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"Unveil Lossless Quality Instead" — New Spotify Royalty Scheme Sparks Debate Among Musicians

How artists and industry experts react to Spotify's new royalty scheme update. Spoiler: Not everyone is happy.

Photo by Imtiyaz Ali / Unsplash

Spotify's update to the royalty scheme backfired with controversy and discontent within the music community. Smaller and independent artists are, of course, the ones who've been affected by the change most.

We've covered Spotify's plans already, but this week, Spotify rolled out several changes to its royalty scheme. Here are the major alternations:

  • The music streaming platform will now require tracks to accumulate a minimum of 1,000 plays within the past 12 months to be eligible for monetization.
  • A fee will be imposed on music labels and distributors in cases of detected "flagrant" streaming fraud, contributing to a total annual royalty pool of $40 million.
  • Non-music "noise" tracks, such as static or airplane sounds, will only be monetized after two minutes of listening, as opposed to the previous 30-second threshold for songs.

The move is anticipated to de-monetize tracks that previously absorbed 0.5% of Spotify's royalty pool. The platform emphasizes the necessity of redistributing these royalties among higher-earning artists. While the implementation of these adjustments has encountered little resistance, Spotify contends that the alterations will benefit independent artists. According to the platform, tracks with fewer than 1,000 annual streams currently generate an average monthly income of $0.03. Spotify asserts that redirecting these royalties to higher-earning artists is a pragmatic solution.

"Because labels and distributors require a minimum amount to withdraw (usually $2-$50 per withdrawal), and banks charge a fee for the transaction (usually $1-$20 per withdrawal), this money often doesn't reach the uploaders. And these small payments are often forgotten about. But in aggregate, these small disregarded payments have added up to $40 million per year, which could instead increase the payments to artists who are most dependent on streaming revenue," Spotify shares in their blog post.

But what about indie artists with such a small fan base that they might not even achieve those 1,000 streams a year? This argument is akin to the one Meta used in their comments to the US Copyright Office that royalties to less-known artists would be so insignificant, they may as well skip paying them altogether.

"There are some obvious positive changes like a crackdown on fraudulent activity, requiring a minimum track length etc., but the controversial change on everyone's minds is the threshold requirement of 1,000 streams a year per track for monetisation. I can understand from an operations standpoint why Spotify would be keen to elimate the magnitude of several small payments which require resources on their end to execute and how this could help them tackle the issue of fraud," says Nikki Camilleri, Head of Music and Media at Beatchain in an email interview to Kill the DJ.

"To illustrate this in numbers, 1,000 streams result in a payout of about $4. Not a lot of money! But across several tracks, this could add up to a nice little sum for an independent act (or fraudster). Spotify mentioned that often these small funds are held by distributors behind minimum withdrawal thresholds, but these tend to be low thresholds themselves eg. $10, so this isn't a core reason for the money hold in my opinion. Spotify says this money held will be distributed to artists above the 1000 stream threshold, making this group more money. While this is good news for some, as it will improve what is already a very low rate of payment per stream (which Spotify has long been criticised for), will this be the last threshold or one of many? It becomes a slippery slope on where we draw the line on who gets to monetise their art and furthermore who decides who gets to monetise art," Camilleri adds.

On social media and Reddit, lots of artists believe this new royalty scheme isn't launched merely to fight with low-quality tracks. Many wonder why Spotify couldn't just block all non-musical content like white noise, sound effects, nature sounds, machine noises, non-spoken ASMR, and silence recordings (what?), and leave the royalty scheme unchanged.

"It's not that simple, unfortunately! Streaming fraud is a current and tricky issue that the industry is cracking down on. It isn't always so black and white as to which users are abusing the system. It benefits us all—even small genuine artists—to crack down on fraud, I think we can all agree on that. However, I think the controversy has come from the approach Spotify has taken in their attempt to tackle this. There are different approaches which could be taken, for example, requiring artists to verify their identity to monetise that could offer an alternative to a threshold but this takes hefty resources to set up, run and monitor. It would, however, ensure no small geniune artist is left behind," Nikki Camilleri explains.

Other players coming to this field are labels and distributors, particularly those working with independent artists. This change to the royalty scheme might affect their businesses as well, so it's expected that companies like DistroKid or Ditto Music would act like representatives to musicians and oppose this action.

"Distributors and music stakeholders will undoubtedly be having conversations with Spotify about these changes as part of their dealings with them. As you say, this affects their business too. I do think distributors are well placed to advocate for artists and examine the benefits and drawbacks of these changes for their customers," Camilleri explains.

Smaller & independent musicians share controversial opinions on Spotify's new royalty scheme

"This is akin to a regressive tax—reducing payments to those who already receive less, in order to boost payments for those who already receive more, increasing the divide between haves and have-nots. It is, on the face of it, the ugliest of ugly capitalist cash grabs. And yet Spotify will try and sell this as “artist-friendly,” shares musician and writer Damon Krukowski on his Substack.

"This is a real kick in the teeth for a lot of small and even mid-level artists. Specifically working and legacy artists with a substantial back catalogue who aren't household names will likely have multiple songs which in any given year earn nothing. The principle of my stuff earning money that's then distributed to people who have nothing to do with it or me just feels like a personal insult, so obviously I'm going to take virtually all of it down," says a musician on Reddit.

"It helps to crack down on fraud, and if it increases payouts to artists, I'm thinking that's positive, but the wording is rather vague, and it seems like they aren't quite all the way there yet. How this affects small indie artists seems a negative, though. Now and then, I get a read-out of how much my music is played, gosh, you'd think I'm in the Top Ten. Then, there's this paltry sum I see at the bottom of the letter after it's tallied up. To think that Spotify can make money off someone's music/ art, and not pay them if it's under 1,000 streams a year seems like another shaft towards the heart of the small indie artist. That's denying some artists royalties. And who is keeping track of the streaming? Would some artists be at the threshold and be denied? A lot more questions than I have remote answers for," says Timothy Cleve Abbott, singer and songwriter, in his email to Kill the DJ.

"I am an independent musician who uploads everything through Distrokid. I get maybe $17 a year from thousands of streams. Now if small local artists like me can’t even make the $20 back that it costs to upload your music… ugh. I just canceled my Spotify Premium subscription over this, and let them know that was the reason," shares another Redditor in a thread about Spotify's new royalty scheme.

"Most of my songs pass the 1,000 streams per year threshold, but I haven't seen any noticeable change yet. I'm not concerned with the pennies I might lose for those sub-1,000 stream tunes, but I am concerned that Spotify isn't being completely transparent with where that money is going and that this is another worrying trend of changes that are bad for independent artists. Podcasts, audiobooks, streaming thresholds... all features that seem designed to pay out less royalties to artists," says Matt Vultaggio, sound producer at Best Friends Club, in an email interview to Kill the DJ.  

See also: TikTok's impact on the music industry is huge, study reveals.