocards, photobooks, posters, and stickers. Photocards differ by member and version and are inserted randomly. Not knowing which card will appear creates exactly the same psychological structure as game gacha.

One album is released in multiple versions. Fans seeking a particular member’s photocard buy several copies. There is another reason: album sales measure chart performance and fandom size, while first-week sales prove loyalty. Fans purchase albums as an act of supporting an idol.

Voting rights also connect purchases to votes for first place on music shows. Buying an album can provide a voting code, so fans purchase to make an idol number one.

This is not music consumption but payment for fandom participation. The reason to pay shifted from music to belonging, identity expression, and support. That transfer created the paradox of physical albums growing in the streaming era.

New Payment Habit-Spaces — Ambient Music and ASMR

Streaming created unexpected payment habit-spaces: ambient music and autonomous sensory meridian response, or ASMR.

YouTube videos of rain, café noise, fireplaces, and whispers earn millions of views. They are sound environments for focus, sleep, and relaxation, and have become popular Spotify playlists as well.

Consider the scale. The YouTube channel Lofi Girl, formerly ChilledCow, has run a continuous twenty-four-hour stream since 2017 and had thirteen million subscribers in 2022. YouTube ASMR videos received more than twenty billion views during 2022. Spotify has a separate ASMR category, and subscriptions to study, sleep, and focus playlists form a distinct payment space.

What does this mean as a payment habit? “I maintain a subscription in order to concentrate.” When work music becomes a reason to pay Spotify’s fee, music becomes background. This background-music subscription is an entirely new space. People do not pay to listen to music; they pay to create an environment for focus, sleep, or relaxation.

The change affects creation. “BGM for work” and “café study music” grew into separate genres on YouTube and Spotify. They do not require famous artists. Inclusion in an algorithmic playlist can produce millions of streams. A new payment space created a new type of music producer.

Special Field: Classical Performance Business Models — A Space Streaming Cannot Replace

The classical performance market did not disappear as streaming expanded.

The reason is that people do not pay merely for music at a classical concert. They pay for the live performance experience: an orchestra sounding in one place, the musicians’ expressions and movements, and a shared audience. Streaming cannot reproduce these things.

The Berlin Philharmonic launched its Digital Concert Hall in 2009. An annual subscription of €149 provides live and archive streaming of more than two thousand past performances. It had about 220,000 subscribers in 2023. Yet subscribers still attend concerts. The digital service complements attendance instead of replacing it.

Classical music demonstrates a principle: value possible only on site is not replaced by digital delivery. The principle applies equally to esports arenas and K-pop concerts. If an offline setting can sell an experience digital media cannot provide, it can command a high price even in the streaming era.

Failure Case: TIDAL — The Limits of Artist-Centric Streaming

TIDAL, a service of Sweden’s Aspiro AB acquired by Jay-Z in 2015, tried to differentiate itself in two directions.

First was high-fidelity audio: lossless sound at CD quality or higher, far above Spotify’s standard quality. The subscription cost $19.99 per month, twice Spotify Premium’s $9.99.

Second was an artist-owned platform. Sixteen artists, including Jay-Z, Beyoncé, Rihanna, Madonna, Kanye West, and Jack White, held a major launch press conference. With the message “a streaming service owned by artists,” they promised fairer royalty distribution.

TIDAL met its target of three million subscribers by 2016, but Spotify had seventy-five million at the same time—twenty-five times as many. Its estimated 2023 subscriber count was only three to four million, negligible next to Spotify’s 600 million and Apple Music’s roughly ninety-two million.

In 2018, Norwegian newspaper Dagens Næringsliv reported allegations that TIDAL had manipulated streaming counts for albums by Beyoncé and Kanye West. TIDAL denied the evidence presented. US carrier Sprint acquired a 33 percent stake in 2017. Jack Dorsey’s Square, later renamed Block, acquired the service in 2021 and continues to operate it, though questions about financial transparency persist.

Payment habits explain why TIDAL failed to grow at scale.

“Better sound” was not a sufficient reason for the mass market to pay. Spotify’s quality was enough for most listeners. Lossless audio is difficult to distinguish through phone speakers or Bluetooth earbuds. It mattered to the specialized audiophile group but did not expand to the general market.

The “artist-owned” message did not move consumers either. People choose a platform based on where their favorite music is available. Fairer payment to artists was too weak a factor to determine subscriptions. Ethical consumption has spread, but in music streaming it did not justify the price difference.

Good technology and good intentions still face limits when they fail to land in the public’s existing payment habit-space.

This Part’s Hints — Checkpoints for New-Content Planners

Checkpoint 1: How do you create scarcity in a structure with unlimited supply, like streaming?

K-pop sold more physical albums in the streaming era because random photocards and multiple versions created scarcity. If your content is digital, how can an infinitely copyable structure create scarcity that gives people a reason to pay?

Checkpoint 2: Have you created a way for fans to pay the content directly?

Bandcamp and Patreon minimize platform intermediation and let fans pay artists directly. Does your content have a channel for direct fan payment? Are you completely dependent on a structure in which the platform takes a large fee?

Checkpoint 3: Is there value that digital media cannot replace?

Classical performance sells a live experience. No matter how good streaming becomes, it cannot replace that. What can digital media not provide in your content? If such value exists, it can command a higher price even in the streaming era.

The next part examines the most distinctive phenomenon in the music industry: K-pop. Does K-pop sell music, relationships, or identity? And how can this fandom-economy structure apply to content beyond music?

Kim Dongeun WhtDrgon@MEJE.kr 2026