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Spotify's big changes to their royalty model explained

Updated: Nov 6



Spotify's changes to their royalty model explained

This week everyone is talking about the news that Spotify is planning to make changes to the royalty payout model early next year, with the official line being it "intends to move a billion dollars in royalty payments over the next five years to artists and rights-holders" like you instead of bot users, and people gaming the system.


On the surface that's good news, and apparently it's been in discussion with various PRO's and rights holders about the upcoming changes, though of course we don't have visibility of that yet. Unfortunately it looks like they plan to continue using the "stream-share" system ( i.e pro-rata which means the bigger artists get the most revenue much to the disappointment of us Indies - more below) but there are three big changes coming, some positive and one as we see by sentiment in our community not so positive.


Going back to the official line, Spotify is planning to make these changes in an attempt in their words to fight “three drains on the royalty pool – all of which are currently stopping money from getting to you - the actual, working artists”.


Let's have a look at the three changes.


First - penalising labels and distributors of music financially when activity tagged as fraud is detected on tracks that they’ve uploaded to Spotify. This seems like good news as it introduces consequences for people that use AI, bot farms or buy plays, which should in theory even the paying field a little.


Second - there will be a minimum length of play-time that non-music ‘noise’ tracks (yes, it's a weird world out there) must reach in order to get royalties.


Third, and most problematic to the indie community is introducing a number of minimum annual streams before a track starts generating ANY royalties on Spotify.


Each change explained


1.) Not only removing, but financially punishing people that use fake streams



Believe it or not, Spotify does have in place some serious fraud detection tools and in May 2023 they pulled thousands of tracks off the platform because they felt they had enough evidence that the tracks removed were being streamed artificially via AI tools or using stream farms and similar scams.


Sadly such methods are sometimes used by indie artists and labels alike to boost stream counts and potentially (if you're rich enough) - chart placings using Spotify. The past year or so has also seen AI-created music uploaded in bulk to streaming services and attempting to use artificial streaming methods to generate royalties which then come from the platform’s stream-share pay-outs. One such company "created more music that has ever been created" in the past year alone!


Currently they will remove fraudulent tracks, but the plan going forward is to charge the distributor of that track a financial penalty. “The hope is that this deterrent will, over time, mean fewer people risking streaming fraud on Spotify – and more money entering the pot for real artists and rights holders to benefit from.”


2.) Minimum play time the non-music or "noise" tracks must reach so they can generate royalties.


Whenever there's a game to be had, someone is going to game the system. ‘Non-music noise content’ like white noise for sleeping, binaural beats, nature noise, whale-song, whatever you like in that category all get paid the same as other creators of music on Spotify, and some creators have figured out ways of splitting content up into 31 second chunks - gaming the royalty system. There's going to be as as yet unspecified minimum length introduced drastically reducing the profitability of this kind of content. Other platforms like Deezer will see all non-music noise content on the platform completely de-monetized as they start switching to more "artist-centric" model, so it's bad news for producers of whale song for insomniacs. The money not going to this kind of content again is heading to the streamshare pool.


A quick explanation of streamshare


Over the course of let's say a month, there is a total amount of revenue collected from both subscribers and ads - that's the royalty pot. Payments are determined by the number of total streams, then allocated by the percentage of plays of that total that a particular track has.The royalties pot is split between all tracks on the platform, by the proportion of their total streams. For example, if the track of a given artist represents 0.1% of the total streams on the platform, it will get 0.1% of the royalties. Here's the catch: because the share of royalties allocated to a track is equal to the proportion of total streams, what matters is the number of track streams against the total number of streams - NOT just the stream count. The artist-centric model would allocate a fixed payment per actual play which would be more fair to smaller artists.


3) Threshold of minimum streams before a track starts generating royalties on Spotify


Currently if you get played on Spotify, every play over 30 seconds long means a royalty payment, but this will change early in 2024. They have stated that each track on Spotify will have to reach a minimum number of annual streams before it starts generating royalties.

Based on speculation and statements from sources involved with the talks mentioned earlier, they plan to target songs that earn less than around $0.05 a month. Using $0.003 per play as the figure, that's 17 plays per month, or 200 plays a year. Ready for the backlash, Spotify says songs that make up 99.5% of those currently getting royalties will continue to be monetised after these changes.


UPDATE!


Another article has appeared on November 5th in a guest post on consequence.net credited to Kristin Graziani, the president of a distribution platform called Stem where she states the threshold is 1000 plays. As of yet this has neither been confirmed or denied by Spotify themselves.


To me, it seems strange that Spotify is targeting a pretty tiny proportion of tracks on its service that are low in popularity, and generate minimal payments, but when 100,000 tracks or more are being uploaded to streaming platforms every day the amount of money being paid out to these tracks adds up to around 40 million USD by Spotify estimates. Does a move like this choosing to demonitize small artists show how slim the margins are in this business model? I don't know but it sure won't affect the big label artists.


A fun side note is this may also have a knock on effect with distributors as some have minimum cash-out thresholds in place, and they get to sit on piles of cash (let's say you have even 100k artists with $10 unpaid - that's a million bucks in your account earning upon money and making some accountant happy) Spotify is also using this as a positive spin, saving us from not getting paid by our wicked distros. Gee thanks.


I have long expressed my feelings that Spotify should be used as a discovery tool and to forget about the money as a small artist, but even so I struggle to see how the third change is positive in any way for the micro-artist. Perhaps it also could act as a motivator to actually do some promo for a change OR for people who don't want to do the work to just relax and sit back and accept that it's a hobby and having music available is more for your benefit than anyone else's. Universal Music Group and Deezer ( do they ever pay anyone, anyway?! ) are experimenting with a more “artist-centric” royalty model – for UMG artists trialling in France this October, so at least there are some micro steps in the right direction. Still, I can see no reason why every single small indie SHOULDN'T be paid for every stream they get.


Spotify states they are "always evaluating how we can best serve artists, and regularly discuss with partners ways to further platform integrity" but perhaps they should occasionally listen to the people who create the product they serve so that we can continue to create it in the first place?


If you are an indie artist and need a great mix to help get your song playlisted and get way past that 200 (or is it 1000?) play requirement, feel free to reach out. And if you are an artist who has no clue how to promote the songs you DO make - go ahead and grab my free indie release plan.


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