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Spotify's New Royalty Model: What Artists Need to Know

Expect royalty cuts to songs that failed to generate enough streams.

Photo credit: Agê Barros / Unsplash

Spotify, the world's most popular music streaming platform, is set to make significant changes to its royalty model in early 2024. These changes, as reported by Music Business Worldwide and Billboard, will have a direct impact on how artists are paid and could potentially shift money towards major labels and more popular artists.

While some of the proposed changes may be seen as necessary to combat fraudulent activity and ensure fair compensation, others have sparked controversy and concern among independent artists. In this article, we will explore the key changes to Spotify's royalty model, their potential implications for artists, and the industry's reactions to these developments.

Proposed Changes to Spotify's Royalty Model

1. Crackdown on Fraudulent Activity

Streaming fraud has plagued the music industry for years. Spotify plans to fine music distributors, including labels, for any fraudulent activity detected on their tracks. This crackdown on fraudulent practices is long overdue, as streaming fraud has been widespread and has unfairly inflated the streaming numbers of certain songs. By holding distributors accountable and imposing financial penalties, Spotify hopes to ensure a more transparent and fair system.

2. Minimum Play Time for Noise Tracks

Currently, any track that is played for more than 30 seconds starts earning royalties on Spotify. However, some artists and creators have taken advantage of this rule by dividing noise tracks, such as rain or static, into shorter segments to maximize their earnings.

To address this manipulation of the system, Spotify plans to increase the minimum length of play time required for noise tracks to start earning royalties. The specific duration of this new minimum has not been revealed yet, but it aims to prevent artists from gaming the system and ensure that royalties are distributed more fairly.

3. Minimum Threshold of Annual Streams

The most significant change in Spotify's royalty model is the introduction of a minimum threshold of annual streams before a track starts earning royalties. Under this proposed model, a track would need to earn at least 5 cents per month or approximately 200 streams per year to be eligible for payment. This means that tracks with fewer streams would not meet the minimum threshold and their earnings would be redirected to Spotify's "streamshare" pool.

While Spotify argues that this change is meant to address the issue of micropayments getting lost in the distribution pipeline, critics argue that it unfairly disadvantages independent artists and benefits larger, more popular artists.

Implications for Artists

Impact on Independent Artists

The introduction of a minimum threshold for earning royalties has raised concerns among independent artists, as many of their tracks may not reach the required stream count. This means that the pennies they would have earned from streaming their music will now be diverted to the streamshare pool, benefiting larger artists who already have a bigger share of the market. This shift in earnings could further widen the gap between independent and established artists, making it even more challenging for emerging musicians to sustain their careers solely through streaming revenue.

Redistribution of Royalties

With the implementation of the minimum threshold, Spotify aims to redistribute the earnings from low-play tracks to more popular artists. While this may increase the earnings of major labels and popular artists, it could potentially hinder the growth and development of emerging talent. Critics argue that this new system favors the top-tier artists and creates a less level playing field for independent creators, who rely on streaming revenue to support their music careers.

Impact on Non-Music Tracks

In addition to the changes affecting music tracks, Spotify's new royalty model also includes adjustments for non-music tracks, specifically white noise and ambient sounds. To generate royalties, these tracks will need to meet a minimum play-time length, which has not been specified yet. This change aims to ensure that non-music tracks are treated fairly and prevent abuse of the system. However, it remains to be seen how this will be implemented and how it will impact creators of non-music content.

Industry Reactions

The Argument for Spotify's Strategy

Spotify's rationale behind the proposed changes to its royalty model is that the current system results in micropayments being lost in the distribution pipeline and not reaching the artists themselves. By implementing a minimum threshold and redirecting earnings to the streamshare pool, Spotify aims to ensure that more money goes directly to artists who have a significant number of streams. The argument is that this will benefit the industry as a whole and allow for a more equitable distribution of revenue.

Criticism of Spotify's Approach

Critics of Spotify's strategy argue that the proposed changes will disproportionately impact independent artists and smaller labels. They see it as a "reverse Robin Hood" scenario, where earnings from smaller artists are redirected to benefit the already successful artists and major labels. This could potentially discourage emerging talent and hinder the diversity and creativity of the music industry. Some also point out the contradiction between Spotify's initial promise of a level playing field for all artists and the current shift towards favoring popular artists.

Spotify's planned changes to its royalty model have sparked both support and criticism within the music industry. While the crackdown on fraudulent activity and the adjustment of rules for noise tracks may be seen as necessary and fair, the introduction of a minimum threshold for earning royalties has raised concerns about the potential impact on independent artists.

As the most popular music streaming platform, Spotify's decisions will undoubtedly shape the future of the industry. It remains to be seen how these changes will be implemented and whether they will ultimately achieve the goal of a more equitable and sustainable music streaming ecosystem.