After what seemed like an eternity, Spotify has finally unveiled its new royalty model. With so many industry partners to collaborate with and come to an agreement with, it is no surprise the process took so long.
What Are We Talking About?
Spotify made major changes to its policies, primarily focusing on cracking down on streaming fraud. The DSP giant has always been vocal about stream manipulation and content misrepresentation being the bane of Digital Streaming Platforms. Streaming fraud is a challenge not just to Spotify, but also to other platforms. With the rise of digital streaming services, some unscrupulous actors continue to find new ways to secure undeserved payouts from the system and deprive genuine content creators of well-earned profits. Let’s break down the Spotify business model to understand what streaming fraud is and why it is such a problem.
The Spotify Business Model
It is no secret that Spotify has two basic subscription plans: premium and free. Within the premium option, a subscription fee is attached for whichever category is chosen (individual, duo, family, and so on). For the free plan, Spotify runs an advertisement network. Free users have to listen to ads to use the platform. This also pulls in revenue for the platform as well.
That advertisement and subscription revenue are shared between the platform and the artists and creators whose songs and content are being used. In 2024, Spotify pays an average of $0.003 per stream. While this might seem small, it accumulates significantly with more streams. This simple math underpins the problem of streaming fraud.
The Streaming Fraud
In 2017, a Bulgarian playlist-maker allegedly exploited the Spotify payout system for months. The platform uncovered two playlists: “Soulful Music” and “Music from the Heart” which were used for this undertaking. These playlists seemingly racked up top spots on the “Spotify Global 100 Charts” and generated substantial revenue. It was not the first time streaming fraud had been uncovered by the platform, but the sheer size of this operation highlighted the vulnerabilities in the system.
Over time, Spotify has continued to evolve its policies in an attempt to limit the economic impact of these activities however, from the use of “AI-generated bogus tracks” to the abuse of Spotify’s “track-linking” feature, it appears that the scammers are working harder, and Spotify is being kept on its toes. In February of 2024, a Danish man was set to go on trial for allegedly profiting over £500,000 by fraudulently generating playbacks across multiple streaming platforms including Spotify.
At the center of streaming fraud is the manipulation of the “functional” genre which includes sounds like white noise, whale calls, nature sounds, and even silent recordings. These are typically played in the background by users. Before Spotify’s new policies, there was a play-time threshold of just 30 seconds for the functional genre. This made it an attractive option for those looking to exploit the system.
Spotify’s Response
So Spotify rolled up its sleeves and tightened its belt, it worked for almost a whole year to update its policies, and in the Nigerian pidgin English parlance, ‘now everywhere don tight’.
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Charges For Artificial Streaming:
First, Record labels and distributors will be charged per track whenever artificial streaming is detected on their content. This charge shall be imposed only when a high rate of artificial streaming has been detected on a particular track.
The platform insists that it has invested in improved technology for detecting artificial streaming, this new policy is an attempt to discourage record labels and distributors from participating in or turning a blind eye to artificial activity.
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Track Monetization Eligibility:
The demonetization of tracks that previously received 0.5% of Spotify’s royalty pool. These tacks must now have a minimum of 1,000 streams within the preceding 12 months to be eligible for recorded royalties. Otherwise, that money will be redistributed on the platform to songs that meet the criteria through Spotify’s streamshare royalty pot.
According to the platform, the aim is to distribute better small payments that are not reaching the artists, as they may not surpass the minimum withdrawal threshold set by some distributors.
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New Policy For Noise Recordings
And finally, the crackdown on noise track royalties. The functional genre is now mandated to have a 2-minute minimum track length to be eligible to generate royalties. This is opposed to the 30-second minimum that was permitted last year. Therefore, 2 minutes of listening to white noise content will only amount to one royalty-bearing stream instead of four. Additionally, there are still talks to have noise streams valued at a fraction of the value of music streams.
This removes the incentive to cut tracks to ridiculous 30-second lengths (just enough to meet the play-time threshold) at the expense of the listener’s experience. You can check out these new policies in detail.
Spotify also included that third-party promotional services, specifically those advertising streams in return for payment violate its terms and conditions. And using these services could have significant consequences, such as the track being removed from the platform.
Future Trends
With the new policy directly holding record labels and distributors monetarily culpable when artificial streaming is detected, we anticipate major changes and policy implementations in how music distribution as a business is run moving forward.
- Rise of In-House Monitoring Systems: There could be a rise in in-house monitoring systems to detect unusual streaming patterns early and address potential fraud before it triggers penalties from Spotify.
- Revised Distribution Contracts: Contracts could change, including more stringent clauses with artists and management teams, that ensure all parties understand the consequences of engaging in artificial streaming practices.
- Change in Promotional Strategies: There is also anticipated to be a shift in promotional strategies and a focus on more organic growth methods. Priority will be placed on enhancing genuine audience engagement and boosting legitimate streams.
- Quality Over Quantity in Track Releases: Artists and record labels may focus less on the number of tracks released and channel more resources on promoting fewer but higher-quality tracks.
How Royalti.io Can Help
With Spotify’s new royalty model and streaming policies, one thing remains unchanged: the need for trust and transparency in the music business. Record labels and distribution companies, still need systems in place to help Implement internal audit and royalty reporting, as well as a system to regularly review streaming data and ensure compliance with Spotify’s policies. Royalti.io is a platform that offers transparency and strengthens trust and partnership among rights holders. Royalty data is simplified and viewed at a glance, and rights holders have real-time access to these data.
