It's not. The total revenue available for royalties is distributed to rightsholders by the volume they occupy of total plays in a given timeframe[1]. It's been a hot topic for a long time, as your subscription is not going to the artists you listen too only. Huge pop hits that are responsible for X percent of plays across all Spotify streams, will receive X percent of your paid subscription, even though you as a subscriber have never listened to them.

It's a simplification, since 100% of an individual's subscription doesn't go to directly to royalties, it's after expenses.

Smaller artists are frustrated with this model as it favours the big artists.

[1] https://support.spotify.com/us/artists/article/royalties/

Edit: added the link.

As I understand it, Spotify pools together everyone's payments and distributes it by number of listens across all users. You or I would expect we'd be supporting our favorite artists by listening to them, but most of our subscription fees actually go to whoever's at the top of the charts. That restaurant playing "Top 40" on repeat effectively outweighs us both.

No, spotify (and most other services) build a pool of money for payouts. That money is then divided among all artists based on their % share of all plays for the month

Not all artists. Only those with songs that each have had over 1,000 streams in the previous 12 months. That doesn’t sound like much but they effectively demonetized more than half of the music on their platform at the beginning of 2024.

Absolutely horrible deal for artists. Even worse that the record companies of old.