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Spotify to change its royalty model, aiming to target the ‘working artists’ more

  • Martina
  • 02 November 2023, Thursday
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Spotify Royalty Model 2024 iMusician

Spotify has some big news coming. As Music Business Worldwide has reported, the music streaming company is planning to make significant changes to its current royalty payout system in Q1 2024. The goal? Shifting USD $1 billion in royalty payments over the upcoming 5 years to ‘legitimate working’ artists and rights holders.

Three major changes coming in Q1 2024

Although Spotify is said to maintain the prorated royalty system (where all streams are thrown into one pot and the revenues distributed by percentage), it plans to make 3 major changes to its model. Allegedly, Spotify’s main objective is to try “combat three drains on the royalty pool – all of which are currently stopping money from getting to working artists”.

What are the three major changes planned? Let’s have a look!

1. Introducing a threshold of minimum streams before a track starts generating royalties on Spotify

We all know what the deal with streams and royalties is now – to trigger a royalty payment, a track needs to be played for more than 30 seconds. It seems that this will not be the case anymore next year.

As of Q1 2024, each track on Spotify will have to reach a minimum number of annual streams before it starts generating royalties. How much that number will be is yet unknown.

What the platform is trying to achieve is to demonetize all tracks that earn less than $0.05 a month. This is due to the fact that even though such tracks make only a small portion (around 0,5%) of music on Spotify, their royalties still cost the company tens of millions of dollars a year.

As you can imagine, Spotify is already getting much deserved criticism for this particular change as it will, once again, benefit the bigger musicians while diminishing the value of much smaller, indie artists who can’t yet reach the threshold. There are no doubts that the financial damage to these artists might be substantial.

What’s more, to consider the small artists as less hard-working and less deserving of money may have a serious impact on those who’ll want to pursue a music career in the future. This may ultimately deprive the music industry of some great, talented musicians.

2. Financially penalising music distributors and labels when fraudulent activity is detected on tracks they have uploaded to Spotify

Back in May 2023, Spotify removed tens of thousands of songs from AI start-up Boomy from its services, reporting to have had credible evidence that these tracks were being streamed illegitimately. As previously claimed, it should be Spotify that has the ‘most sophisticated anti-fraud detection technology’ of any streaming platform and this might have been just another case to prove it.

While it goes without saying that the streaming giant will continue investing into effective fraud detection, it’s also coming with a new way to penalise such fraudulent activities. Not everything will change. Spotify will indeed continue to remove tracks from its catalogue whenever a flagrant artificial streaming is detected.

What will follow, however, is a monetary punishment of the distributors of these tracks. This means that every time a streaming fraud is uncovered, the distributor of the said track will be charged with a per-track enforcement penalty. Ultimately, as Spotify believes, this should deter more people from risking streaming fraud on the platform.

3. Introducing a minimum length of time that ‘non-music noise’ tracks must reach to generate royalties

Currently, the creators of so-called ‘non-music noise content’ (e.g. white noise, whale-song, binaural beats, etc.) are paid the same as every other creator on Spotify. And they have definitely been smart about this. In fact, what many of them do is split their ‘noise’ playlists into 31-second tracks so that they can earn as many royalties as possible when someone plays their playlist on repeat.

What Spotify is planning to do in this regard is elongate the minimum unit of time that each ‘non-music’ track has to meet before it triggers a royalty payout. This would result in fewer streams for such tracks, which, in return, would mean more money in the pro-rata system going back to the music creators.

As we mentioned right at the beginning of the article, Spotify’s overarching goal for the next 5 years is to generate a total of $1 billion in royalties, coming from the fraudsters, micro-transactions, and those gaming its current royalty model. From there, the money is to be shifted to ‘real working artists’ (whatever that’s supposed to mean).

While all this news is coming from Music Business Worldwide (and Spotify has yet to make its own statement), it is clear that some sort of changes will be introduced by the streaming platform soon. We’ll just have to wait to see whether they come exactly as reported.

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