One U.S. band has found out that Spotify’s payouts are just fractions of a penny per play – and in one case so low it was rounded down to zero. With payouts so low, could artists and labels eventually become comfortable with the frustrating economics of on-demand music services?

As explained at Digital Audio Insider, The Layaways received its first Spotify payments in its latest CD Baby account. For the month of September, Spotify paid 0.02 cents, 0.03 cents and 0.06 cents per stream (the differences stemming from different tiers of service and/or regions). There was actually a payout so small that it was rounded down to 0.000000 cents. All amounts were net of CD Baby’s 9% commission, which puts Spotify’s payout to the distributor at about 0.022 cents, 0.033 cents and 0.066 cents per play.

These payouts bring up a couple important questions.

First, with rates that low, will artists and labels ever stop trying to sell CDs and downloads? One could argue a per-stream payout doesn’t take into account the number of times a song will be heard. A download is just purchased once, but a song can be streamed many times. Maybe listening will actually increase due to the relatively risk-free listening environment of Spotify.

But as The Layaways discovered, it would take a lot of listening to equal just one download. At the lowest of Spotify’s payouts, 3,181 streams equal the 70-cent wholesale cost of a typical 99-cent download. It would take a person 212 hours to listen to a four-minute track 3,181 times. That’s the equivalent of listening for 12 hours a day for nearly 17 straight days.

At average daily listening rates, how long would it take a person to listen to a song 3,181 times? The average person listens to 162 minutes of audio (not just music) per day, according to a 2009 study by The Council for Research Excellence. At that rate, a person would require nearly 79 days to listen to a song 3,181 times and generate 70 cents for labels. The highest rate of 0.0066 cents per stream would require over 26 days of listening at 162 minutes per day. Even a high-value consumer who averages five hours of on-demand streaming every day would generate only $18 for labels over an entire year.

Second, will labels have won a Pyrrhic victory if access models go mainstream? The quest to build viable and legal alternatives to piracy could decimate recorded music revenues if previously high-value consumers turn into music service users with payouts as low as 0.0002 cents per stream. Unless access services offer higher levels of service or generate substantial ancillary revenues, labels will be left with a payout so puny the incentive to create and market recorded music could be lost.

Nobody doubts that streaming services will be an important part of the future of music listening. But the experience of The Layaways shows that artists and labels still have incentive to sell CDs, LPs and downloads to complement and – in some cases, replace – low-value streams. And they’ll need to find ways to get the most of whoever is listening – whether it's e-commerce sales, concert attendance or a mailing list. Unless the economics drastically improve, streams will be nothing more than an artist’s worst-case scenario.