This post was written by FMC intern Danny Weiss.

When Spotify launched in the US back in July, we were pretty stoked about the service’s flexibility, response and depth of features. We’ve spent a few months with it, and, as a consumer product, it is still very impressive. Now that we’re past the infatuation phase, it’s time to take a closer look at the relationship between Spotify and musicians, particularly independents. For those just tuning in, Spotify is a streaming on-demand music service that has an ad-supported free version, as well as a premium, ad-free subscription option. Unlike say, Pandora, Spotify lets you choose which specific songs you want to hear and create playlists. This means that on-demand services like Spotify (and MOG, Rhapsody and Rdio) have to pay a different license than radio-like services.

Digital music services need to at least appear to have “all the music,” so the on-demand platforms have their work cut out for them in licensing individual songs and catalogs from the labels and music publishers. For unaffiliated artists, aggregators like TuneCore, CD Baby and ReverbNation make it easy and relatively inexpensive to stock your music in online stores.

The reason on-demand listening is attractive is because it gives fans access to catalogs far more vast than any single record collection. But if all-you-can-eat services like Spotify start comprising more of our digital music diet, how can we make sure that payouts to artists are fair? Can streaming services ever become meaningful revenue streams for musicians and songwriters in the 21st century?

Last month, avant cellist/composer Zoe Keating weighed in on these issues from an artist’s perspective. Keating, also a Spotify fan, points out some issues with the current royalty model and where Facebook’s Spotify integration falls short.

For Keating, the first issue is fairness. 

Spotify, as it stands, does not pay the same cent per digital spin rate to all labels and all artists. This situation stems from Spotify’s advertising dollars and how those dollars are distributed amongst the labels with which it has licensing deals. Apparently, majors see advertising dollars while indies do not. As Keating points out, this system puts a “finger on the scale” where the payouts are tipped to majors. Some indepentent labels have left the platform, citing low payouts and prompting an official response from Spotify. The majors are reportedly equity investors in the service, so it’s only natural that they would seek compensation to justify an influx of cash or catalog. But what does this mean for all the other creators out there?

Here at FMC, we’re very interested in how or whether streaming services are impacting artists’ bottom lines, particularly compared to other areas of compensation. To get a better handle on the revenue picture for musicians, we’re conducting an important survey called Money From Music. We’d love it if you’d take the time to complete it before it closes in a couple of weeks. It’ll be a little while before we have results, but in the meantime, Keating offers up her own numbers. She explains that streaming on-demand and webcast royalties combined made up about 0.25 percent of her music sales, which comprises 65 percent of her annual income. Keep in mind that digital sales in general — including downloads — are 75 percent of Keating’s recorded music sales. It would be interesting to learn if the percentage earned from streaming grows as services like Spotify become more popular. Of course, there’s still the question of parity between independents and larger stakeholders.

The second issue Keating brings up is integration. 

In September, Facebook announced a deep integration of the Spotify platform, allowing users to play music via Spotify directly from their Facebook page, share music with their friends, and even share (via the controversial real time ticker) what they were listening to. (BIEBER.) The announcement and subsequent rollout of the integration has undoudbtely given Spotify a shot in the arm and provided a new vehicle for subscriber recruitment and advertising. 

But, as Keating points out, integration alone is simply not enough: “Spotify and all other streaming services should do more to facilitate the conversion from casual listener to fan: make it easier to buy music, fund a project or hear about a show.” Though driving listeners to the music itself is good, it seems like more could be done to monetize other artist offerings.

Lastly, there are questions about the sustainability of Spotify’s model for the service itself. Even with the mega-hyped American launch and a global presence on Facebook, Spotify is still in the red. 

At the end of the day, it may be basic math that makes it difficult to up compensqation for independents. As things currently stand, Spotify does not have the user base to support radical changes in their payment model. This Billboard report suggests that the number of listeners would have to significantly increase to make the service a seriously viable revenue stream for independent musicians. In general, the more people listen, the more Spotify pays out. But can they generate enough revenue from ads and paid subscriptions to keep the lights on? Will there ever be parity between the major and independents on this platfform? These are all open questions.

Again, we love the idea of streaming music. Several of us are “early adopters” in this brave new world of access and interoperability. We just hope that the business models supporting this ecosystem are as fair as possible to artists. What do YOU think?